Exhibit 13
Mission Success
Our Commitment to achieve superior performance and total customer satisfaction
in every goal we set and every task we undertake
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Financial Highlights
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In millions, except per share data 1995 1994
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Net sales $22,853 $22,906
Earnings before cumulative 682(a) 1,055(b)
effect of change in accounting
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Net earnings 682(a) 1,018(b)(c)
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Earnings per common share, 3.05(a) 4.66(b)(c)
assuming full dilution
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Cash dividends per 1.34 1.14
common share
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Total assets 17,648 18,049
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Debt:
Current maturities 722 285
Long-term 3,010 3,594
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Shareholders' equity 6,433 6,086
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Negotiated backlog 41,125 42,232
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See notes 1,2,4, and 10 to the Consolidated Financial Statements.
(a) Earnings for 1995 include the effects of pretax charges totaling $690
million for merger related and consolidation expenses. These charges
reduced net earnings by $436 million, or $1.96 per common share.
(b) Earnings for 1994 include the favorable effects of two significant
nonrecurring transactions: a $118 million pretax gain from an initial
public offering of a portion of the common stock of a subsidiary and the
receipt of a $50 million acquisition termination fee. These nonrecurring
transactions increased net earnings by $70 million, or $.32 per common
share, and $30 million, or $.14 per common share, respectively.
(c) Effective January 1, 1994, the Corporation changed the method of accounting
for its ESOP. This change resulted in a cumulative effect adjustment which
reduced net earnings for 1994 by $37 million, or $.17 per common share.
Contents
To Our Shareholders 2
Vision Statement 7
Operating Companies 8
Operating Highlights
Aeronautics Sector 14
Electronics Sector 20
Energy & Environment 26
Sector
Information & 31
Technology Services
Sector
Space & Strategic 37
Missiles Sector
Financial Information 43
Corporate Directory 78
General Information 80
Dear Fellow Shareholders
A key measure of Lockheed Martin's mission success during 1995 was our record
for meeting major program milestones and commitments.
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By any measure, 1995 was an extraordinarily successful year. The ambitious
merger of Lockheed and Martin Marietta, which we embarked upon just one year
ago, has surpassed expectations on almost every front: We met or exceeded all
financial targets, achieved nearly 100 percent mission success, captured vital
new business and made tangible progress toward realizing significant cost
savings. In addition, we have expanded our opportunities by recently entering
into a strategic agreement to acquire Loral's defense electronics and systems
integration businesses. This outstanding record is attributable to Lockheed
Martin's 160,000 men and women whose commitment, performance and willingness to
lead and to change have set a new standard.
Financial Results
In 1995, Lockheed Martin's financial strength further improved; both cash flow
and income were better than expectations. Net earnings were $1.12 billion
(excluding $436 million in merger related and consolidation charges), an
increase of 17 percent over 1994 earnings (adjusted for non-operating items). On
the same basis, 1995 fully diluted earnings per share were $5.01, or 14.6
percent better than the previous year.
Significantly, Lockheed Martin's ongoing emphasis on strong cash management
paid off with $882 million in free cash flow during 1995, which we applied in
several ways to enhance shareholder value, including paying dividends, reducing
debt, internal growth, acquisitions and repurchasing 2.3 million shares of
common stock.
In our first year of operation, sales were steady at $22.85 billion versus
$22.90 billion for 1994. We ended the year with a healthy backlog of $41
billion.
This strong overall financial performance was clearly reflected in the
investment community's confidence in Lockheed Martin stock, which increased in
value by more than 78 percent during 1995. The total shareholder return for
1995, including dividend reinvestment, topped 81 percent, well above market
averages.
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Mission Success
"Mission Success" expresses Lockheed Martin's commitment to achieve superior
performance and total customer satisfaction in every goal we set and every task
we undertake. A key measure of Lockheed Martin's mission success during 1995 was
our record for meeting major program milestones and commitments. Just in terms
of strategic and tactical missile firings, space vehicle launches, satellites
delivered on orbit, aircraft first flights, and Space Shuttle missions -- which
totaled 215 during the year -- the men and women of Lockheed Martin achieved an
extraordinary 96 percent success rate. This outstanding performance was
reflected in excellent customer award fee ratings.
In our first year of operation, we also dealt with a few disappointments.
The first test flight of our new small launch vehicle was unsuccessful, and we
lost some competitions. We gained valuable insights for the future from these
experiences and redoubled our commitment to achieve 100 percent mission success
as we go forward.
Competitive Performance
In 1995, Lockheed Martin turned in an impressive record of new business awards.
Our win rate was over 60 percent of the number of major competitive bids pursued
and just under 60 percent of the dollar value bid. This is a record which far
surpasses industry averages. Capturing vital new business across the spectrum of
our products and services, for both government and commercial customers
worldwide, demonstrates Lockheed Martin's broad technological capabilities and
competitive strengths. Significantly, several major new business awards resulted
from synergies and system solutions realized from our merger.
The Operating Highlights portion of our report details Lockheed Martin's
numerous specific business achievements throughout the year. From a broad
strategic viewpoint, we:
.. Positioned our launch vehicle, satellite and space vehicle ground operations
businesses to provide customers with total system solutions, unmatched by
our competitors.
.. Reinforced our position in U.S. military aircraft and continued to expand
internationally.
.. Substantially strengthened our position in growing information systems
businesses, both government and commercial, with advanced technology
products and services.
.. Improved our competitive position in defense electronics businesses and
created market demand for next generation systems.
.. Maintained our role as the Department of Energy's single largest services
provider, while gaining greater presence in the environmental remediation
area.
.. Enhanced our international business base, which accounts for more than 15
percent of total sales, through synergies, strong in-country presence and
relationships with international partners.
Consolidation
On June 26, just three months after our merger and on our original schedule, we
announced a corporate-wide consolidation plan, which carries out Lockheed
Martin's commitment to maximize efficiencies, improve global competitiveness,
expand long-term employment prospects and enhance shareholder value. By year
end, we had met all key decision dates; all consolidation
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[PHOTO APPEARS HERE]
Daniel M. Tellep
Chairman
Norman R. Augustine
President and
Chief Executive Officer
activities are on or ahead of schedule; and we had made substantive progress
toward realizing the significant cost savings anticipated. In the first five
years of the plan, we expect to realize net savings of about $5 billion; when
fully implemented, by 1999, we expect to achieve annual savings of $1.8 billion.
By increasing economies of scale, capitalizing on corporate-wide synergies and
leveraging our added financial strength, consolidation will benefit
shareholders, customers and employees.
Management Succession
Toward the end of Lockheed Martin's first year of operation, we also implemented
the succession plan we set in place in the August 1994 agreement to merge. As
part of this transition, Dan Tellep retired as chief executive officer effective
January 1, 1996 and will continue throughout 1996 as chairman of the board. Norm
Augustine, previously president, is now president and chief executive officer
and will also serve as vice chairman of the board of directors. Vance Coffman
was elected to the new position of executive vice president and chief operating
officer, effective January 1, 1996. Vance was formerly president of the
Corporation's Space & Strategic Missiles Sector and is succeeded in that
position by Mel Brashears, previously executive vice president of Lockheed
Martin Missiles & Space. This orderly transition helps to ensure the continued
smooth evolution of our merger and strong management continuity in pursuing our
strategic goals.
Other key management changes during 1995 were the retirements of Lockheed
Martin executive vice presidents, A. Thomas Young and Vincent N. Marafino,
following long and distinguished careers during which they made valuable
contributions to our heritage Martin Marietta and Lockheed companies,
respectively. Vince will continue as a member of the Lockheed Martin board of
directors.
Strategic Combination with Loral
In January 1996, Lockheed Martin and Loral announced a strategic combination to
solidify our industry leadership position for the 21st century. When the
transaction is complete, Lockheed Martin's annual sales will approach $30
billion with a total backlog in excess of $50 billion, and we expect to generate
between $1.5 billion and $2.0 billion in free cash annually. The Loral
transaction is the "set piece" for our business portfolio, effectively balancing
Lockheed Martin's prodigious strengths in major platform systems with additional
capabilities in electronics, information systems and systems integration.
Under key terms of the agreement, Loral's defense electronics and systems
integration businesses are integrated with those of Lockheed Martin, which also
holds a 20 percent equity position in the newly formed Loral Space &
Communications, expected to become one of the two or three leaders in the fast-
growing space communications industry. A major benefit in the agreement is
continued participation of Loral's senior management in our new enterprise.
Loral chairman and chief executive officer, Bernard Schwartz, will serve as a
vice chairman of the Lockheed Martin board of directors, along with Norm
Augustine. Loral president and chief
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operating officer, Frank Lanza, will join Lockheed Martin's board of directors
and serve as an executive vice president and co-chief operating officer with
Vance Coffman. Frank also will serve as acting president of the new Tactical
Systems Sector, initially comprising the Loral businesses. This strong executive
team will help to ensure a smooth transition and should further enhance our
ability to deliver shareholder value in 1996 and beyond.
Looking Ahead
Lockheed Martin's plan for maximizing shareholder value includes ongoing cost
reductions, continuing margin expansion, strong positive cash flow and
opportunistic portfolio shaping. Major focus will be placed on debt reduction.
In 1995, we also announced broadly based executive stock ownership guidelines,
under which senior managers are expected over time to invest various multiples
of their compensation in Lockheed Martin stock. We believe this plan will
further incentivize management to continue pursuing shareholder value growth.
In carrying out the Lockheed Martin merger, we successfully integrated
several different cultures and today are operating as one fully integrated
company. A notable accomplishment is that, in less than a year, we have blended
two strong ethics programs into one which is among the strongest in any
industry. We also launched a comprehensive compliance program tailored to the
various operating environments of all our businesses. Lockheed Martin's success,
as always, will depend on our continued adherence to the highest standards of
ethical conduct at every level, which is our uncompromising pledge to our
colleagues, customers, shareholders, suppliers and the public.
Lockheed Martin is opening a new chapter in the future of our industry.
Success in our extremely competitive, diverse global business depends on the
intelligence, intensity and integrity with which we pursue our goals. We take on
this enormous challenge with enthusiasm and a sense of stewardship for the
future of our many heritage companies and the men and women who are committed
daily to mission success.
We also thank all of our shareholders for your continued support.
February 9, 1996
/s/ Daniel M. Tellep
Daniel M. Tellep
Chairman
/s/ Norman R. Augustine
Norman R. Augustine
President and Chief Executive Officer
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Vision Statement
Our vision is for Lockheed Martin
to be recognized as the world's premier
systems engineering and technology
enterprise. Our mission is to build on
our aerospace heritage to meet the needs
of our customers with high-quality
products and services. And, in so doing,
produce superior returns for our
shareholders and foster growth and
achievement for our employees.
Sector Operating Companies
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Aeronautics . Lockheed Martin . Lockheed Martin
Skunk Works Aeronautics International
[PHOTO APPEARS HERE] Palmdale, California Ontario, California
James A. Blackwell, Jr. . Lockheed Martin . Lockheed Martin
President and Chief Operating Officer Aircraft Center Logistics Management
Greenville, South Carolina Arlington, Texas
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Electronics . Lockheed Martin . Lockheed Martin
Armament Systems Control Systems
[PHOTO APPEARS HERE] Burlington, Vermont; Binghamton, New York;
Milan, Tennessee Fort Wayne, Indiana
Thomas A. Corcoran
President and Chief Operating Officer . Lockheed Martin . Lockheed Martin
Communications Systems Defense Systems
Camden, New Jersey Pittsfield, Massachusetts
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Energy . Lockheed Martin . Lockheed Martin
& Environment Energy Systems Idaho Technologies
Oak Ridge, Tennessee Idaho Falls, Idaho
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. Lockheed Martin . Sandia Corporation
Albert Narath Energy Research Corp. A Lockheed Martin Company
President and Chief Operating Officer Oak Ridge, Tennessee Albuquerque, New Mexico
. Innovative Ventures Corp.
Oak Ridge, Tennessee
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Information . Lockheed Martin IMS . Lockheed Martin
& Technology Teaneck, New Jersey Space Operations
Services Titusville, Florida
. Lockheed Martin
[PHOTO APPEARS HERE] Management & Data Systems . Lockheed Martin
Valley Forge, Pennsylvania; Enterprise Information
Peter B. Teets Reston, Virginia Systems
President and Chief Operating Officer Orlando, Florida
. Lockheed Martin
Manned Space Systems . Lockheed Martin
Michoud, Louisiana Information Systems
Orlando, Florida
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Space . Lockheed Martin . Lockheed Martin
& Strategic Missiles & Space Astronautics
Missiles Sunnyvale, California Denver, Colorado
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Vance D. Coffman*
*As of January 1, 1996, Vance Coffman assumed the new post of executive vice
president and chief operating officer. Melvin Brashears succeeded Mr. Coffman as
president and chief operating officer of the Space & Strategic Missiles Sector.
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.. Lockheed Martin . Lockheed Martin
Aeronautical Systems Aero & Naval Systems
Marietta, Georgia Baltimore, Maryland
.. Lockheed Martin
Tactical Aircraft Systems
Fort Worth, Texas
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.. Lockheed Martin . Lockheed Martin . Lockheed Martin
Electronics & Missiles Ocean, Radar & Advanced Technology
Orlando and Ocala, Florida; Sensor Systems Laboratories
Troy, Alabama Syracuse and Utica, Camden, New Jersey
New York
.. Lockheed Martin . Lockheed Martin Canada
Government Electronic . Sanders Kanata, Ontario, Canada
Systems Nashua, New Hampshire
Moorestown, New Jersey . AV Technology, LLC
Chesterfield, Michigan
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.. Lockheed Martin . Lockheed Martin . Lockheed Martin
Environmental Systems & Utility Services Specialty Components
Technologies Bethesda, Maryland Largo, Florida
Houston, Texas
. Technology Ventures Corp.
.. Lockheed Martin Albuquerque, New Mexico
Nevada Technologies, Inc.
Las Vegas, Nevada
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Lockheed Martin Lockheed Martin . Formtek . Lockheed Martin
Services Group Commercial Systems Group A Lockheed Martin Company Integrated Business Solutions
Pittsburgh, Pennsylvania; Orlando, Florida
.. KAPL . Access Graphics Palo Alto, California
A Lockheed Martin Company A Lockheed Martin Company . Real 3D
Niskayuna and West Milton, Boulder, Colorado . Lockheed Martin Orlando, Florida
New York; Commercial Electronics
Windsor, Connecticut . CalComp Hudson, New Hampshire
A Lockheed Martin Company
.. Lockheed Martin Anaheim, California . MountainGate
Services A Lockheed Martin Company
Cherry Hill, New Jersey; Reno, Nevada
Houston, Texas
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.. Lockheed Martin . Lockheed Martin
Astro Space Commercial Technical Operations
Sunnyvale, California Sunnyvale, California
Subsidiaries and Other Investments
.. Martin Marietta Materials, Inc.
.. Airport Group International, Inc.
.. Space Imaging, Inc.
.. Lockheed Martin Finance Corp.
.. M4 Environmental, L.P.
.. Oak Ridge, Tennessee
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From the depths of the Earth's oceans to the far reaches of space Lockheed
Martin products and services set the standard for industry leadership in
aircraft, energy and environmental remediation, missiles, electronics,
information systems, spacecraft and launch vehicles. Every day, our talented and
dedicated employees utilize innovative technologies and redefine what is
possible.
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Aeronautics Sector
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The F-22 is designed to dominate the air combat arena by integrating
stealth, supercruise and advanced avionics.
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In 1995, Lockheed Martin Aeronautics Sector successfully pursued a strategy that
sets the stage for continued profitability and enhanced competitiveness.
Aeronautics enters 1996 as a major force ready to grow its core lines of
military aircraft business as well as expand into related domestic and
international markets.
In an environment of declining defense budgets worldwide, the Aeronautics
Sector retains a leading competitive position in the military aircraft market
due to the breadth of its businesses, the capabilities of its products and the
success of its lean manufacturing initiatives. In addition, the Aeronautics
Sector has a strong international sales base with effective in-country presence
in key areas.
The U.S. Air Force F-22 is a high priority tactical aircraft program. It
completed a highly successful Critical Design Review in 1995. The F-22 team
began fabrication and assembly, and the first flight of the Engineering and
Manufacturing Development aircraft is expected in mid-1997. The F-22 is slated
to replace the aging F-15 in the air superiority role in the 21st century and
bring precision ground attack capability to the battlefield.
The F-22 is designed to dominate the air combat arena by integrating
stealth, supercruise and advanced avionics. It will operate freely in the
increasingly lethal surface-to-air and air-to-air missile environment, even when
outnumbered. The F-22 is the key to theater air defense strategy; it allows
allied forces to attack enemy ballistic and cruise missiles on the launcher or
during boost phase. The aircraft's impressive ground attack capabilities are
designed to provide a new level of versatility to future Joint Force Commanders.
Production of 442 aircraft is expected to begin in 1998.
Lockheed Martin is pursuing a range of tactical aircraft program
opportunities that include additional F-16 sales to international customers as
well as the U.S. Air Force, a series of F-16 derivatives, and development of
concepts for the future Joint Advanced Strike Technology (JAST) aircraft.
International sales of the F-16 fighter are a major factor in the
Aeronautics Sector's financial strength. At year end, Tactical Aircraft Systems
delivered the 3,500th F-16 and had a firm backlog of 414 F-16 orders worth about
$6 billion, including aircraft to be produced for Taiwan, Turkey, South Korea,
Greece and Singapore. Japan's FS-X, an F-16 derivative, successfully completed
its
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[PHOTO APPEARS HERE]
The F-22 is the next generation air superiority fighter. The F-22 cockpit
mockup, here, illustrates the sophistication of this 21st century aircraft.
[PHOTO APPEARS HERE]
Making its debut on October 18, 1995, the C-130J is attracting the attention of
U.S. and international military transport customers. The United Kingdom and
Australia have selected the J as their next generation airlifter.
[PHOTO APPEARS HERE]
first flight in October. Tactical Aircraft Systems is assisting the prime
contractor, Mitsubishi Heavy Industries, in development and production of the
FS-X aircraft. The Japanese government is expected to announce full production
of the FS-X in 1996.
Today's F-16 aircraft is the product of seven major upgrades, and the U.S.
Air Force is planning additional F-16 capability improvements as part of its
Fighter Configuration Plan. Congress took the first step toward meeting the
force sustainment need by including funds for six F-16s in the 1996 defense
budget. Lockheed Martin also proposed the F-16 program as a pilot plant project
for acquisition reform during 1995, estimating an additional 15 percent cost
savings for future F-16s by applying commercial practices to contracting and
production. Implementation could begin in 1996, pending government direction.
Lockheed Martin is competing to develop concepts for the next major fighter
program, JAST, a common, affordable joint strike fighter for the U.S. Air Force,
Navy, Marines and British Royal Navy. Lockheed Martin Tactical Aircraft Systems
is coordinating the Corporation's overall JAST effort, which applies technical
expertise from companies throughout the Aeronautics Sector.
In 1995, the Aeronautics Sector conducted propulsion and wind tunnel tests
with a large-scale model representing the short-takeoff and vertical-landing
version of its JAST aircraft concept. Lockheed Martin Skunk Works built the
model, accomplishing this phase of the competition on schedule and within
budget. In 1996, the government is scheduled to select two contractors to build
JAST demonstrator aircraft, with first flights expected before 1999.
In the military transport market, interest in the C-130J Hercules program is
increasing among international and U.S. government customers. The United Kingdom
and Australia have selected the C-130J as their next generation airlifter, and
numerous international air forces have requested pricing data on airlift, tanker
and airborne early warning variants of this versatile aircraft. To date,
Lockheed Martin has delivered more than 2,100 C-130s, and 64 countries fly the
C-130 Hercules aircraft for troop and equipment transport, humanitarian aid
missions and disaster relief.
The advanced C-130J utilizes fully integrated digital avionics and dual
mission computers; head-up displays for both pilots; a new, highly efficient
propulsion system; and all-composite, six-bladed propellers. The U.S. Air Force
executed a commercial-type contract for its initial buy of C-130Js. In concert
with Defense Department acquisition reform goals, the C-130J program was
designated a commercial off-the-shelf item and is a regulatory pilot program.
In 1995, we delivered eight P-3 aircraft to the Republic of Korea Navy, the
14th nation to select the P-3 for its maritime patrol requirements. We submitted
a P-3 Orion-2000 proposal to the United Kingdom's Replacement Maritime Patrol
program. The United Kingdom anticipates replacing its aging fleet of Nimrod
aircraft with up to 25 new maritime patrol airplanes. Lockheed Martin is
offering a modernized version of the P-3, incorporating new engines, a glass
cockpit and an advanced mission avionics system. In an example of the new
Corporation's synergy, the Aeronautics and Electronics Sectors are jointly
studying development of an advanced, low-cost airborne early warning and control
suite that could be used on either the C-130 or the P-3 as an adjunct to AWACS
for the international market.
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Lockheed Martin Skunk Works, a national asset since its inception during
World War II, is a world leader in advanced aircraft design and low-observable
technology. In 1995, the Skunk Works refurbished two SR-71A Blackbird
reconnaissance aircraft for the U.S. Air Force and unveiled DarkStar, a low-
observable, unpiloted air vehicle developed jointly with Boeing. DarkStar is
designed to provide near real-time, continuous, all-weather, wide-area
surveillance in support of tactical battlefield commanders.
The Skunk Works' technology leadership also extends to space. NASA selected
Lockheed Martin as one of three competitors for Phase I of the X-33 program, a
subscale version of a single-stage-to-orbit reusable launch vehicle. NASA is
expected to make a downselect this year and launch the first prototype in 1999.
As part of our corporate-wide consolidation plan, we restructured Lockheed
Martin Aircraft Services as a division within the Skunk Works. In 1995, Aircraft
Services delivered 18 heavily-modified special mission C-130s to the Air Force
and other customers. Modification work began on A-4M Skyhawk fighters for
Argentina, and Lockheed Argentina began operating the former government
modification facility at Cordoba. Lockheed Martin Aircraft Center, in
Greenville, South Carolina, will continue to pursue modification, maintenance
and contractor logistics support programs. The newly created Aeronautics
International is developing a strategy to market and manage offshore
modification and maintenance companies, as well as selected joint ventures.
In 1995, Lockheed Martin was at the forefront of the depot privatization
initiative. Led by Lockheed Martin Logistics Management, a 34-member team was
formed to examine the business potential of privatization. Initial efforts have
focused on the Air Logistics Centers at Kelly Air Force Base in San Antonio and
McClellan Air Force Base in Sacramento. Lockheed Martin's efforts are expected
to position the Corporation to win new business opportunities as the Air Force
institutes pilot programs for these depots.
Aeronautics Sector's Aero & Naval Systems production of General Electric CF6
thrust reversers remained strong in 1995 with production deliveries exceeding
plans. The CF6 overhaul and repair business doubled in 1995 and is expected to
grow in 1996 due to nacelle work for U.S. Air Force KC-10 aircraft and four new
airline customers. The improved quality and efficiency of composite thrust
reversers produced for Pratt & Whitney 4168 engines has resulted in an excellent
flight service record.
Aero & Naval's MK-41 Vertical Launching System continues to exceed
production schedules and meet mission success goals, including 13 combat firings
in support of NATO peacekeeping. The Turkish Navy has become the first customer
to buy the new shortened tactical version of the MK-41, opening a new market for
smaller classes of ships around the world.
The Aeronautics Sector is implementing a thorough, long-range strategy to
remain the leader in its lines of business, as well as to grow in a declining
industry. Continued emphasis on technological innovation, international sales
and a lean, effective organization is expected to yield continued success in the
marketplace and contribute to shareholder value well into the next century.
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Electronics Sector
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The Electronics Sector's growth strategy focuses on preserving its traditional
business base, while expanding its global defense electronics and related
commercial businesses.
[PHOTO APPEARS HERE]
Lockheed Martin Electronics Sector moved aggressively in 1995 to capture several
new contracts amid intensifying competition in the global defense electronics
marketplace. A strong win rate and outstanding program performance reflected
Electronics' dedication to be a growing market-driven, global business. The
organization made strides toward its vision of an enterprise in which "the whole
is greater than the sum of its parts" by leveraging across its business units
its strengths in terms of market position, ability to reduce costs, employee
skills and best practices.
Indicative of effective Lockheed Martin synergy is the U.S. Army's selection
of Lockheed Martin for the project definition/validation phase of the multi-
billion dollar Corps SAM/MEADS air defense program. The Lockheed Martin team,
led by Electronics & Missiles, includes six Lockheed Martin companies and
laboratory operations. An international program to provide ground forces with an
effective defense against tactical ballistic and cruise missiles and other
threats, the Corps SAM/MEADS team also includes three European partners.
Another example of synergy benefits is the contract award to Lockheed Martin
Control Systems for the avionics systems' central computer on the C-17
Globemaster III aircraft. Sanders is a major subcontractor to Control Systems,
providing the central processing unit.
Other major competitive wins in 1995 added to Electronics' portfolio of
business. Electronics & Missiles, on a team led by Westland Helicopter of
Yeovil, England, is to provide fire control, missile, night vision and targeting
systems for 67 Apache helicopters for the British Army. The potential business
from this program is estimated at more than $1 billion. Thirty Apaches ordered
by the Netherlands will be equipped with Target Acquisition Designation
Sight/Pilot Night Vision Sensor (TADS/PNVS) systems which allow pilots to fly at
low altitudes in total darkness or under poor weather conditions. The Royal
Netherlands Air Force also placed orders for Hellfire II antiarmor missiles,
produced jointly by Lockheed Martin and Rockwell International.
The Netherlands TADS/PNVS units will be the first configured for possible
integration with the Longbow millimeter wave radar fire control and missile
systems. The Sector's commitment to mission success was aptly demonstrated by
successful test flights of both Hellfire and its upgraded derivative, Longbow.
Low-rate initial production of Longbow antiarmor missiles is expected to start
in 1996.
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Sanders solidified its position among industry leaders in electronics
countermeasures systems with several key wins, including its selection to
produce the Advanced Threat Infrared Countermeasures system, the next-generation
laser-based system to protect aircraft from heat-seeking missiles and provide a
common missile warning system for U.S. Army, Navy and Air Force aircraft. The
long-term potential of these programs is more than $1 billion.
Additionally, Sanders was selected to produce the Integrated Defensive
Electronic Countermeasures (IDECM) radio frequency subsystem that is to provide
increased survivability against advanced missile threats for U.S. Navy and Air
Force aircraft. The production program for IDECM could total more than $1
billion.
Lockheed Martin Government Electronic Systems is a leader in developing
multifunction, phased-array radars for the U.S. Navy, the Electronics Sector's
single largest customer. In 1995, the Navy selected Government Electronic
Systems to continue upgrades to the capabilities and performance of its AEGIS
combat system. These efforts, which include modification to the phased-array
radar, are part of a contract valued at $577 million through the end of the
decade, and may lead to similar improvements to AEGIS equipped ships of the
Japanese Maritime Self Defense Force. In addition, Government Electronic Systems
received contracts in 1995 worth more than $400 million for AEGIS equipment,
production and life cycle support.
In another important Navy program, Lockheed Martin Ocean, Radar & Sensor
Systems produced on cost and delivered on schedule in 1995 the first BSY-2
combat system for the Seawolf submarine. The Navy has characterized initial
performance of the system as outstanding.
The Electronics Sector continued to demonstrate its competitiveness in
international defense and commercial electronics business segments with other
significant achievements. The Taiwan Air Force selected Sanders to build
computer-based mission planning systems for that country's F-16 fighters. Ocean,
Radar & Sensor Systems will provide long-range radar systems to the Romanian
government for that nation's airspace management system and, in a major advance
into an adjacent market, was selected to provide a marine traffic management
system for Ras Tanura, a large Saudi Arabian port on the Arabian Gulf. Other
traffic management wins included strategically significant contracts for the
Straits of Gibraltar and in Singapore.
In other major developments, Lockheed Martin Ordnance Systems won a contract
to produce the HYDRA-70 rocket system for the U.S. Army. The most widely used
helicopter weapon in the world today, the HYDRA-70 is a multi-purpose rocket
system used by all branches of the U.S. military. Also, the U.S. Marine Corps
executed a contract with Lockheed Martin Armament Systems to produce 17 Light
Armored Vehicle - Air Defense (LAV-AD) systems. The LAV-AD system, which
protects Marine forces against air attack, utilizes a Blazer air defense turret
on a light armored vehicle chassis. The Blazer turret is equipped with a 25mm
Gatling gun and a pair of Stinger missile launchers.
The U.S. Air Force selected Electronics & Missiles to develop and
demonstrate the Wind-Corrected Munitions Dispenser, positioning Lockheed Martin
to compete for a contract potentially worth several billion dollars. The Wind-
Corrected Munitions Dispenser is designed to provide all-weather autonomous
guidance for air-to-ground tactical munitions
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[PHOTO APPEARS HERE]
Integrated Defenses Electronic Countermeasures (IDECM) system consists of a
variety of components that together improve the survivability of aircraft. The
Fiber Optic Towed Decoy, here, is used to confuse enemy missiles.
dispensers for fighter and bomber aircraft. The U.S. Navy chose the Low Altitude
Navigation & Targeting Infrared for Night system (LANTIRN) for the F-14 Tomcat
as part of the service's Precision Strike Program. Electronics & Missiles also
won its third contract under the Joint Advanced Strike Technology (JAST)
program, a U.S. Navy/Air Force initiative to develop advanced technologies for a
family of fighter aircraft in the next century.
Lockheed Martin Defense Systems won a contract to perform transmission
design work for the Crusader program, the U.S. Army's advanced field artillery
system. Lockheed Martin Communications Systems won new business in the
electronic key management systems area and was chosen to develop the next-
generation digital secure terminal equipment (STE), which is designed to provide
secure digital communications capability to military and civil government
agencies into the next century. Lockheed Martin Canada leads a team that won the
Canadian Army Electronic Warfare Control & Analysis Centre, the first in the
Army's series of tactical information management programs.
Electronics invested in three new operations to strengthen and expand
business opportunities. Lockheed Martin acquired from GE Aircraft Engines its
engine controls manufacturing and service business in Fort Wayne, Indiana.
Combining the Fort Wayne operation with Lockheed Martin Control Systems in
Binghamton, New York, creates a world-class organization specializing in design,
development, production and service of advanced electronic engine controls, as
well as a wide range of controls for other aircraft and industrial applications.
Defense Systems formed AV Technology, LLC, which will supply turret systems and
light armored combat vehicles to the global defense marketplace. Lockheed Martin
has taken an 80 percent interest in the new company. Ocean, Radar & Sensor
Systems continued to diversify beyond traditional product offerings with the
purchase of ERAAM, a French firm specializing in the design and development of
state-of-the-art safety and traffic management systems.
In 1995, Electronics also initiated consolidation plans to reduce costs and
strengthen competitiveness. Those actions, which will eliminate 2.1 million
square feet of excess capacity and reduce employment by roughly nine percent,
are expected to be completed in 1996. Electronics also is leading a corporate-
wide effort to leverage the combined volume of procurement requirements of
heritage Lockheed and Martin Marietta, an initiative that is expected to
generate more than $50 million in annual savings on the purchase of direct
commodities. These plans fulfill the Electronics Sector's commitment to
customers to aggressively leverage the strengths of the new Lockheed Martin to
lower costs and improve efficiency.
23
[PHOTO APPEARS HERE]
The AEGIS shipboard combat system is capable of simultaneously engaging threats
from the air, the surface and under the sea. Developed for the U.S. Navy, AEGIS
also is deployed by the Japanese Maritime Self Defense Force.
[PHOTO APPEARS HERE]
- ---------------------------
Energy & Environment Sector
- ---------------------------
An important achievement in 1995 was winning the performance-based contract to
provide support services for the Department of Energy's Nevada Test Site.
[PHOTO APPEARS HERE]
One of Lockheed Martin's early decisions in 1995 was to establish a fifth sector
- -- Energy & Environment -- to strengthen its role in managing and operating
Department of Energy facilities. Establishment of the new sector also signals
the Corporation's intent, directly and through ventures with other corporations,
to gain a large presence in the domestic and international environmental
remediation business.
The Energy & Environment Sector's overall strategy is to apply its
technology skills to manage Department of Energy facilities and leverage that
experience to create new business opportunities. For example, the Energy &
Environment Sector is positioned to pursue Department of Energy privatization
initiatives that, in turn, lead to other privatization and military base
environmental remediation opportunities in the United States and abroad.
An important achievement in 1995 was winning the performance-based contract
to provide support services for the Department of Energy's Nevada Test Site.
Lockheed Martin, as an integrated subcontractor to Bechtel National, Inc., will
manage the testing, counterproliferation and technology base of the Nevada Test
Site, beginning in 1996. We established a new operating unit in the Energy &
Environment Sector, Lockheed Martin Nevada Technologies, Inc., for the effort.
Lockheed Martin Energy Systems signed a two-year extension to manage and
operate the Department of Energy's Oak Ridge facilities and the environmental
management programs at the Portsmouth, Ohio, and Paducah, Kentucky, facilities.
This extension continues our management of these facilities through March 31,
1998, with an estimated Department of Energy budget of $3.5 billion. In
December, the Department of Energy and Lockheed Martin agreed to operate the Oak
Ridge National Laboratory, a major national science center, under a separate
contract, which will be performed by a new operating unit in the Energy &
Environment Sector, Lockheed Martin Energy Research Corporation.
26
[PHOTO APPEARS HERE]
Sandia National Laboratories, managed by Lockheed Martin for the Department of
Energy, is at the forefront of robotic vehicle design. Robots, like the Ratler,
may explore the moon and planets.
[PHOTO APPEARS HERE]
In 1995, the Department of Energy approved the resumption of nuclear
materials receipt, storage and shipment operations at Oak Ridge's Y-12 plant.
This was the culmination of a comprehensive review and revamping of operations
and procedures by the government and Lockheed Martin over the past year. The
assessment involved critical surveys of every aspect of operations in the
program as the nation's nuclear materials stewardship transitions from the Cold
War.
Lockheed Martin's Energy & Environment Sector also manages the Idaho
National Engineering Laboratory and Sandia National Laboratories, both of which
are in the forefront of military and civil research, as well as technology
development for possible transfer to the private sector.
In 1995, Sandia offered a revolutionary automobile airbag design -- the
result of a business-government partnership that permits Department of Energy
laboratories to commercialize certain technologies. Currently, the Idaho
National Engineering Laboratory is working on a neutron cancer treatment
program. Lockheed Martin Specialty Components is the management and operating
contractor for the Department of Energy's Pinellas Plant. For more than 40
years, the plant's Energy Department mission was to manufacture components for
nuclear weapons. The defense production mission was successfully completed, and
the mission now is environmental management and restoration of the facility.
Concurrently, Specialty Components is using the facility, technology,
equipment and personnel, once used solely for defense activities, to develop a
commercial business.
Specialty Components' service centers, developed around core technologies,
offer extensive laboratory and technical consulting to local businesses.
Technology transfer funding and other grant programs provided by the Department
of Energy have enabled many local, small businesses to take advantage of the
plant's resources for product design and/or manufacturing.
As the single largest provider of services to the Department of Energy,
Lockheed Martin is focused on maintaining high quality operations, providing
rapid response when corrective actions are needed and carrying out the
laboratories' challenging missions.
This year, the Energy & Environment Sector is expected to implement the
"system of laboratories'' concept among the three national laboratories operated
by Lockheed Martin. The concept is designed to enhance the interchange of
information and skills among sites and across
The Rimfire high voltage switch, shown left, controls more than 5 million volts
for the Particle Beam Fusion Accelerator (PBFA) II at Sandia National
Laboratories. PBFA is made up of 36 modules, each producing a powerful pulse of
energy. Rimfire switches synchronize those pulses to within 10 billionths of a
second.
29
programs. Our strategy is to implement the best management practices across all
Lockheed Martin-managed facilities to reduce operating costs and improve their
efficiency. We are examining ways to improve such functions as procurement,
finance, training and construction, and will submit recommendations to the
Secretary of Energy this year. We also are confident that this approach will
yield significant new business opportunities in the public and private sectors.
Last year, Lockheed Martin Utility Services was awarded a three-year
extension, through September 30, 1998, with an option for an additional two
years under its existing contract, to maintain the Portsmouth and Paducah
uranium enrichment facilities for the U.S. Enrichment Corporation. Under the
extension, Lockheed Martin and the U.S. Enrichment Corporation will manage an
operating budget in excess of $1 billion.
Lockheed Martin and Molten Metal Technology, Inc. have entered into
agreements intended to strengthen their environmental services business. Under
these agreements, which are subject to certain conditions, including regulatory
approvals, Lockheed Martin Environmental Systems & Technologies will sell its
Retech environmental division to M4 Environmental L.P., a limited partnership
jointly-owned by Lockheed Martin and Molten Metal Technology. Retech designs and
manufactures plasma furnaces for the metallurgical and remediation markets. M4
Environmental was created in 1994 to supply Molten Metal Technology's waste
recycling technology to Department of Defense and Department of Energy
customers.
This year, the Energy & Environment Sector is expected to implement the "system
of laboratories" concept among the three national laboratories operated by
Lockheed Martin.
30
- ----------------------------------------
Information & Technology Services Sector
- ----------------------------------------
Lockheed Martin is penetrating the federal civil market, supporting a number of
government agencies as they update their information systems.
[PHOTO APPEARS HERE]
Lockheed Martin Information & Technology Services Sector provides systems
design, development, integration and operations for federal, state and municipal
governments, as well as information systems and products to commercial
customers. In 1995, the Information & Technology Services Sector continued an
outstanding competitive win rate by providing cost-effective flexible, full-
service solutions for complex customer problems.
The Lockheed Martin IMS experience in providing solutions to state and
municipal government agencies served the Corporation well in 1995. Lockheed
Martin, supporting Citibank, won contracts in eleven states in the emerging
Electronic Benefit Transfer business. Under these contracts, state and federal
benefits, including food stamps, Aid to Families with Dependent Children and
other assistance programs will be converted from traditional paper based systems
to a debit card system, enhancing benefit distribution and reducing fraud.
IMS is implementing Child Support Enforcement Systems in several states,
including California, Pennsylvania and Massachusetts. These systems facilitate
implementation of court orders, greatly increasing collection of child support
payments. In 1995, IMS won additional programs in Florida and Hawaii.
An industry leader in transportation systems and services, IMS is positioned
to capture new business as the majority of U.S. toll roads convert to electronic
toll collection by the year 2000. In addition, in 1995 IMS began providing a
weigh station bypass service in California called PrePass. Through PrePass,
truck operators save time and money by having their credentials verified and
weight checked electronically, without having to stop at weigh stations.
Lockheed Martin Services Group is penetrating the federal civil market,
supporting a number of government agencies as they update their information
systems. The Services Group is currently under contract to modernize the
information systems of the Social Security Administration (SSA). Development of
a paperless processing pilot at the SSA Great Lakes Processing Center was deemed
so exemplary that the President's National Performance Review Committee selected
the SSA/Lockheed Martin team to receive a Hammer Award for leadership in
reinventing government.
31
[PHOTO APPEARS HERE]
Lockheed Martin Information Systems is developing an Automated Fingerprint
Identification Segment (AFIS) for the FBI that will provide 24-hour turn-around
on requests that now take months to process.
[PHOTO APPEARS HERE]
Motorists using the Verrazano-Narrows Bridge in New York City can save time and
avoid lines by using the E-ZPass electronic toll collection service provided by
Lockheed Martin IMS.
The Services Group also operates information systems for the Environmental
Protection Agency, including the National Environmental Supercomputing Center,
where advanced scientific visualization techniques are used to model the
movement of pollutants through the air and water and to assess the effectiveness
of possible control mechanisms. Services Group during 1995 enjoyed competitive
wins with the U.S. Department of Treasury, the General Services Administration
and the U.S. Patent and Trademark Office. During 1995, Lockheed Martin
Information Systems was under contract with the FBI to demonstrate key elements
of the future Automated Fingerprint Identification Segment (AFIS). When
operational, AFIS will be able to match, within minutes, a high priority set of
ten fingerprints against a data base of 400 million fingerprints -- a
significant improvement over today's search process.
Lockheed Martin Information Systems enhanced its position in the simulation
and training business during 1995 by winning the U.S. Army's Advanced
Distributed Simulation Technology II program and a simulation and training
support contract for the U.S. Air Force 58th Special Operations Wing. These
simulation products are designed to assist our armed forces in improving weapons
systems, analyzing resource allocations, and training and evaluating personnel
in realistic simulated combat environments.
Building on its heritage in military simulation systems, Information Systems
launched a commercial product line of three dimensional computer graphics. This
state-of-the-art Real 3D(TM) product line includes arcade graphics boards
developed for Sega Enterprises, graphics engines for commercial training and
chip sets for the personal computer market, and real time software applications.
The Information & Technology Services Sector is on the cutting edge of
rapidly evolving distributed client-server computing. Numerous customers have
contracted with the Sector to help re-engineer their business processes and
introduce this advanced technology. Lockheed Martin Management & Data Systems
(M&DS) has developed a system that entails nearly three million lines of code
and a 300 gigabyte operational database to support 80 worldwide user sites.
Enterprise Information Systems employs client-server technology to develop
Lockheed Martin internal information systems, providing efficiencies to the
operating companies and honing the skills of our development cadres for external
applications. MountainGate designs, develops and sells commercially a wide
variety of modern, cost-effective information storage subsystems that can be
integral components of such information systems. Formtek develops and sells
commercially enterprise software that permits integration of existing
applications and databases into modern enterprise systems. Access Graphics sells
and supports UNIX-based computing solutions from corporations such as Sun
Microsystems and Silicon Graphics.
Highlighting a successful year in providing commercial information
technology products and services, Lockheed Martin Integrated Business Solutions
solidified its role as the technology partner of choice for outsourcing by
signing a contract with Melville Corporation, a leading retail conglomerate
including such well-known chains as Thom McAn, Foot Action and Kay Bee Toys.
Integrated Business Solutions will consolidate and modernize Melville's existing
information systems operations to provide better service at lower costs.
Photo Right:
NASA has selected United Space Alliance, a joint venture between Lockheed Martin
and Rockwell International, to negotiate a sole-source contract that will
consolidate the Space Shuttle Program under a single prime contractor.
34
[PHOTO APPEARS HERE]
CalComp, a Lockheed Martin company, had a successful year in 1995 focusing
on Graphics Arts applications, including color inkjet printing and a 4 x 5-inch
input tablet, and restructured its global distribution channels. Lockheed Martin
Commercial Electronics continued its outstanding record of high quality
electronic manufacturing services for its diverse set of customers in the
computer and telecommunications industries.
Underlying the Sector's growth businesses is a solid core of NASA programs.
The Corporation's effort to achieve 100 percent mission success has been a key
to sustaining our role with this important customer. In 1995, that commitment to
mission success was demonstrated by seven successful Space Shuttle launches,
including two historic linkups with the Russian Mir space station. Lockheed
Martin Space Operations performs all ground processing operations from Shuttle
landing through launch, as well as solid rocket booster retrieval and launch
facility maintenance.
NASA has announced its intention to negotiate on a sole-source basis a
contract for its Space Flight Operations with the United Space Alliance (USA), a
joint venture between Lockheed Martin and Rockwell International. USA was formed
to provide NASA and its Space Shuttle program reduced costs through streamlined
operations while maintaining dedication to safety and mission success.
Lockheed Martin Manned Space Systems continues to develop the Super Light
Weight Tank (SLWT) for the Space Shuttle's scheduled December 1997 launch.
Employing a new Lockheed Martin-developed aluminum-lithium alloy, which is both
lighter and significantly stronger than the aluminum currently in use, SLWT will
increase the Shuttle's payload capacity by 34 percent for the orbit needed to
support the International Space Station program.
In addition, Services Group provides a wide range of support to NASA,
including development, integration and operation of life sciences experiments at
Johnson Space Center and Ames Research Center, satellite control at Goddard
Space Flight Center and research and technology support at Langley Research
Center.
Products and services provided to the Department of Defense are broad and
diverse. In 1995, the Sector also won the U.S. Army Global Command and Control
System contract to integrate three existing systems and link the Army with the
Joint Staff; won the U.S. Air Force Network Support Program for tracking
military satellites; contracted for continued production of the U.S. Navy's
Consolidated Automated Support System for avionics test equipment; and signed an
extension to our contract supporting the U.S. Navy nuclear-powered fleet at the
Knolls Atomic Power Laboratory.
These important awards augment a substantial business portfolio providing
for design, development, training, operation and maintenance of complex
information systems for the Defense Department. As modernization and
privatization continue, Defense Department sales are expected to be stable.
36
- ---------------------------------
Space & Strategic Missiles Sector
- ---------------------------------
Our commitment to mission success was demonstrated in 1995 with the successful
launches of four national security payloads aboard Titan IV vehicles, 12 Atlas
launches and seven Lockheed Martin-built satellites placed into orbit.
[PHOTO APPEARS HERE]
The Space & Strategic Missiles Sector took actions last year that should
position Lockheed Martin to remain the world's space systems leader well into
the 21st century. To this end, in 1995, Lockheed Martin announced a strategic
investment in its family of launch vehicles, expanded its presence in the
telecommunications services market, and consolidated its commercial satellite
production.
A key element of the Corporation's $300 million Launch Vehicle Leadership
strategy is to develop a re-engined single-stage Atlas booster with a single-
engine cryogenic Centaur upper stage. The new Atlas IIAR is designed for greater
reliability and cost effectiveness due principally to simplifying and reducing
the number of propulsion systems. The first Atlas IIAR should be launched in
late 1998.
The Atlas IIAR is the building block of Lockheed Martin's plan for common
hardware. The use of common boosters, Centaur upper stages, common adapters,
avionics and engines simplifies manufacturing and reduces launch costs. The
Atlas IIAR also effectively positions Lockheed Martin to compete for the U.S.
Air Force's Evolved Expendable Launch Vehicle (EELV). In 1995, Lockheed Martin
Astronautics was one of four companies selected to develop EELV designs. Another
element of our launch vehicle strategy is an improved Titan IV/B with a Solid
Rocket Motor Upgrade that is expected to increase the Titan's lift capability
significantly.
As part of Lockheed Martin's strategy to serve the broadest range of launch
vehicle customers, we formed ILS International Launch Services in 1995 -- a
joint venture with Russia's Khrunichev State Research and Production Space
Center and RSC Energia -- to market the Atlas and Proton rockets to commercial
customers worldwide. The combined capabilities of Titan, Atlas, Proton and
Lockheed Martin Launch Vehicle will offer customers services across the orbit
and payload spectrum, making Lockheed Martin a powerful competitor in the global
launch services business. In 1995, the Corporation progressed on its strategy
to realize near-term cost savings by consolidating launch vehicle production and
operations in Denver.
Lockheed Martin's continued commitment to mission success was well
demonstrated in 1995 with the successful launches of four national security
payloads aboard Titan IV vehicles, 12 successful Atlas launches and seven
Lockheed Martin-built satellites successfully placed into orbit.
37
[PHOTO APPEARS HERE]
[PHOTO APPEARS HERE]
Lockheed Martin is a premier designer and producer of environmental monitoring
satellites such as TIROS, here. Today, TIROS weather satellites meet the data
requirements of 140 nations.
The Space & Strategic Missiles Sector in 1995 laid the groundwork for a
global telecommunications business with plans to build, launch and operate a
satellite system, called Astrolink.(TM) This project reflects the Corporation's
commitment to the commercial space business and should expand our role in the
growing telecommunications services industry. Lockheed Martin expects to proceed
with the project after obtaining regulatory approval, strategic alliance
commitments and external investment.
Lockheed Martin's Astro Space Commercial will build on a rich heritage of
commercial satellite design and production. A new world-class facility in
Sunnyvale, California, should accelerate production cycle times and reduce
costs. Our initial commercial goals call for making the new factory operational
in early 1997 and capable of meeting an 18-month delivery cycle, with capacity
for producing eight satellites annually. We expect productivity improvements
eventually will increase the annual throughput to 16 spacecraft.
Indicative of Lockheed Martin's commitment to provide customers with total
system solutions is the Asia Cellular Satellite System (ACeS). With this key win
in 1995, Lockheed Martin will provide a full turnkey operation -- the first
regional wireless mobile system of its kind -- with two A2100 spacecraft, the
Corporation's most advanced global communications satellite. In addition, under
the $650 million contract, Lockheed Martin is to provide full ground
architecture, as well as overall systems engineering and integration, and launch
services.
When complete in 1998, ACeS will offer voice, facsimile and pager services
to hand-held mobile and fixed telephone users in Southeast Asia. ACeS is an
important international win for Lockheed Martin in a burgeoning communications
industry. The ACeS consortium includes PT. Pasifik Satelit Nusantara of
Indonesia, Philippine Long Distance Telephone Company and Jasmine International
PLC of Thailand.
Another major international win in 1995 was the ChinaStar-1 satellite
program for China Orient Telecomm Satellite Co. Ltd. of Beijing. ChinaStar-1
will be an A2100 spacecraft to provide service in Ku and C frequency bands for
voice, data and television services to the People's Republic of China.
In 1995, the U.S. Air Force selected Lockheed Martin Missiles & Space to
build the fifth and sixth Milstar satellites, an award valued at $1.3 billion.
Milstar, a cornerstone of America's defense preparedness, provides rapid,
secure, multi-service military communications to tactical and strategic users
anywhere in the world. Milstar, which functions as a secure switchboard in
space, provides U.S. military forces with capabilities not available through
current satellites, including immunity to jamming and interception.
In addition, Lockheed Martin is now producing second generation satellites
for the Global Positioning System (GPS), which provides highly accurate position
location to military and civilian users worldwide. The first of 21 satellites
for the GPS IIR program is scheduled for delivery in 1996.
40
NASA last year chose Lockheed Martin Astronautics to provide the lander and
orbiting spacecraft for the Mars Surveyor Program, which will study the martian
atmosphere and soil as well as search for water on the red planet. Late in the
year, NASA also selected Astronautics to build the Stardust spacecraft for its
Discovery Program. Stardust will collect interstellar material and dust from a
comet and return them to Earth for laboratory studies. In addition, we remain a
principal subcontractor on the International Space Station with work valued at
$1.3 billion.
Lockheed Martin Technical Operations continued its record of mission success
in engineering and technical services for the Department of Defense, NASA and
other government and private sector customers, and has consistently received
award fees in the "excellent" category. Among the 50 orbiting satellites
controlled from Lockheed Martin Technical Operations is Hubble Space Telescope,
which is providing some of the most startling images of the universe, including
stellar formation. Missiles & Space also provides NASA with a wide range of
Hubble-related service and support functions, including preparation and
execution of servicing missions, as well as telescope operations support at
Goddard Space Flight Center.
Another dynamic element of Space & Strategic Missiles Sector's business is
ballistic missile development and production. In 1995, 14 Trident fleet
ballistic missiles were successfully launched as part of the Navy's 1995
operational test flight program. Missiles & Space has produced six generations
of submarine-launched strategic missiles for the U.S. Navy's Fleet Ballistic
Missile program.
The Sector also completed four demonstration/validation flights of the
Theater High Altitude Area Defense (THAAD), the first weapon system designed
specifically to defend against theater ballistic missiles. As prime contractor
for THAAD, Lockheed Martin is working under a four-year, $745 million contract
awarded in 1992 by the U.S. Army.
The complementary capabilities inherent in the Lockheed Martin merger are
evident in the products and services of the Space & Strategic Missiles Sector,
which is solidifying its position as a leader in satellite construction and
launch services. As demands for high-speed global communications and remote
sensing rise, Lockheed Martin is well poised to grow its commercial and
international space business.
The complementary capabilities inherent in the Lockheed Martin merger are
evident in the products and services of the Space & Strategic Missiles Sector.
41
[PHOTO APPEARS HERE]
The second Titan IV launch of a Department of Defense Milstar satellite on
November 7 demonstrates the unique synergy of capabilities inherent in Lockheed
Martin, which built the launch vehicle, its Centaur upper stage and the
satellite, and integrated the stack before launch.
Financial Information
- --------------------------------------------------------------------------------
44 Management's Discussion and
Analysis of Financial Condition
and Results of Operations
57 The Corporation's Responsibility
for Financial Reporting
57 Report of Ernst & Young LLP,
Independent Auditors
58 Consolidated Statement
of Earnings
59 Consolidated Statement
of Cash Flows
60 Consolidated Balance Sheet
61 Consolidated Statement
of Stockholders' Equity
62 Notes to Consolidated
Financial Statements
77 Six Year Summary
43
Management's Discussion and Analysis of Financial
Condition and Results of Operations
- --------------------------------------------------------------------------------
On March 15, 1995, following the approval of the stockholders of each
corporation, Lockheed Corporation (Lockheed) and Martin Marietta Corporation
(Martin Marietta) consummated a transaction (the Business Combination) pursuant
to which Lockheed and Martin Marietta became wholly-owned subsidiaries of a
newly created holding corporation, Lockheed Martin Corporation (Lockheed Martin
or the Corporation). The Business Combination qualified for the pooling of
interests method of accounting (see Note 2). Subsequent to the Business
Combination, Lockheed, Martin Marietta and certain other subsidiaries were
merged with and into the Corporation. The discussion which follows reflects the
combined financial condition and results of operations of Lockheed Martin, and
should be read in conjunction with the audited consolidated financial statements
included herein.
Recent Developments
On January 7, 1996, the Corporation entered into an Agreement and Plan of Merger
(the Merger Agreement) with Loral Corporation (Loral) for a series of
interrelated transactions with a total estimated value of approximately $9.4
billion. Loral is a leading supplier of advanced electronic systems, components
and services to U.S. and foreign governments for defense and non-defense
purposes. Under the terms of the Merger Agreement, the Corporation intends to
acquire the defense electronics and systems integration businesses and certain
other businesses of Loral for approximately $9.1 billion, including $2.1 billion
of assumed debt. Of the total, approximately $7 billion will be paid directly to
Loral shareholders by the Corporation through a tender offer for all outstanding
shares of Loral common stock for $38.00 per share in cash. Following the
consummation of the tender offer, Loral will distribute, for each share of Loral
common stock previously held, one share of common stock of a newly-formed
company, Loral Space & Communications, Ltd. (Loral Space), which will own
substantially all of the space and satellite telecommunications interests of
Loral. Finally, the Corporation will invest $344 million in Loral Space for the
acquisition of shares of preferred stock that are convertible into 20 percent of
Loral Space's common stock on a fully diluted basis. The Corporation's offer is
contingent, among other things, on the tendering of two-thirds of Loral's
outstanding shares and on regulatory approvals, and is expected to close in the
first half of 1996. If the business combination with Loral is consummated,
the purchase method of accounting will be used to record the transactions,
resulting in a combined entity with anticipated annual net sales of
approximately $30 billion. As more fully described in the Capital Structure and
Resources section below, management intends to arrange through a syndicate of
banks two credit facilities totalling $10 billion which would be available to
finance the transactions. If the business combination with Loral is consummated,
these credit facilities would replace the $1.5 billion revolving credit facility
in effect at December 31, 1995.
44
Lockheed Martin Corporation
Business Acquisitions
Effective May 1, 1994, the Corporation purchased the Space Systems Division of
General Dynamics Corporation (GD Space Systems) for approximately $160 million
in cash, expanding the Corporation's presence in the intermediate-lift space
launch vehicle market with the Atlas series of launch vehicles. On April 2,
1993, the Corporation consummated a transaction with General Electric Company
(GE) valued at approximately $3 billion to combine the aerospace and certain
other businesses of GE (collectively, the GE Aerospace businesses) with the
businesses of the Corporation in the form of affiliated corporations. Effective
February 28, 1993, the Corporation acquired the tactical military aircraft
business of General Dynamics for approximately $1.5 billion in cash, plus the
assumption of certain liabilities related to the business. All of the
acquisitions discussed above were recorded under the purchase method of
accounting, with operating results from each acquisition included with those of
the Corporation beginning on the respective closing dates.
Results of Operations
The Corporation's operating cycle is long-term and involves various types of
production contracts and varying production delivery schedules. Accordingly,
results of a particular year, or year-to-year comparisons of recorded sales and
profits, may not be indicative of future operating results. The following
comparative analysis should be viewed in this context.
The Corporation's consolidated net sales for 1995 were $22.9 billion. Net sales
for the year remained relatively unchanged as compared to 1994 net sales, which
in turn were two percent over the $22.4 billion reported for 1993. Sales
increases for 1995 in the Space & Strategic Missiles segment and the Information
& Technology Services segment were largely offset by sales declines in the
Aeronautics segment and the Electronics segment. Sales for 1994 increased over
1993 levels at Aeronautics and at Information & Technology Services, while sales
at Electronics remained relatively flat and sales at Space & Strategic Missiles
decreased in that year. Although the U.S. Government remained the Corporation's
largest customer, the percentage of net sales decreased to 69 percent in 1995
from 72 percent in 1994 and 78 percent in 1993. Sales to foreign governments,
including sales made through the U.S. Government, as a percentage of net sales
were 13 percent in 1995, 15 percent in 1994 and 12 percent in 1993, while
commercial sales in those same periods were 18 percent, 13 percent and 10
percent, respectively.
The Corporation's operating profit (earnings before interest and taxes)
decreased in 1995 to $1.4 billion from $2.0 billion in 1994. On June 26, 1995,
the Corporation announced a corporate-wide consolidation plan which, once fully
implemented, is expected to yield annual savings of approximately $1.8 billion.
Under the consolidation plan, the Corporation will close 12 facilities and
laboratories as well as 26 duplicative field offices in the U.S. and abroad,
eliminating up to approximately 12,000 positions and 7.7 million square feet of
unneeded capacity over the next five years. The total cost to implement the
plan, which will be largely completed over the next two years, is approximately
$1.7 billion. Operating profit in 1995 included the effects of pretax charges
totaling $690 million
- --------------------------------------------------------------------------------
Net Sales
In millions
[GRAPH APPEARS HERE]
45
Management's Discussion and Analysis of
Financial Condition and Results of Operations Continued
- ---------------------------------------------
representing the portion of the consolidation plan and merger related expenses
not expected to be recovered under future pricing of U.S. Government contracts.
Operating profit in 1994 included the effect of two significant nonrecurring
transactions: a $118 million pretax gain from the February 1994 initial public
offering (IPO) of approximately 8.8 million shares, or 19 percent, of Martin
Marietta Materials, Inc. (Materials) common stock; and the receipt of a $50
million termination fee pursuant to the agreement for the proposed acquisition
of Grumman Corporation. Excluding the effects of these nonrecurring events for
each year, operating profit for 1995 would have been approximately 14 percent
greater than the 1994 amount. Earnings growth excluding these items resulted
from improvements in the Space & Strategic Missiles, Information & Technology
Services and Aeronautics segments, more than offsetting declines at the
Electronics segment. The operating profit in 1994 of $2.0 billion was 25 percent
higher than the $1.6 billion recorded in 1993, or 14 percent higher after
excluding the effects of the 1994 nonrecurring transactions.
Net earnings for 1995 were $682 million, or $3.05 per common share assuming full
dilution. Both amounts represent decreases from the reported 1994 net earnings
of $1.0 billion and earnings per common share assuming full dilution of $4.66.
However, the 1995 reported amounts include the after-tax effects of the merger
related and consolidation charges identified above of $436 million, or $1.96 per
common share assuming full dilution. The 1994 reported net earnings include the
favorable after-tax effects of the Materials IPO ($70 million, or $.32 per
share), the Grumman termination fee ($30 million, or $.14 per share) and a
charge due to the adoption of a change in accounting for the ESOP under the
American Institute of Certified Public Accountants Statement of Position No. 93-
6 ($37 million, or $.17 per share). Excluding the effects of these nonrecurring
items, net earnings for 1995 would have been approximately $1.1 billion, or
$5.01 per common share assuming full dilution, an increase of 17 percent and 15
percent, respectively, from the adjusted 1994 net earnings of $955 million, or
$4.37 per common share assuming full dilution. The 1994 net earnings and
earnings per common share assuming full dilution, after adjusting for the non-
recurring items, were 15 percent and 17 percent greater, respectively, than the
corresponding 1993 reported amounts.
The Corporation's debt to capitalization ratio was reduced from 39 percent at
December 31, 1994 to 37 percent at December 31, 1995, with total debt decreasing
from $3.9 billion to $3.7 billion and stockholders' equity increasing from $6.1
billion to $6.4 billion. However, if the business combination with Loral is
consummated, the Corporation's debt to capitalization ratio is expected to
increase to approximately 67 percent. The Corporation paid common dividends of
$254 million in 1995, or $1.34 per common share. The Corporation's backlog of
undelivered orders was approximately $41 billion at the end of 1995.
Industry Considerations
The Corporation's primary lines of business are in high technology systems for
aerospace and defense, serving both government and commercial customers. In
recent years, domestic and
- --------------------------------------------------------------------------------
Net Earnings
In millions
[GRAPH APPEARS HERE]
(a) Excluding the effects of the Materials IPO, the acquisition termination fee,
and the change in ESOP accounting, 1994 net earnings would have been $955
million.
(b) Excluding the merger related and consolidation charges, 1995 net earnings
would have been $1,118 million.
- --------------------------------------------------------------------------------
Earnings per Common Share, Assuming Full Dilution
In dollars
[GRAPH APPEARS HERE]
(a) Excluding the effects of the Materials IPO, the acquisition termination
fee, and the change in ESOP accounting, 1994 earnings per share would have
been $4.37.
(b) Excluding the merger related and consolidation charges, 1995 earnings per
share would have been $5.01.
46
Lockheed Martin Corporation
worldwide political and economic developments have strongly affected these
markets, requiring significant adaptation by market participants.
The Federal defense budgets for research, development, test and evaluation and
procurement have been reduced dramatically (after adjusting for inflation) over
the last decade. These reductions have caused participants in the
aerospace/defense industry to consolidate in order to maintain critical mass and
production economies. The Corporation has actively participated in this
consolidation activity. The Corporation's recent acquisitions described above
are examples of actions that have been taken to blend successful operations and
broaden the business portfolio, create opportunities for increased efficiency
and cost competitiveness, improve access to new markets and reduce exposure
to further defense budget program reductions. In prior years, the Corporation
acquired both the tactical military aircraft and space systems businesses of
General Dynamics, as well as the GE Aerospace businesses. Additionally, the
Corporation has undertaken major cost reduction efforts throughout its operating
units, continuously monitoring and adjusting employment levels consistent with
changing business requirements.
In light of the anticipated continuation of the recent consolidations in the
aerospace/defense industry, executive management and the Board of Directors
periodically review the Corporation's strategic plans related to joint ventures
and business combinations with companies engaged in similar or related
businesses, as well as potential internal investments. During 1995, these
efforts resulted in, among other actions, the establishment of a joint venture
with Rockwell International to negotiate a contract with NASA for space shuttle
operations, and the purchase of the aircraft controls business of GE. As noted
previously, in early 1996, the Corporation announced it had entered into a
merger agreement with Loral for a business combination which, if consummated,
will create synergy by bringing together the technologies and resources of two
successful defense electronics companies.
In December 1995, President Clinton signed the fiscal year 1996 defense
appropriations bill. This legislation is significant in that it marked the first
increase in defense budget appropriations in several years. Many analysts and
political observers expect that the fiscal 1996 budget represents the beginning
of a period of flat to modestly growing defense spending. Management believes
that its strategic actions will place the Corporation in an advantageous
position in the industry once the defense budget climate starts to improve.
To date, the Corporation's major programs generally have been well supported
during the budget decline, but uncertainty exists over the size and scope of
future defense and space budgets and their impact on specific programs. Some of
the Corporation's programs have been delayed, curtailed or terminated, and
future spending reductions and funding limitations could further impact these
programs or have similar effects on other existing or emerging programs.
As a U.S. Government contractor, the Corporation's government contracts and
operations are subject to government oversight. The government may investigate
and make inquiries of the Corporation's business practices and conduct audits of
contract performance and cost accounting. These investigations may lead to
claims against the Corporation. Under U.S. Government
47
Management's Discussion and Analysis of
Financial Condition and Results of Operations Continued
- ---------------------------------------------
procurement regulations and practices, an indictment of a government contractor
could result in that contractor being fined and/or suspended for a period of
time from eligibility for bidding on, or for award of, new government contracts;
a conviction could result in debarment for a specified term from government
contracts. Although the outcome of such investigations and inquiries cannot be
predicted, in the opinion of management there are no claims, audits or
investigations pending against the Corporation that are likely to have a
material adverse effect on either the Corporation's business or its consolidated
financial position or results of operations.
The Corporation remains exposed to other inherent risks associated with U.S.
Government contracting. These risks include technological uncertainties and
obsolescence, changes in government policies and dependence on annual
Congressional appropriation and allotment of funds. Certain of the Corporation's
contracts contain mission success incentive provisions that could significantly
impact the future profitability of these programs. The provisions enable the
Corporation to earn fees for successful performance, but also significantly
reduce fee availability in the event of unsuccessful missions. The Corporation's
commercial launch vehicle business contains market, pricing and other associated
risks.
Progress has been made in expanding the Corporation's presence in related
commercial and nondefense markets, most notably in space related activities,
energy and environmental services, information management and integration, and
communications. The Corporation also participates in the construction aggregates
and specialty chemical businesses through its 81% ownership in Materials. These
lines of business share many of the risks associated with the Corporation's
primary businesses, as well as others unique to the commercial marketplace,
although they are not dependent on defense budgets.
Discussion of Business Segments
The Corporation's operations are divided into five reportable business segments:
Space & Strategic Missiles; Aeronautics; Information & Technology Services;
Electronics; and Energy, Materials and Other. The following table displays net
sales for the Lockheed Martin business segments for each of the three years in
the period ended December 31, 1995 and directly corresponds to the segment
information presented in Note 15 to the consolidated financial statements.
(In millions) 1995 1994 1993
- ----------------------------------------------------------------
Net Sales
Space & Strategic Missiles $ 7,521 $ 6,719 $ 7,293
Aeronautics 6,617 7,091 6,601
Information & Technology Services 4,528 4,271 3,712
Electronics 3,294 4,055 4,092
Energy, Materials and Other 893 770 699
- ----------------------------------------------------------------
$22,853 $22,906 $22,397
================================================================
48
Lockheed Martin Corporation
Operating profit by industry segment for each of the three years in the period
ended December 31, 1995 is also presented in Note 15 to the consolidated
financial statements. The following table displays the pretax impact of the
nonrecurring items as reflected in operating profit for both 1995 and 1994 as
identified to each segment.
(In millions) 1995 1994
- ----------------------------------------------------
Nonrecurring Items
Space & Strategic Missiles $(263) $ --
Aeronautics (138) --
Information & Technology Services (24) --
Electronics (93) --
Energy, Materials and Other (172) 168
- ----------------------------------------------------
$(690) $ 168
====================================================
The 1995 total in the above table reflects the merger related and consolidation
expenses discussed previously, while the 1994 total consists of the $118 million
Materials IPO gain and the receipt of the $50 million acquisition termination
fee from the proposed Grumman acquisition discussed previously.
The following table depicts operating profit excluding nonrecurring items for
each of the three years in the period ended December 31, 1995. The subsequent
discussion of significant operating results of each business segment excludes
the impact of the nonrecurring items. This discussion should also be read in
conjunction with the industry segment information contained in Note 15 to the
consolidated financial statements.
(In millions) 1995 1994 1993
- -------------------------------------------------------------
Operating Profit, Excluding
Nonrecurring Items
Space & Strategic Missiles $ 694 $ 476 $ 507
Aeronautics 532 511 479
Information & Technology Services 293 228 145
Electronics 354 456 331
Energy, Materials and Other 194 140 122
- -------------------------------------------------------------
$2,067 $1,811 $1,584
=============================================================
Space & Strategic Missiles
Net sales of the Space & Strategic Missiles segment increased by 12 percent in
1995 compared to 1994 after decreasing by eight percent in 1994 compared to
1993. The increase in 1995 can be attributed primarily to the inclusion for the
full year of the former GD Space Systems, which the Corporation acquired on May
1, 1994. The operations of this acquired unit consist primarily of the Atlas
launch services program, which recorded twelve successful Atlas II and Atlas E
launches in
49
Management's Discussion and Analysis of
Financial Condition and Results of Operations Continued
- ---------------------------------------------
1995 versus four launches in the eight months of 1994 when the program results
were included in the Corporation's results of operations. The 1995 net sales
were also favorably impacted by an increase in activity in various classified
programs throughout the segment.
The decrease in net sales between 1994 and 1993 was principally the result of a
21 percent sales decline in the Air Force Titan IV program due to the stretch-
out of the program and the impact of certain 1993 nonrecurring launch pad and
engineering activities. This segment also experienced lower activity in 1994 on
various classified programs, lower revenues due to the terminations of the
Follow-on Early Warning System program and the Advanced Solid Rocket Motor
program, and decreased production contract requirements for the Trident II fleet
ballistic missile program. These decreases were partially offset by the
aforementioned addition of the former GD Space Systems.
Operating profit for the segment increased by 46 percent in 1995 compared to
1994 after decreasing by six percent in 1994 compared to 1993. The 1995 increase
was attributable to the inclusion of the Atlas launch services program for the
full year, the receipt of a favorable settlement resulting from the prior
termination of the Advanced Solid Rocket Motor program and the inclusion in 1994
of charges related to certain fixed-price programs, including a charge of $22
million related to the cancellation and final settlement on the Mobile Satellite
Antenna subcontract and charges totaling $43 million related to a military air
command, control and communication program for a foreign government. The
decrease in operating profit for 1994 compared to 1993 principally reflects the
sales decreases and the charges described above, offset partially by improved
performance related to the Milstar communications satellite program and fleet
ballistic missiles contracts recorded in 1994.
Aeronautics
Net sales of the Aeronautics segment decreased by seven percent in 1995 compared
to 1994 due to fewer deliveries of F-16 fighter aircraft and C-130 airlift
aircraft. These decreases were partially offset by the delivery of eight P-3
maritime patrol aircraft to the Republic of Korea in 1995, compared to no
deliveries in 1994. Net sales for 1994 increased by more than seven percent com-
pared to 1993, reflecting the inclusion of a full year's operation of the former
tactical military aircraft business of General Dynamics, which was purchased
effective February 28, 1993. In addition, the segment recorded in 1994
additional C-130 deliveries and F-22 development revenues which were partially
offset by decreases in certain contract field support programs.
Operating profit increased by four percent in 1995 compared to 1994 even though
sales decreased for that period. This increase is principally due to recognition
of earnings related to the P-3 aircraft deliveries which more than offset the
1995 increase in the C-130J development costs, and the inclusion in 1994 of
charges taken against earnings in connection with the Pratt & Whitney fan
reverser program. Operating profit in 1994 increased by nearly seven percent
compared with 1993, with the inclusion of the former tactical military aircraft
business of General Dynamics for the full year being the most significant
element of that increase. Other positive factors included the net effect
50
Lockheed Martin Corporation
of the 1994 sales variances described above, improved performance in C-130
programs and higher profit margins in special tactical aircraft systems
programs.
Information & Technology Services
Net sales of the Information & Technology Services segment increased by six
percent in 1995 compared to 1994, and by 15 percent for 1994 compared with 1993.
The increase in this segment in 1995 was caused primarily by increases in sales
for commercial product manufacturing and distribution activities. In addition,
the segment recorded increased revenues in information management and space
activities. The increase for 1994 compared to 1993 reflects increased sales of
command control systems and information processing services as well as
commercial product manufacturing activities.
Operating profit for the segment increased by 29 percent in 1995 compared to
1994 and by 57 percent in 1994 compared to 1993. The variance in 1995 reflects
increased award fee recognition, sales volume increases and continued
improvements in margin performance throughout the segment. The 1994 operating
profit increase was principally the result of improved performance in commercial
product manufacturing operations and improved margin performance throughout the
segment.
Electronics
Net sales of the Electronics segment decreased by almost 19 percent in 1995
compared to 1994 after remaining relatively flat in 1994 compared to 1993. The
decrease in 1995 was primarily the result of volume decreases in various
programs, particularly in AEGIS surface ship combat system programs and the
AN/BSY-2 submarine combat system program. In addition, the 1995 sales
performance represents an expected transition from mature production programs
into new development programs. In 1994, sales gains from AEGIS programs were
offset by sales decreases related to the LANTIRN targeting and navigation
system, other fire control systems programs and certain radar and undersea
surveillance systems.
Operating profit for the segment decreased by 22 percent in 1995 compared with
1994, reflecting the sales volume decreases described above, the negative
earnings implications of contract charges related to the LANTIRN program close-
out and from investments in new businesses, and substantial completion of
subcontract activities on the Patriot and other mature production programs. The
38 percent increase in operating profit for 1994 compared to 1993 reflected the
performance on the AEGIS program, fire control systems programs and armament
systems programs, and improved margin expansion across the segment.
Energy, Materials and Other
Net sales of this segment increased by 16 percent in 1995 compared with 1994 and
by ten percent in 1994 compared with 1993. Sales for both Energy and Materials
grew in 1995, reflecting the
51
Management's Discussion and Analysis of
Financial Condition and Results of Operations Continued
- ---------------------------------------------
commencement of activities under the Idaho National Engineering Laboratories
Management and Operations and Pit 9 contracts in the fourth quarter of 1994 and
the January 1995 Materials acquisition of the construction aggregates business
of Dravo Corporation. The primary reason for the increase in 1994 net sales was
the increase in sales of construction aggregates, reflecting improvements in
construction markets and increased production volume from acquisitions and new
activities.
Operating profit for this segment increased by 39 percent in 1995 compared to
1994 and by 15 percent in 1994 compared to 1993. The increase in 1995 was the
result of the inclusion of a full year of activities under the Idaho National
Engineering Laboratories Management and Operations contract and earnings growth
due to increased production volume at Materials. The increase in 1994 was
principally due to production volume growth in the Materials business.
Backlog
Total negotiated backlog of $41.1 billion at December 31, 1995 included both
unfilled firm orders for the Corporation's products for which funding has been
both authorized and appropriated by the customer (Congress, in the case of U.S.
Government customers) and firm orders for which funding has not been
appropriated. The following table shows total backlog by segment at the end of
each of the last three years:
(In millions) 1995 1994 1993
- ----------------------------------------------------------------
Backlog
Space & Strategic Missiles $16,261 $15,920 $14,052
Aeronautics 14,775 16,146 19,822
Information & Technology Services 4,669 4,855 5,526
Electronics 5,412 5,238 6,087
Energy, Materials and Other 8 73 23
- ----------------------------------------------------------------
$41,125 $42,232 $45,510
================================================================
Total Space & Strategic Missiles backlog increased by two percent in 1995 as
compared to 1994 and by 13 percent in 1994 as compared to 1993. The increase in
1995 occurred principally because of growth in new orders for classified
programs. The primary factor in the 1994 increase was the acquisition of backlog
related to the former GD Space Systems.
In the Aeronautics segment, total backlog decreased by eight percent in 1995
compared to 1994, having decreased by 19 percent in 1994 compared to 1993. For
both years, the fighter aircraft backlog decreased significantly, primarily
reflecting deliveries of aircraft to the U.S. Government without the addition of
new orders. In 1995, this decrease was partially offset by the receipt of orders
from the United Kingdom and Australia to provide 37 C-130J aircraft, with
options for 58 additional aircraft for those two nations and New Zealand.
- --------------------------------------------------------------------------------
Negotiated Backlog
In millions
[GRAPH APPEARS HERE]
52
Lockheed Martin Corporation
Total Information & Technology Services backlog decreased by nearly four percent
in 1995 compared to 1994 and by 12 percent in 1994 compared to 1993. The 1995
decrease was primarily the result of reduced contract volume in the segment's
space shuttle processing program and adjustments resulting from cost underruns
in manned space activities. The 1994 decrease was principally caused by the
maturation of several information and simulation systems programs.
In the Electronics segment, total backlog increased by over three percent in
1995 compared to 1994, having decreased by 14 percent in 1994 compared to 1993.
The primary reasons for the 1995 increase were key new awards for U.K. Apache
helicopter night vision/fire control systems, HYDRA-70 munitions and electronic
warfare countermeasures. These increases offset the declines in this segment's
defense electronics programs and AEGIS program volume. The 1994 decrease
reflected declines in the segment's radar and undersea surveillance systems
programs as well as a reduction in AEGIS program volume.
Liquidity and Cash Flows
The Corporation's primary source of liquidity in the past three years has been
cash generated from operating activities. Cash provided by operating activities
was approximately $1.3 billion in 1995 as compared to the $1.5 billion reported
for 1994 and 1993. The 1995 amount includes the effect of the pretax merger
related and consolidation expenditures to date of $208 million. As in prior
years, positive cash flows were derived in large part from operating profits
before deducting non-cash charges for depreciation and amortization of property
and intangible assets, offset in part by working capital increases.
Additions to property, plant and equipment, net of purchased operations, were
four percent higher in 1995 compared to 1994, and about equal to 1993. The
Corporation continually monitors its capital spending in relation to current and
anticipated business needs. Facilities are added, consolidated, disposed of or
modernized as business circumstances dictate. In 1995, approximately $294
million was expended on acquisition, investment and divestiture activities, a
$169 million increase from the prior year. In 1994, other investing activities
resulted in net positive cash flow, as the proceeds from the Materials IPO and
the Grumman termination fee more than offset the cash expended for the
acquisition of GD Space Systems.
The Corporation continued to reduce outstanding long-term debt in 1995,
consistent with 1994 and 1993. Approximately $287 million of long-term debt was
repaid in 1995 using cash generated from operations. In December 1995, Materials
issued $125 million of long-term debentures, the proceeds from which will be
used to retire $100 million of Notes maturing in 1996. Approximately $700
million of long-term debt will mature in 1996. As stated previously, the
proposed transactions with Loral, if consummated, would cause a significant
increase in long-term debt.
Cash dividends per common share were $1.34, $1.14, and $1.09 for 1995, 1994 and
1993, respectively. The initial regular quarterly common dividend rate after
consummation of the Business Combination was $0.35 per share. However, following
the receipt of court approval of a settlement reached by the parties of certain
class action lawsuits filed on behalf of the former shareholders of
- --------------------------------------------------------------------------------
Net Cash Provided by Operating Activities
In millions
[GRAPH APPEARS HERE]
- --------------------------------------------------------------------------------
Dividends Per Common Share
In dollars
[GRAPH APPEARS HERE]
53
Management's Discussion and Analysis of
Financial Condition and Results of Operations Continued
- ---------------------------------------------
Lockheed and Martin Marietta, Lockheed Martin expects, in accordance with the
terms of the settlement, to pay a regular quarterly dividend of $0.40 per share
for each of the next three quarters beginning with the first quarter of 1996.
After the adoption of the 1995 Omnibus Performance Award Plan, the Corporation's
Board of Directors authorized the repurchase of up to six million common shares
under a systematic repurchase plan. Additionally, the Board authorized the
repurchase of up to nine million common shares to counter the dilutive effect of
common stock issued under the Corporation's other benefit and compensation
programs and for other purposes related to such plans. Approximately 2.3 million
common shares were repurchased by the Corporation in the second half of 1995 for
approximately $150 million.
Capital Structure and Resources
Long-term debt, including current maturities, declined to approximately $3.7
billion at the end of 1995 from approximately $3.9 billion at the end of 1994,
while stockholders' equity grew to over $6.4 billion from nearly $6.1 billion a
year ago. Total debt represented approximately 37 percent and 39 percent of
total capitalization at December 31, 1995 and 1994, respectively. Most of the
Corporation's debt is in the form of publicly issued, fixed-rate Notes Payable
and Debentures.
As stated previously, if the transactions with Loral are consummated, the
Corporation's debt to capitalization ratio will increase to approximately 67
percent. Consequently, the ratings on the Corporation's long-term debt were
downgraded to a lower investment grade.
On March 15, 1995, the Corporation entered into a revolving credit agreement
(the Credit Agreement) with a group of domestic and foreign banks. The Credit
Agreement makes available $1.5 billion for commercial paper backup and general
corporate purposes through March 14, 2000. Borrowings under the Credit Agreement
would be unsecured and bear interest, at the Corporation's option, at rates
based on the Eurodollar rate or a bank base rate (as defined). The Credit
Agreement contains a financial covenant relating to leverage, and provisions
which relate to certain changes in control. There have been no borrowings under
the Credit Agreement.
In connection with the proposed business combination with Loral, the Corporation
intends to arrange with a syndicate of banks to obtain credit facilities of $10
billion (the New Credit Facilities), comprised of a $5 billion five-year
unsecured revolving credit facility and a $5 billion 364-day unsecured revolving
credit facility. The New Credit Facilities would be available to finance the
purchase of Loral's common stock, to fund the $344 million investment in Loral
Space, to refinance a portion of Loral's existing debt, to pay related
transaction expenses, to provide for future working capital needs and for
general corporate purposes. Alternatively, the Corporation may obtain all or a
portion of the necessary financing through the issuance of commercial paper
backed by the New Credit Facilities. If the business combination with Loral is
consummated, the Credit Facility will be terminated and replaced with the New
Credit Facilities. Following the closing of the transactions, it is anticipated
that the Corporation will refinance all or a portion of the borrowings under the
New Credit Facilities with funds raised in the public or private securities
markets. The Corporation may
54
Lockheed Martin Corporation
enter into interest rate hedging agreements to offset a portion of its exposure
to rising interest rates related to the anticipated long-term financings.
The Corporation receives advances on certain contracts and uses them to finance
the inventories required to complete the contracted work. Approximately $1.8
billion of advances related to work in process have been received from customers
and were recorded as reductions of 1995 inventories in the Corporation's
consolidated financial statements. In addition, advances of approximately $1
billion at the end of 1995 have been recognized as current liabilities, mostly
related to contracts with foreign governments and commercial customers.
Cash on hand and temporarily invested, internally generated funds, and available
financing resources as detailed above are expected to be sufficient to meet the
anticipated operating, consolidation and debt service requirements,
discretionary investment needs and capital expenditures of the Corporation. If
the business combination with Loral is consummated, management will evaluate
potential near-term actions which may permit the Corporation to reduce its long-
term debt. These actions may include the disposition of non-core businesses or
surplus properties and the suspension of the share repurchase programs.
Environmental Matters
As more fully described in Note 14 to the consolidated financial statements, the
Corporation entered into a consent decree with the U.S. Environmental Protection
Agency (EPA) in 1991 relating to certain property in Burbank, California, which
obligates the Corporation to design and construct facilities to monitor, extract
and treat groundwater and operate and maintain such facilities for approximately
eight years. The Corporation has also been operating under a cleanup and
abatement order from the California Regional Water Quality Control Board
affecting its Burbank facilities. This order requires site assessment and action
to abate groundwater contamination through a combination of groundwater and soil
cleanup and treatment. Anticipated future costs for these projects are estimated
to approximate $205 million. The Corporation has also begun discussions with the
EPA to structure a second consent decree to cover the groundwater operations
related to the Burbank property for the years 2000 through 2018. Any potential
financial exposure related to this period is not expected to be material.
The Corporation records appropriate financial statement accruals for
environmental issues in the period in which liability is established and the
amounts can reasonably be estimated. In addition to the amounts described above,
the Corporation has accrued approximately $285 million at December 31, 1995 for
other matters in which an estimate of financial exposure could be determined.
Management believes, however, that it is unlikely that any additional liability
it may incur for known environmental issues would have a material adverse effect
on its consolidated financial position or results of operations.
The Corporation is a party to various other proceedings and potential
proceedings related to environmental clean-up issues, including matters at
various sites where it has been designated a Potentially Responsible Party (PRP)
by the EPA. In the event the Corporation is ultimately found to
55
Management's Discussion and Analysis of
Financial Condition and Results of Operations Continued
- ---------------------------------------------
have liability at those sites where it has been designated a PRP, the
Corporation anticipates that the actual burden for the costs of remediation will
be shared with other liable PRPs. Generally, PRPs that are ultimately determined
to be responsible parties are strictly liable for site cleanups and usually
agree among themselves to share, on an allocated basis, the costs and expenses
for investigation and remediation of hazardous materials. Under existing
environmental laws, however, responsible parties are jointly and severally
liable and, therefore, the Corporation is potentially liable for the full cost
of funding such remediation. In the unlikely event that the Corporation were
required to fund the entire cost of such remediation, the statutory framework
provides that the Corporation may pursue rights of contribution from the other
PRPs. Among the variables management must assess in evaluating costs associated
with these sites are changing cost estimates, continually evolving government
environmental standards and cost allowability issues. Therefore, the nature of
these environmental matters makes it extremely difficult to estimate the timing
and amount of any future costs that may be necessary for remedial measures. The
Corporation currently is unable to predict the outcome of these matters,
inasmuch as the actual costs of remedial actions have not been determined and
the allocation of liabilities among parties that ultimately may be found liable
remains uncertain.
New Accounting Standards
In 1995, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires that certain long-lived assets to be held and used be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Additionally, SFAS No. 121
requires that certain long-lived assets to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell. The Corporation will
adopt SFAS No. 121 in 1996, as required. Management anticipates that the impact
of the adoption of this standard will not be material to the Corporation's
consolidated earnings and financial position.
Also in 1995, the FASB adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." While SFAS No. 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans using a fair value method
of accounting, it allows companies to continue to measure compensation cost for
those plans using the intrinsic value method of accounting as prescribed in
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees." Should a company choose not to change its accounting method, it
must disclose the pro forma effect on net earnings and earnings per share as if
the fair value method had been adopted. Currently, the Corporation intends to
continue its present APB Opinion No. 25 accounting treatment for stock-based
compensation, and plans to adopt the disclosure provisions of SFAS No. 123
beginning in 1996, as required.
56
Lockheed Martin Corporation
The Corporation's Responsibility
for Financial Reporting
The management of Lockheed Martin Corporation prepared and is responsible for
the consolidated financial statements and all related financial information
contained in this report. The consolidated financial statements, which include
amounts based on estimates and judgments, have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis.
The Corporation maintains a system of internal accounting controls designed and
intended to provide reasonable assurance that assets are safeguarded,
transactions are properly executed and recorded in accordance with management's
authorization, and accountability for assets is maintained. An environment that
establishes an appropriate level of control consciousness is maintained and
monitored and includes examinations by an internal audit staff and by the
independent auditors in connection with their annual audit.
The Corporation's management recognizes its responsibility to foster a strong
ethical climate. Management has issued written policy statements which document
the Corporation's business code of ethics. The importance of ethical behavior is
regularly communicated to all employees through the distribution of written
codes of ethics and standards of business conduct and through ongoing education
and review programs designed to create a strong compliance environment.
The Audit and Ethics Committee of the Board of Directors is composed of eight
outside directors. This Committee meets periodically with the independent
auditors, internal auditors and management to review their activities.
The consolidated financial statements have been audited by Ernst & Young LLP,
independent auditors, whose report follows.
/s/ Marcus C. Bennett
Marcus C. Bennett
Senior Vice President and
Chief Financial Officer
/s/ Robert E. Rulon
Robert E. Rulon
Vice President and Controller
Report of Ernst & Young LLP,
Independent Auditors
Board of Directors and Stockholders
Lockheed Martin Corporation
We have audited the accompanying consolidated balance sheet of Lockheed Martin
Corporation as of December 31, 1995 and 1994, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Lockheed Martin Corporation at December 31, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
The Corporation changed its method of accounting for the Employee Stock
Ownership Plan effective January 1, 1994 as discussed in Note 1 to the
consolidated financial statements.
/s/ Ernst & Young LLP
Washington, D.C.
January 23, 1996
57
Lockheed Martin Corporation
Consolidated Statement of Earnings
Year Ended December 31,
(In millions, except per share data) 1995 1994 1993
=============================================================================
Net sales $22,853 $22,906 $22,397
Costs and expenses:
Cost of sales 20,881 21,127 20,857
Merger related and consolidation expenses 690 -- --
- -----------------------------------------------------------------------------
Earnings from operations 1,282 1,779 1,540
Other income and expenses, net 95 200 44
- -----------------------------------------------------------------------------
1,377 1,979 1,584
Interest expense 288 304 278
- -----------------------------------------------------------------------------
Earnings before income taxes and cumulative
effect of change in accounting 1,089 1,675 1,306
Income tax expense 407 620 477
- -----------------------------------------------------------------------------
Earnings before cumulative effect of change in
accounting 682 1,055 829
Cumulative effect of change in accounting -- (37) --
- -----------------------------------------------------------------------------
Net earnings $ 682 $ 1,018 $ 829
=============================================================================
Earnings per common share:
Assuming no dilution:
Before cumulative effect of change in
accounting $ 3.28 $ 5.32 $ 3.99
Cumulative effect of change in accounting -- (.20) --
- -----------------------------------------------------------------------------
$ 3.28 $ 5.12 $ 3.99
=============================================================================
Assuming full dilution:
Before cumulative effect of change in
accounting $ 3.05 $ 4.83 $ 3.75
Cumulative effect of change in accounting -- (.17) --
- -----------------------------------------------------------------------------
$ 3.05 $ 4.66 $ 3.75
=============================================================================
See accompanying Notes to Consolidated Financial Statements.
58
Lockheed Martin Corporation
Consolidated Statement of Cash Flows
Year Ended December 31,
(In millions) 1995 1994 1993
=======================================================================================
Operating Activities
Earnings before cumulative effect of
change in accounting $ 682 $ 1,055 $ 829
Adjustments to reconcile earnings
to net cash provided by operating
activities:
Merger related and consolidation -- expenses 690 -- --
-- payments (208) -- --
Depreciation and amortization 605 638 680
Amortization of intangible assets 316 299 256
Deferred federal income taxes (116) 73 165
Gain--Materials public offering -- (118) --
Acquisition termination fee -- (50) --
Changes in operating assets and liabilities:
Receivables (394) (169) 80
Inventories 430 (221) 63
Customer advances and amounts in excess
of costs incurred (294) 20 (209)
Other (419) (34) (405)
- ---------------------------------------------------------------------------------------
Net cash provided by operating activities 1,292 1,493 1,459
- ---------------------------------------------------------------------------------------
Investing Activities
Additions to properties, net of purchased operations (531) (509) (536)
Acquisition, investment and divestiture activities (294) (125) (2,420)
Net proceeds -- Materials public offering -- 189 --
Other 126 (57) 148
- ---------------------------------------------------------------------------------------
Net cash used for investing activities (699) (502) (2,808)
- ---------------------------------------------------------------------------------------
Financing Activities
Decreases in short-term borrowings (14) (7) (9)
Increases in long-term debt 125 43 2,281
Repayments and extinguishments of long-term debt (287) (512) (741)
Issuances of common stock 61 32 88
Purchases of common stock (150) -- --
Dividends on common stock (254) (214) (215)
Dividends on preferred stock (60) (60) (45)
- ---------------------------------------------------------------------------------------
Net cash (used for) provided by financing
activities (579) (718) 1,359
- ---------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 14 273 10
Cash and cash equivalents at beginning of year 639 366 356
- ---------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 653 $ 639 $ 366
=======================================================================================
See accompanying Notes to Consolidated Financial Statements.
59
Lockheed Martin Corporation
Consolidated Balance Sheet
December 31,
(In millions) 1995 1994
========================================================================
Assets
Current assets:
Cash and cash equivalents $ 653 $ 639
Receivables 3,876 3,473
Inventories 2,804 3,159
Deferred income taxes 580 506
Other current assets 264 366
- ------------------------------------------------------------------------
Total current assets 8,177 8,143
Property, plant and equipment 3,165 3,455
Intangible assets related to contracts and programs
acquired 1,808 1,971
Cost in excess of net assets acquired 2,817 2,831
Other assets 1,681 1,649
- ------------------------------------------------------------------------
$17,648 $18,049
========================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 787 $ 1,306
Customer advances and amounts in excess of costs
incurred 1,570 1,872
Salaries, benefits and payroll taxes 567 767
Income taxes 292 86
Current maturities of long-term debt 722 285
Other current liabilities 1,353 1,319
- ------------------------------------------------------------------------
Total current liabilities 5,291 5,635
Long-term debt 3,010 3,594
Post-retirement benefit liabilities 1,778 1,756
Other liabilities 1,136 978
Stockholders' equity:
Series A preferred stock, $50 liquidation preference
per share 1,000 1,000
Common stock, $1 par value per share 199 199
Additional paid-in capital 683 734
Retained earnings 4,838 4,470
Unearned ESOP shares (287) (317)
- ------------------------------------------------------------------------
Total stockholders' equity 6,433 6,086
- ------------------------------------------------------------------------
$17,648 $18,049
========================================================================
See accompanying Notes to Consolidated Financial Statements.
60
Lockheed Martin Corporation
Consolidated Statement of Stockholders' Equity
Additional Unearned Guarantee Total
Preferred Common Paid-in Retained ESOP of ESOP Stockholders'
(In millions) Stock Stock Capital Earnings Shares Obligations Equity
===================================================================================================================================
Balance at December 31, 1992 $ -- $ 195 $ 582 $ 3,136 $ -- $(431) $ 3,482
Net earnings -- -- -- 829 -- -- 829
Preferred stock issued 1,000 -- -- -- -- -- 1,000
Dividends declared on preferred
stock ($2.25 per share) -- -- -- (45) -- -- (45)
Dividends declared on common
stock ($1.09 per share) -- -- -- (215) -- -- (215)
Stock awards and options, and
ESOP activity -- 3 107 16 -- 24 150
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 1,000 198 689 3,721 -- (407) 5,201
Earnings before cumulative effect
of change in accounting -- -- -- 1,055 -- -- 1,055
Cumulative effect of change in
accounting -- -- -- (37) (350) 407 20
Dividends declared on preferred
stock ($3.00 per share) -- -- -- (60) -- -- (60)
Dividends declared on common
stock ($1.14 per share) -- -- -- (214) -- -- (214)
Stock awards and options, and
ESOP activity -- 1 45 5 33 -- 84
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 1,000 199 734 4,470 (317) -- 6,086
Net earnings -- -- -- 682 -- -- 682
Dividends declared on preferred
stock ($3.00 per share) -- -- -- (60) -- -- (60)
Dividends declared on common
stock ($1.34 per share) -- -- -- (254) -- -- (254)
Repurchases of common stock -- (2) (148) -- -- -- (150)
Stock awards and options, and
ESOP activity -- 2 97 -- 30 -- 129
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $1,000 $ 199 $ 683 $ 4,838 $ (287) $ -- $6,433
===================================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
61
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Note 1 - Summary of Significant Accounting Policies
Organization - Lockheed Martin Corporation (Lockheed Martin or the Corporation)
is engaged in the design, manufacture, integration and operation of a broad
array of products and services ranging from aircraft, spacecraft and launch
vehicles to energy management, missiles, electronics, and information systems.
The Corporation serves customers in both domestic and international defense and
civilian markets, with its principal customers being agencies of the U.S.
Government.
Basis of consolidation and use of estimates - The consolidated financial
statements include the accounts of wholly-owned and majority-owned subsidiaries.
All material intercompany balances and transactions have been eliminated in
consolidation. The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions, in particular estimates of anticipated contract
costs and revenues utilized in the earnings recognition process, that affect the
reported amounts in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Classifications - Receivables and inventories are primarily attributable to
long-term contracts or programs in progress on which the related operating
cycles are longer than one year. In accordance with industry practice, these
items are included in current assets.
Certain amounts for the prior years have been reclassified to conform with the
1995 presentation.
Cash and cash equivalents - Cash and cash equivalents are net of outstanding
checks that are funded daily as presented for payment. Cash equivalents are
generally comprised of highly liquid instruments with maturities of three months
or less when purchased. Due to the short maturity of these instruments, carrying
value on the Corporation's consolidated balance sheet approximates fair value.
Inventories - Inventories are stated at the lower of cost or estimated net
realizable value. Costs on long-term contracts and programs in progress
represent recoverable costs incurred for production, allocable operating
overhead, and, where appropriate, research and development and general and
administrative expenses, less amounts attributed to cost of sales. Pursuant to
contract provisions, the U.S. Government and other customers have title to, or a
security interest in, certain inventories as a result of progress payments and
advances. General and administrative expenses related to commercial products and
services essentially under commercial terms and conditions are expensed as
incurred. Costs of other product and supply inventories are principally
determined by the first-in, first-out or average cost methods.
Property, plant and equipment - Property, plant and equipment are carried
principally at cost. Depreciation is provided on plant and equipment generally
using accelerated methods of depreciation during the first half of the estimated
useful lives of the assets; thereafter, generally straight-line depreciation is
used. Estimated useful lives generally range from 8 years to 40 years for
buildings and 2 years to 20 years for machinery and equipment.
Intangible assets - Intangible assets related to contracts and programs acquired
are amortized over the estimated periods of benefit (15 years or less) and are
displayed on the consolidated balance sheet net of accumulated amortization of
$448 million and $305 million at December 31, 1995 and 1994, respectively. Cost
in excess of net assets acquired (goodwill) is amortized ratably over
appropriate periods, primarily 40 years, and is displayed on the consolidated
balance sheet net of accumulated amortization of $438 million and $343 million
at December 31, 1995 and 1994, respectively. The carrying values of intangible
assets are reviewed if the facts and circumstances indicate potential impairment
of their carrying value, and any impairment determined is recorded in the
current period.
Environmental matters - The Corporation records a liability for environmental
matters when it is probable that a liability has been incurred and the amount
can be reasonably estimated. A substantial portion of the costs are expected to
be reflected in sales and costs of sales pursuant to U.S. Government agreement
or regulation. At the time a liability is recorded for future environmental
costs, an asset is recorded for probable future recovery through pricing U.S.
Government business. The portion of those costs expected to be allocated to
commercial business is reflected in costs and expenses at the time the liability
is established.
Sales and earnings - Sales and anticipated profits under long-term fixed-price
production contracts are recorded on a percentage of completion basis, generally
using units of delivery as the measurement basis for effort accomplished.
Estimated contract
62
Lockheed Martin Corporation
profits are taken into earnings in proportion to recorded sales. Sales under
certain long-term fixed-price contracts which, among other things, provide for
the delivery of minimal quantities or require a significant amount of
development effort in relation to total contract value are recorded using the
percentage of completion cost-to-cost method of accounting where sales and
profits are recorded based on the ratio of costs incurred to estimated total
costs at completion.
Sales under cost-reimbursement-type contracts are recorded as costs are
incurred. Applicable estimated profits are included in earnings in the
proportion that incurred costs bear to total estimated costs. Sales of products
and services essentially under commercial terms and conditions are recorded upon
shipment or completion of specified tasks.
Amounts representing contract change orders, claims or other items are included
in sales only when they can be reliably estimated and realization is probable.
Incentives or penalties and awards applicable to performance on contracts are
considered in estimating sales and profit rates and are recorded when there is
sufficient information to assess anticipated contract performance. Incentive
provisions which increase or decrease earnings based solely on a single
significant event would generally not be recognized until the event has
occurred.
When adjustments in contract value or estimated costs are determined, any
changes from prior estimates are reflected in earnings in the current period.
Any anticipated losses on contracts or programs in progress are charged to
earnings when identified.
Research and development and similar costs - Corporation-sponsored research and
development costs primarily include research and development and bid and
proposal effort related to government products and services. Except for certain
arrangements described below, these costs are generally included as part of the
general and administrative costs that are allocated among all contracts and
programs in progress under U.S. Government contractual arrangements.
Corporation-sponsored product development costs not otherwise allocable are
charged to expense when incurred. Under certain arrangements in which a customer
shares in product development costs, the Corporation's portion of such
unreimbursed costs is expensed as incurred. Customer-sponsored research and
development costs incurred pursuant to contracts are accounted for as contract
costs.
Income taxes - The Corporation accounts for income taxes as prescribed in
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Deferred income tax assets and liabilities on the consolidated
balance sheet reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.
Employee Stock Ownership Plan - The Corporation elected to adopt, effective
January 1, 1994, the American Institute of Certified Public Accountants (AICPA)
Statement of Position (SOP) No. 93-6, "Employers' Accounting for Employee Stock
Ownership Plans," to account for the Employee Stock Ownership Plan (ESOP).
Adoption of this accounting method resulted in a cumulative effect adjustment
which reduced net earnings for 1994 by $37 million, or $.17 per common share
assuming full dilution. In accordance with the provisions of the SOP, the
unallocated common shares held by the ESOP trust (Unallocated ESOP Shares) have
been considered outstanding for voting and other Corporate purposes, but have
been excluded from weighted average outstanding shares in calculating earnings
per share. For 1995 and 1994, the weighted average Unallocated ESOP Shares
excluded in calculating earnings per share totalled approximately 10.3 million
and 11.5 million common shares, respectively.
Earnings per common share - Earnings per common share were based on the weighted
average number of common shares outstanding during the year. Earnings per common
share, assuming no dilution, were computed based on net earnings less the
dividend requirement for preferred stock. The weighted average number of common
shares outstanding, assuming no dilution, was approximately 189.3 million in
1995, 187.0 million in 1994 and 196.6 million in 1993.
Earnings per common share, assuming full dilution, were computed assuming that
the average number of common shares was increased by the conversion of preferred
stock. The weighted average number of common shares outstanding, assuming full
dilution, was approximately 223.2 million in 1995, 218.3 million in 1994 and
221.1 million in 1993.
63
Notes to Consolidated Financial Statements Continued
- ------------------------------------------
Note 2 - Formation of Lockheed Martin and Related Consolidation Activities
On August 29, 1994, Lockheed Martin Corporation, a newly formed corporation,
Lockheed Corporation (Lockheed) and Martin Marietta Corporation (Martin
Marietta) (collectively, the Corporations) entered into an Agreement and Plan of
Reorganization (the Reorganization Agreement) whereby the Corporations would
merge through an exchange of stock (the Business Combination). The Business
Combination was consummated after stockholders' approval on March 15, 1995.
Under the terms of the Reorganization Agreement, each outstanding share of
Lockheed common stock was exchanged for 1.63 shares of Lockheed Martin common
stock, and each outstanding share of Martin Marietta common stock and preferred
stock was exchanged for one share of Lockheed Martin common stock and preferred
stock, respectively.
The Business Combination constituted a tax-free reorganization and qualified for
the pooling of interests method of accounting. Under this accounting method, the
assets and liabilities of Lockheed and Martin Marietta were carried forward to
Lockheed Martin at their historical recorded bases. Subsequent to the Business
Combination, Lockheed, Martin Marietta and certain other subsidiaries were
merged with and into the Corporation. The accompanying consolidated financial
statements, which reflect the combined balance sheets, results of operations and
cash flows for Lockheed Martin, have been derived from the balance sheets,
results of operations and cash flows of the separate Corporations for periods
before the Business Combination, combined, reclassified and conformed, as
appropriate, to reflect amounts for the combined entity. Sales and earnings of
the individual entities were as follows:
As Previously Reported
------------------------- Lockheed
Martin Combining Martin
(In millions, except per share data) Lockheed Marietta Adjustments Combined
===================================================================================================
Year ended December 31, 1994:
Net sales $13,130 $ 9,874 $ (98) $22,906
Earnings before cumulative effect of
change in accounting 445 636 (26) 1,055
Earnings per share before cumulative
effect of change in accounting,
assuming full dilution 4.29 (a) 5.05 -- 4.83
Year ended December 31, 1993:
Net sales $13,071 $9,436 $(110) $22,397
Net earnings 422 450 (b) (43) 829
Earnings per share, assuming full
dilution 4.11 (a) 3.80 (b) -- 3.75
===================================================================================================
(a) Amounts for Lockheed have been adjusted for the 1.63 exchange ratio
related to the Business Combination.
(b) Amounts for Martin Marietta do not include the cumulative effect of changes
in accounting for post-retirement benefits other than pensions and for
postemployment benefits as the timing of the adoption of such changes was
adjusted to January 1, 1992 to conform to Lockheed's timing of adoption.
Combining adjustments were recorded to eliminate intercompany sales and cost of
sales in each year. No adjustments were made to eliminate the related
intercompany profit in ending inventories as such amounts were not material.
Adjustments were also made to conform Lockheed's method of accounting for timing
differences in cost recognition between SFAS No. 87, "Employers' Accounting for
Pensions," and applicable government contract accounting principles to be
consistent with Martin Marietta's method, and to conform Lockheed's provisions
for state income taxes to Martin Marietta's methodology. Further adjustments
were recorded to reflect the tax impact of these adjustments.
During the first quarter of 1995, the Corporation recorded a $165 million pretax
charge for merger related expenses. On June 26, 1995, the Corporation announced
a corporate-wide consolidation plan under which the Corporation would close 12
facilities and laboratories as well as 26 duplicative field offices in the U.S.
and abroad, eliminating up to approximately 12,000 positions. In conjunction
with the announcement, the Corporation recorded accruals for severance, lease
termination and certain other costs as well as approximately $220 million of
adjustments to reflect affected real estate and other property, plant and
equipment at their estimated net realizable values. Under existing
64
Lockheed Martin Corporation
U.S. Government regulations, certain costs incurred for consolidation actions
that can be demonstrated to result in savings in excess of the cost to implement
can be amortized for government contracting purposes and included in future
pricing of the Corporation's products and services. The Corporation anticipates
that a substantial portion of the total costs of the consolidation plan will be
reflected in future sales and cost of sales. The Corporation recorded a pretax
charge of $525 million for the consolidation plan which represents the portion
of the accrued costs and net realizable value adjustments that are not probable
of recovery. The after-tax effect of these charges was $436 million, or $1.96
per common share assuming full dilution. As of December 31, 1995, the total
merger related and consolidation plan expenditures were approximately $208
million which primarily relate to the Business Combination, the elimination of
positions and the closure of foreign and domestic marketing offices.
Approximately $400 million of accrued merger and consolidation costs are
included in other current liabilities at December 31, 1995.
Other costs of the consolidation plan, which include relocation of personnel and
programs, retraining, process re-engineering and certain capital expenditures,
among others, generally will be recognized when incurred. The Corporation
currently anticipates that the remaining consolidation costs will be incurred by
the end of 1997.
Note 3 - Transaction Agreement with Loral Corporation
In January 1996, the Corporation entered into an Agreement and Plan of Merger
(the Merger Agreement), dated as of January 7, 1996, with Loral Corporation
(Loral) for a series of interrelated transactions with a total estimated value
of approximately $9.4 billion. Under the terms of the Merger Agreement, the
Corporation intends to acquire the defense electronics and systems integration
businesses and certain other businesses of Loral for approximately $9.1 billion,
including $2.1 billion of assumed debt. Of the total, approximately $7 billion
will be paid directly to Loral shareholders by the Corporation through a tender
offer for all outstanding shares of Loral common stock for $38.00 per share in
cash. A Schedule 14D-1 relating to the tender offer was filed with the
Securities and Exchange Commission on January 12, 1996. Following the
consummation of the tender offer, Loral will distribute, for each share of Loral
common stock previously held, one share of common stock of a newly-formed
company, Loral Space & Communications, Ltd. (Loral Space), which will own
substantially all of the space and satellite telecommunications interests of
Loral. Finally, the Corporation will invest $344 million in Loral Space for the
acquisition of shares of preferred stock that are convertible into 20 percent of
Loral Space's common stock on a fully diluted basis. The Corporation's offer is
contingent, among other things, on the tendering of two-thirds of Loral's
outstanding shares and on regulatory approvals, and is expected to close in the
first half of 1996. If the business combination with Loral is consummated,
the purchase method of accounting will be used to record the transactions.
In connection with the transactions, the Corporation intends to arrange with a
syndicate of banks to obtain credit facilities of $10 billion (the New Credit
Facilities), comprised of a $5 billion five-year unsecured revolving credit
facility and a $5 billion 364-day unsecured revolving credit facility. The New
Credit Facilities would be available to finance the purchase of Loral's common
stock, to fund the $344 million investment in Loral Space, to refinance a
portion of Loral's existing debt, to pay related transaction expenses, to
provide for future working capital needs and for general corporate purposes.
Alternatively, the Corporation may obtain all or a portion of the necessary
financing through the issuance of commercial paper backed by the New Credit
Facilities. If the business combination with Loral is consummated, the Credit
Facility in effect at December 31, 1995 (see Note 8) will be terminated and
replaced with the New Credit Facilities. Following the closing of the
transactions, it is anticipated that the Corporation will refinance all or a
portion of the borrowings under the New Credit Facilities with funds raised in
the public or private securities markets.
Note 4 - Acquisitions
On May 1, 1994, the Corporation completed its acquisition of the Space Systems
Division of General Dynamics Corporation (the Space Systems Division) for cash.
This transaction was recorded under the purchase method of accounting.
Operations of the Space Systems Division have been included in the Corporation's
Space & Strategic Missiles segment from the closing date. Pro forma financial
data related to this transaction has not been presented, based on materiality
considerations.
On April 2, 1993, the Corporation consummated a transaction (the GE Transaction)
with
65
Notes to Consolidated Financial Statements Continued
- ------------------------------------------
General Electric Company (GE) to combine the aerospace and certain other
businesses of GE (collectively, the GE Aerospace businesses) with the businesses
of the Corporation in the form of affiliated corporations. The exchange
consideration of approximately $3 billion for the GE Transaction consisted of
approximately $900 million in cash, convertible preferred stock (valued at $1
billion), retention by GE of certain accounts receivable and the assumption of
payment obligations related to certain GE indebtedness ($750 million). The GE
Transaction was recorded under the purchase method of accounting. The GE
Aerospace operations have been included in the Corporation's results of
operations since the closing date. If the GE Transaction were presented on an
unaudited pro forma basis as if it had occurred as of January 1, 1993, the
Corporation's 1993 net sales would increase by approximately $1 billion and net
earnings would increase by less than 1.5%.
Effective February 28, 1993, the Corporation acquired the tactical military
aircraft business of General Dynamics Corporation (formerly, the GD Fort Worth
Division) for approximately $1.5 billion in cash, plus the assumption of certain
liabilities related to the business. The acquisition was recorded under the
purchase method of accounting. Pro forma financial data for 1993 related to this
transaction has not been presented based on materiality considerations.
Note 5 - Receivables
Receivables consisted of the following components:
(In millions) 1995 1994
======================================================
U.S. Government:
Amounts billed $ 925 $ 984
Unbilled costs and accrued profits 1,622 1,383
Commercial and foreign governments:
Amounts billed 654 662
Unbilled costs and accrued profits,
primarily related to commercial
contracts 675 444
- ------------------------------------------------------
$3,876 $3,473
======================================================
Unbilled costs and accrued profits consisted primarily of revenues on long-term
contracts that had been recognized for accounting purposes but not yet billed to
customers. Approximately $185 million of the December 31, 1995 unbilled costs
and accrued profits are not expected to be billed within one year.
Note 6 - Inventories
Inventories consisted of the following components:
(In millions) 1995 1994
===================================================
Work in process, primarily on
long-term contracts and
programs in progress $ 3,721 $ 4,291
Less customer advances and
progress payments (1,772) (1,785)
- ---------------------------------------------------
1,949 2,506
Other inventories 855 653
- ---------------------------------------------------
$2,804 $ 3,159
===================================================
Customer advances and progress payments applied above are those where the
customer has title to, or a security interest in, inventories identified with
the related contracts. Other customer advances are classified as current
liabilities. Inventories include unamortized deferred costs of approximately
$300 million at December 31, 1995 which are anticipated to be recovered through
future contracts.
An analysis of general and administrative costs, including research and
development costs, included in work in process inventories follows:
(In millions) 1995 1994 1993
=========================================================
Beginning of year $ 480 $ 499 $ 243
Incurred during the year 1,704 1,761 1,882
Charged to costs and
expenses during the year:
Research and development (548) (659) (696)
Other general and
administrative (1,205) (1,121) (930)
- ---------------------------------------------------------
End of year $ 431 $ 480 $ 499
=========================================================
In addition, included in costs and expenses in 1995, 1994 and 1993 were general
and administrative costs, including research and development costs, of
approximately $230 million, $154 million and $155 million, respectively,
incurred by commercial business units or programs.
66
Lockheed Martin Corporation
Note 7 - Property, Plant and Equipment
Property, plant and equipment consisted of the following components:
(In millions) 1995 1994
=======================================================
Land $ 362 $ 332
Buildings 2,494 2,419
Machinery and equipment 5,329 5,425
- -------------------------------------------------------
8,185 8,176
Less accumulated depreciation
and amortization (5,020) (4,721)
- -------------------------------------------------------
$3,165 $ 3,455
=======================================================
Note 8 - Debt
Long-term debt consisted of the following components:
Type Range of
(Maturity Dates) Interest
(In millions) Rates 1995 1994
==================================================================
Notes Payable:
Fixed rate (1996-2023) 4.5-9.4% $2,172 $ 2,215
Variable rate (1995) (a) -- 200
Debentures (2011-2025) 7.0-7.9% 828 703
ESOP obligations (1996-2004) 8.3-8.4% 355 382
Payment obligations assumed from
GE (1996) 5.0% 303 310
Other obligations 6.0-9.0% 74 69
- ------------------------------------------------------------------
3,732 3,879
Less current maturities (722) (285)
- ------------------------------------------------------------------
$3,010 $ 3,594
==================================================================
(a) Interest rates vary based on the Eurodollar rate.
During the second quarter of 1995, the Corporation retired $200 million of
variable rate Notes Payable and $43 million of fixed rate Notes Payable. During
the fourth quarter, Martin Marietta Materials, Inc. (Materials), a public
company owned 81% by the Corporation, issued $125 million of 7% debentures due
in 2025.
Included in Notes Payable are $300 million of 9.375% notes due in 1999 which
stipulate that, in the event of both a "designated event" and a related "rating
decline" occurring within a specified period of time, holders of the notes may
require the Corporation to redeem the notes and pay accrued interest. In
general, a "designated event" occurs when any one of certain ownership, control,
or capitalization changes takes place. A "rating decline" occurs when the
ratings assigned to the Corporation's debt are reduced below investment-grade
levels.
Included in Debentures are $150 million of 7.75% obligations which may be
redeemed by the Corporation at specified prices on or after April 15, 2003. Also
included in Debentures are $103 million of 7% obligations ($175 million at face
value) which were originally sold at approximately 54% of their principal
amount. These debentures, which are redeemable in whole or in part at the
Corporation's option at 100% of their face value, have an effective yield of
13.25%.
A leveraged ESOP incorporated into the Lockheed Salaried Savings Plan (401(k))
(see Note 12) borrowed $500 million through a private placement of notes in
1989. These notes are being repaid in quarterly installments over terms ending
in 2004. The ESOP note agreement stipulates that, in the event that the ratings
assigned to the Corporation's long-term senior unsecured debt are below
investment grade, holders of the notes may require the Corporation to purchase
the notes and pay accrued interest. These notes are obligations of the ESOP but
guaranteed by the Corporation and are reported as debt on the Corporation's
consolidated balance sheet.
The Corporation's long-term debt maturities for the five years following
December 31, 1995, are: $722 million in 1996; $166 million in 1997; $374 million
in 1998; $350 million in 1999; $44 million in 2000 and $2,076 million
thereafter.
Certain of the financing agreements of the Corporation contain certain
restrictive covenants relating to debt, requirements for limitations on
encumbrances and on sale and lease-back transactions, and provisions which
relate to certain changes in control.
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," and SFAS
No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments," require the disclosure of the fair value of financial
instruments, both assets and liabilities recognized and not recognized on the
consolidated balance sheet, for which it is practicable to estimate fair value.
Unless otherwise indicated elsewhere in the notes to the consolidated financial
statements, the carrying value of the Corporation's financial instruments
approximates fair value. The estimated fair values of the Corporation's long-
term debt instruments at December 31, 1995, aggregated approximately
67
Notes to Consolidated Financial Statements Continued
- ------------------------------------------
$4.0 billion, compared with a carrying amount of approximately $3.7 billion on
the consolidated balance sheet. The fair values were estimated based on quoted
market prices for those instruments publicly traded. For privately placed debt,
the fair values were estimated based on the quoted market prices for the same or
similar issues, or on current rates offered to the Corporation for debt of the
same remaining maturities.
On March 15, 1995, the Corporation entered into a revolving credit agreement
(the Credit Agreement) with a group of domestic and foreign banks. The Credit
Agreement makes available $1.5 billion through March 14, 2000. Borrowings under
the Credit Agreement would be unsecured and bear interest, at the Corporation's
option, at rates based on the Eurodollar rate or a bank base rate (as defined).
The Credit Agreement contains a financial covenant relating to leverage, and
provisions which relate to certain changes in control. There have been no
borrowings under the Credit Agreement.
Interest payments were $275 million in 1995, $276 million in 1994 and $262
million in 1993.
Note 9 - Income Taxes
The provision for federal and foreign income taxes consisted of the following
components:
(In millions) 1995 1994 1993
========================================================
Federal income taxes:
Current $ 510 $ 538 $ 304
Deferred (116) 73 165
- --------------------------------------------------------
Total federal income taxes 394 611 469
Foreign income taxes 13 9 8
- --------------------------------------------------------
Total income taxes
provided $ 407 $ 620 $ 477
========================================================
Net provisions for state income taxes are included in general and administrative
expenses, which are primarily allocable to government contracts. Such state
income taxes were $86 million for 1995, $50 million for 1994 and $86 million for
1993.
The Corporation's effective income tax rate varied from the statutory federal
income tax rate because of the following tax differences:
1995 1994 1993
==================================================
Statutory federal tax rate 35.0% 35.0% 35.0%
Increase (reduction) in tax
rate from:
Nondeductible amortization 3.2 2.1 2.0
Revisions to prior years'
estimated liabilities (3.4) (.9) 1.2
Other, net 2.6 .8 (1.7)
- --------------------------------------------------
37.4% 37.0% 36.5%
==================================================
The primary components of the Corporation's federal deferred income tax assets
and liabilities at December 31 were as follows:
(In millions) 1995 1994
=========================================================
Deferred tax assets related to:
Accumulated post-retirement
benefit obligations $ 674 $ 680
Accrued compensation and benefits 290 356
Merger related and
consolidation reserves 168 --
Contract accounting methods 132 76
Other 110 116
- ---------------------------------------------------------
1,374 1,228
Deferred tax liabilities related to:
Intangible assets 547 520
Property, plant and equipment 247 244
- ---------------------------------------------------------
794 764
- ---------------------------------------------------------
Net deferred tax assets $ 580 $ 464
=========================================================
Federal and foreign income tax payments, net of refunds received, were $223
million in 1995, $502 million in 1994 and $455 million in 1993.
68
Lockheed Martin Corporation
Note 10 - Other Income and Expenses
Other income and expenses, net consisted of the following components:
(In millions) 1995 1994 1993
====================================================
Royalty income $ 64 $ 59 $ 33
Interest income 33 34 22
Gain--Materials
public offering -- 118 --
Acquisition termination fee -- 50 --
Other (2) (61) (11)
- ----------------------------------------------------
$ 95 $ 200 $ 44
====================================================
In February 1994, Materials sold through an initial public offering
approximately 8.8 million shares of its common stock. The Corporation retains
approximately 81% of the outstanding stock of Materials. Minority interest of
$84 million and $71 million was included in other liabilities at December 31,
1995 and 1994, respectively. A portion of the proceeds from the offering was
used to defease in substance $125 million of 9.5% Notes. The Corporation
recognized a pretax gain, net of a loss on debt defeasance, of $118 million from
Materials' initial public offering. The net after-tax gain from these
transactions was $70 million, or $.32 per common share assuming full dilution.
During March 1994, the Corporation entered into an Agreement and Plan of Merger
with Grumman Corporation (Grumman) and made an offer to purchase for cash all
outstanding shares of common stock of Grumman. Subsequently, Grumman reached
agreement with and accepted Northrop Corporation's competing offer to purchase
its outstanding common shares. In April 1994, the Corporation received $50
million plus reimbursement of expenses from Grumman pursuant to the termination
provisions of the Agreement and Plan of Merger. The Corporation recorded an
after-tax gain of $30 million, or $.14 per common share assuming full dilution.
Note 11 - Stockholders' Equity and Related Items
Capital structure - The authorized capital structure of the Corporation is
composed of 750 million shares of common stock (199 million shares issued), 50
million shares of series preferred stock (no shares issued), and 20 million
shares of Series A preferred stock (20 million shares issued). Approximately 70
million common shares have been reserved for issuance under benefit and
incentive plans.
The Series A preferred stock has a par value of $1 per share (liquidation
preference of $50 per share). As part of the consideration for the GE
Transaction, the Corporation issued to GE all of the authorized and
outstanding shares of Series A preferred stock. Dividends are cumulative and
paid at an annual rate of $3.00 per share, or 6%. The shares held by GE are
currently convertible into approximately 13% of the shares of the Corporation's
common stock after giving effect to such conversion, have an aggregate
liquidation preference of $1 billion, and are nonvoting except in special
circumstances. Accordingly, 29 million common shares have been reserved for this
potential conversion. In March 1998 and thereafter, the Corporation will be
entitled to redeem, at its option, any or all shares of the Series A preferred
stock for either cash or common stock. The Series A preferred stock is held
under a Standstill Agreement which, among other things, imposes certain
limitations on either the increase or disposal of GE's interest in voting
securities of the Corporation, on GE's solicitation of proxies and stockholder
proposals, on GE's voting of its shares and on GE's ability to place or remove
members of the Corporation's Board of Directors. In addition, the Standstill
Agreement requires the Corporation to recommend to its shareholders the election
of two persons designated by GE to serve as directors of the Corporation.
On July 27, 1995, the Corporation's Board of Directors authorized the repurchase
of up to six million common shares under a systematic repurchase plan to counter
the future dilutive effect of common stock issued by the Corporation under its
1995 Omnibus Performance Award Plan. Additionally, the Board authorized the
repurchase of up to nine million common shares to counter the dilutive effect of
common stock issued under the Corporation's other benefit and compensation
programs and for other purposes related to such plans. Approximately 2.3 million
common shares were repurchased by the Corporation in the second half of 1995.
Stock option and award plans - On March 15, 1995, the stockholders approved the
Lockheed Martin 1995 Omnibus Performance Award Plan (Omnibus Plan). Under the
Omnibus Plan, employees of the Corporation may be granted stock-based incentive
awards, including options to purchase common stock, stock appreciation rights,
restricted stock or other stock-based incentive awards. Employees may
69
Notes to Consolidated Financial Statements Continued
- ------------------------------------------
also be granted cash-based incentive awards, such as performance units. These
awards may be granted either individually or in combination with other awards.
Options to purchase common stock will be at an exercise price of not less than
100% of the market value of the underlying stock on the date of grant. The
number of shares of Lockheed Martin common stock that may be issued in respect
of awards under the Omnibus Plan will not exceed 12 million shares. The Omnibus
Plan does not impose any minimum vesting periods on options or other awards. The
maximum term of an option or any other award is ten years. The Omnibus Plan
allows the Corporation to provide for financing of purchases, subject to certain
conditions, by interest-bearing notes payable to the Corporation.
Prior to the Business Combination, Lockheed and Martin Marietta had also
utilized share-based and cash-based incentive award plans. Under the terms of
certain of these plans, consummation of the Business Combination resulted in the
acceleration of payment of certain benefits that would otherwise have been
payable over time, early vesting of certain benefits that would otherwise not be
fully vested, and, in some cases, the use of modified formulas for calculating
the amounts of such benefits. In addition, the Reorganization Agreement provided
for each outstanding stock option, stock appreciation right and other stock-
based incentive award to be converted into a similar instrument of Lockheed
Martin upon consummation of the Business Combination. Effective with the
adoption of the Omnibus Plan, no further grants of share-based or cash-based
incentive awards will be made under any of Lockheed's and Martin Marietta's
prior plans. Accordingly, shares available for grant under these prior plans
have been removed from registration.
The following table summarizes the stock option activity under the Corporation's
plans during 1995:
Number of Shares
-----------------------
Available Options Option
(In thousands) for Grant Outstanding Price Range
======================================================================
December 31, 1994 3,652 9,244 $19.60-$44.88
Additions 12,000 -- --
Options granted (2,228) 2,228 $ 59.38
Removed from registration (3,674) -- --
Exercised -- (1,943) $19.75-$44.88
Terminated 81 (109) $19.60-$59.38
- ----------------------------------------------------------------------
December 31, 1995 9,831 9,420 $19.60-$59.38
======================================================================
At December 31, 1995, approximately 6.5 million options outstanding were
exercisable.
Note 12 - Post-Retirement Benefit Plans
The Corporation maintains separate plans for post-retirement benefits for
heritage Lockheed and Martin Marietta employees.
Defined Contribution Plans
The Corporation maintains a number of contributory 401(k) savings plans for
salaried employees (the Salaried Plans) and hourly employees (the Hourly Plans)
which cover substantially all employees.
The Lockheed Salaried Plans - The Lockheed Salaried Plan includes an ESOP which
purchased approximately 17.4 million shares of the Corporation's common stock
with the proceeds from a $500 million note issue which is guaranteed by the
Corporation (see Note 8). Shares are held in a suspense account in a salaried
ESOP awaiting release and allocation to participants as described below.
Under provisions of the Lockheed Salaried Plan, employees' eligible
contributions are matched by the Corporation at an established rate. The
Corporation's matching obligation was $98 million in 1995, $103 million in 1994
and $104 million in 1993.
Since inception of the ESOP, some portion of the Corporation's match has
consisted of the Corporation's common stock. The common stock portion of the
matching obligation is fulfilled, in
70
Lockheed Martin Corporation
part, with stock released from the suspense account at approximately 1.2 million
shares per year based upon the debt repayment schedule through the year 2004.
The balance of the stock portion of the matching obligation is fulfilled through
purchases of common stock from terminating participants or on the open market.
Effective January 1, 1994, the Corporation adopted SOP No. 93-6. Among other
things, under this method of accounting, the cost of the ESOP includes the
interest paid by the ESOP trust to service the debt (approximately $31 million
and $33 million for 1995 and 1994, respectively).
The Lockheed salaried ESOP trust held approximately 22 million and 23 million
issued shares of the Corporation's common stock at December 31, 1995 and 1994,
respectively, representing about 11 percent of the Corporation's total common
shares outstanding in each period. The 22 million shares held at December 31,
1995 consisted of approximately 12 million allocated shares and 10 million
unallocated shares. The fair value of the unallocated ESOP shares at December
31, 1995 was approximately $780 million.
The Lockheed Hourly Plans - ESOPs were created and incorporated into the
Lockheed Hourly Plans. The Corporation matches an established rate of
participating employees' eligible contributions to the Hourly Plans through
payments to the ESOP trusts. A portion of the Corporation's match consists of
Corporation common stock purchased by the ESOPs on the open market and from
terminating participants. The required match was $12 million in 1995, $12
million in 1994 and $15 million in 1993. The hourly ESOP trusts held
approximately two million issued and outstanding shares of common stock at
December 31, 1995.
Dividends on allocated shares - Dividends paid to the Lockheed salaried and
hourly ESOP trusts on the allocated shares are paid annually by the ESOP trusts
to the participants based upon the number of shares allocated to each
participant.
The Martin Marietta Plans - The Corporation sponsors a number of contributory
401(k) savings plans which cover substantially all Martin Marietta heritage
employees. Under the provisions of the plans, certain contributions of eligible
employees are matched by the Corporation at an established rate. The
Corporation's contributions for the years ended December 31, 1995, 1994 and 1993
were $70 million, $77 million and $48 million, respectively, which were
reflected as compensation expense. Plan assets at December 31, 1995, which are
held in a master trust, included approximately 10 million shares of the
Corporation's common stock.
Defined Benefit Plans
Most employees are covered by contributory or noncontributory defined benefit
pension plans. Benefits for salaried plans are generally based on average
compensation and years of service, while those for hourly plans are generally
based on negotiated benefits and years of service. Substantially all benefits
are paid from funds previously contributed to trustees. The Corporation's
funding policy is to make contributions that are consistent with U.S. Government
cost allowability and Internal Revenue Service deductibility requirements,
subject to the full-funding limits of the Employee Retirement Income Security
Act of 1974 (ERISA). When any funded plan exceeds the full-funding limits of
ERISA, no contribution is made to that plan.
The net pension cost of the Corporation's defined benefit plans includes the
following components:
(In millions) 1995 1994 1993
===========================================================
Service cost--benefits earned
during the year $ 350 $ 440 $ 386
Interest cost 896 842 807
Net amortization and other
components 1,545 (1,060) 326
Actual return on assets (2,577) 64 (1,259)
Employee contributions (3) (3) (3)
- -----------------------------------------------------------
Net pension cost $ 211 $ 283 $ 257
===========================================================
71
Notes to Consolidated Financial Statements Continued
- ------------------------------------------
The following table sets forth the defined benefit plans' funded status and
amounts recognized in the Corporation's consolidated balance sheet as of
December 31:
(In millions) 1995 1994
=======================================================
Plan assets at fair value $13,848 $11,845
=======================================================
Actuarial present value of
benefit obligations:
Vested $10,839 $ 9,423
Non-vested 121 118
- -------------------------------------------------------
Accumulated benefit obligation 10,960 9,541
Effect of projected future
salary increases 1,648 1,330
- -------------------------------------------------------
Projected benefit obligation (PBO) 12,608 10,871
- -------------------------------------------------------
Plan assets greater than PBO 1,240 974
Reconciling items:
Unrecognized net asset
existing at the date of initial
application of SFAS No. 87 (279) (369)
Unrecognized prior-service cost 536 584
Unrecognized gain (1,332) (984)
- -------------------------------------------------------
Prepaid pension asset $ 165 $ 205
=======================================================
The increase in the fair value of plan assets in 1995 from 1994 was primarily
due to favorable investment returns. The increase in the projected benefit
obligation in 1995 from 1994 was primarily due to a decrease in the assumed
discount rate.
At December 31, 1995, approximately 50 percent of the plan assets were equity
securities and the rest were primarily fixed income securities and cash
equivalents. Actuarial determinations were based on various assumptions
displayed in the following table. Net pension costs in 1995, 1994 and 1993 were
based on assumptions in effect at the end of the respective preceding year.
Benefit obligations as of each year-end were based on assumptions in effect as
of those dates.
1995 1994 1993
====================================================================
Assumptions:
Plan discount rates 7.5% 8.2-8.5% 7.0-7.5%
Rates of increase in future com-
pensation levels 6.0 5.5-6.0 6.0
Expected long-term rate of return
on assets 8.8 8.0-8.8 8.0-8.8
====================================================================
Retiree Medical and Life Insurance Plans
Certain health care and life insurance benefits are provided to eligible
retirees by the Corporation. These benefits are paid by the Corporation or
funded through several trusts.
The net periodic post-retirement benefit cost for the years ended December 31,
included the following components:
(In millions) 1995 1994 1993
=================================================
Service cost--benefits
earned during the year $ 34 $ 54 $ 47
Interest cost 177 164 153
Net amortization and
other components 44 (29) 11
Actual return on assets (82) (3) (35)
Curtailment gain -- (21) (28)
- -------------------------------------------------
Net periodic cost $ 173 $ 165 $ 148
=================================================
The Corporation has made contributions to irrevocable trusts (including
Voluntary Employees' Beneficiary Association (VEBA) trusts and 401(h) accounts)
established to pay future medical benefits to eligible retirees and dependents.
The following table sets forth the post-retirement benefit plans' obligations
and funded status as of December 31:
(In millions) 1995 1994
====================================================
Plan assets at fair value $ 590 $ 423
====================================================
Actuarial present value of
benefit obligations:
Active employees,
eligible to retire $ 344 $ 371
Active employees, not
eligible to retire 428 402
Former employees 1,504 1,480
- ----------------------------------------------------
Accumulated post-retirement
benefit obligation (APBO) 2,276 2,253
- ----------------------------------------------------
Assets less than APBO 1,686 1,830
Unrecognized prior service cost 16 (5)
Unrecognized gain 93 24
- ----------------------------------------------------
Post-retirement benefit
unfunded liability $1,795 $1,849
====================================================
72
Lockheed Martin Corporation
Actuarial determinations were based on various assumptions displayed in the
following table. Net retiree medical costs for 1995, 1994 and 1993 were based on
assumptions in effect at the end of the respective preceding years. Benefit
obligations as of the end of each year reflect assumptions in effect as of those
dates.
1995 1994 1993
======================================================================
Assumptions:
Plan discount rates 7.5% 8.2-8.5% 7.0-7.5%
Expected long-term rate of return
on assets 8.8 8.0-8.8 8.0-8.8
======================================================================
The following table presents the medical trend rates for the plans:
1995 1994 1993
==============================================================
Initial:
Lockheed early retirees (pre-65) 8.0% 11.0% 13.0%
Lockheed other retirees 8.0 6.0 9.0
Martin Marietta retirees 7.5 7.5 7.5
Ultimate Lockheed:
Early(a) 4.5 5.0 5.0
Other(b) 2.0 2.0 2.0
Ultimate Martin Marietta
(7 years and after) 4.5 4.5 4.5
==============================================================
(a) 8 years and after for 1995; 20 years and after for 1994 and 1993.
(b) 13 years and after for 1995; 16 years and after for 1994 and 1993.
An increase of one percentage point in the assumed medical trend rates would
result in an increase in the APBO of approximately 7.9% at December 31, 1995,
and a 1995 post-retirement benefit cost increase of approximately 10.3%. The
Corporation believes that the cost containment features it has previously
adopted and the funding approaches underway will allow it to effectively manage
its retiree medical expenses, but it will continue to monitor the costs of
retiree medical benefits and may further modify the plans if circumstances
warrant.
Note 13 - Leases
Total rental expense under operating leases, net of immaterial amounts of
sublease rentals and contingent rentals, were $236 million, $265 million and
$257 million for 1995, 1994 and 1993, respectively.
Future minimum lease commitments at December 31, 1995, for all operating leases
that have a remaining term of more than one year were $781 million ($178 million
in 1996, $130 million in 1997, $106 million in 1998, $90 million in 1999, $74
million in 2000, and $203 million in later years). Certain major plant
facilities and equipment are furnished by the U.S. Government under short-term
or cancelable arrangements.
Note 14 - Commitments and Contingencies
The Corporation or its subsidiaries are parties to or have property subject to
litigation and other proceedings, including matters arising under provisions
relating to the protection of the environment, that have the potential to affect
the results of the Corporation's operations or its financial position. These
matters include the following items:
Environmental matters - In 1991, the Corporation entered into a consent decree
with the U.S. Environmental Protection Agency (EPA) relating to certain property
in Burbank, California, which obligates the Corporation to design and construct
facilities to monitor, extract, and treat groundwater and operate and maintain
such facilities for approximately eight years. The Corporation estimates that
expenditures required to comply with the terms of the consent decree over the
remaining term of the project will be approximately $50 million.
The Corporation has also been operating under a cleanup and abatement order from
the California Regional Water Quality Control Board affecting its facilities in
Burbank, California. This order requires site assessment and action to abate
groundwater contamination by a combination of groundwater and soil cleanup and
treatment. Based on experience derived from initial remediation activities, the
Corporation estimates the anticipated costs of these actions in excess of the
requirements under the EPA consent decree to approximate $155 million over the
remaining term of the project; however, this estimate is likely to change as
work progresses and as additional experience is gained.
In addition, the Corporation is involved in several other proceedings and
potential proceedings relating to environmental matters, including disposal of
hazardous wastes and soil and water contamination. The extent of the
Corporation's financial exposure cannot in all cases be reasonably estimated at
this time. A liability of approximately $285 million for those cases in which an
estimate of financial exposure can be determined has been recorded.
Under an agreement with the U.S. Government, the Burbank groundwater treatment
and soil
73
Notes to Consolidated Financial Statements Continued
- ------------------------------------------
remediation expenditures referenced above are being allocated to the
Corporation's operations as general and administrative costs and, under existing
government regulations, these and other environmental expenditures related to
U.S. Government business, after deducting any recoveries from insurance or other
responsible parties, are allowable in establishing the prices of the
Corporation's products and services. As a result, a substantial portion of the
expenditures will be reflected in the Corporation's sales and cost of sales
pursuant to U.S. Government agreement or regulation. The Corporation has
recorded a liability for probable future environmental costs as discussed above,
and has recorded an asset for probable future recovery of the portion of these
costs in pricing of the Corporation's products and services for U.S. Government
business. The portion that is expected to be allocated to commercial business
has been reflected in cost of sales. The recorded amounts do not reflect the
possible recovery of portions of the environmental costs through insurance
policy coverage or from other potentially responsible parties to the
contamination, which the Corporation is pursuing as required by agreement and
U.S. Government regulation. Any such recoveries, when received, would reduce the
Corporation's liability as well as the allocated amounts to be included in the
Corporation's U.S. Government sales and cost of sales.
Legal proceedings - The Corporation or its subsidiaries are parties to or have
property subject to litigation and other proceedings, including matters arising
under provisions relating to the protection of the environment, in addition to
those described above. In the opinion of management and counsel, the probability
is remote that the outcome of litigation and proceedings will have a material
adverse effect on the results of the Corporation's operations or its financial
position.
Letters of credit and other matters - The Corporation has entered into standby
letter of credit agreements and other arrangements with financial institutions
primarily relating to the guarantee of future performance on certain contracts.
At December 31, 1995, the Corporation had contingent liabilities on outstanding
letters of credit, guarantees, and other arrangements aggregating approximately
$560 million.
At December 31, 1995, Lockheed Martin Finance Corporation (LMFC) had entered
into approximately $140 million in interest rate swap agreements to reduce the
impact of changes in interest rates on its operations. The effect of these
agreements is that the aggregate of the carrying value of LMFC's financial
instruments approximates their fair market value. LMFC is exposed to credit
loss, to the extent of future interest rate differentials, in the event of
nonperformance by the intermediaries to the interest rate swap agreements. The
Corporation does not anticipate nonperformance by the intermediaries.
Note 15 - Information on Industry Segments and Major Customers
The Corporation operates in four principal business segments: Space & Strategic
Missiles, Aeronautics, Information & Technology Services, and Electronics. All
other activities of the Corporation fall within the Energy, Materials and Other
segment.
Space & Strategic Missiles - Engaged in the design, development, engineering and
production of civil, commercial and military space systems, including
spacecraft, space launch vehicles and supporting ground systems and services;
satellites; strategic fleet ballistic missiles; tactical defense missiles;
electronics and instrumentation; remote sensing technology; space and ground-
based strategic systems; and surface and space-based information and
communications systems.
Aeronautics - Engaged in the design, development, engineering and production of
fighter, bomber, special mission, airlift, antisubmarine warfare,
reconnaissance, surveillance and high performance aircraft; aircraft controls
and subsystems; thrust reversers and shipboard vertical missile launching
systems; and aircraft modification and maintenance and logistics support for
military and civilian customers.
Information & Technology Services - Engaged in the development and operation of
large, complex information systems; designing, manufacturing and marketing
computer graphics products; developing and manufacturing high capacity data
storage products; electronics contract manufacturing services; and providing
advanced transportation systems and services, and payload integration, astronaut
training and flight operations support.
Electronics - Engaged in the design, development, engineering and production of
high-performance electronic systems for undersea, shipboard, land-based and
airborne applications. Major product lines include advanced technology missiles,
night navigation and targeting systems for aircraft; submarine and surface ship
combat systems; airborne,
74
Lockheed Martin Corporation
ship and land-based radar; radio frequency, infrared, and electro-optical
countermeasure systems; surveillance systems; control systems; ordnance; and
aircraft component manufacturing and assembly.
Energy, Materials and Other - The Corporation manages certain facilities for the
U.S. Department of Energy. The contractual arrangements provide for the
Corporation to be reimbursed for the cost of operations and receive a fee for
performing management services. The Corporation reflects only the management fee
in its sales and earnings for these government-owned facilities. In addition,
while the employees at such facilities are employees of the Corporation,
applicable employee benefit plans are separate from the Corporation's plans. The
Corporation also provides construction aggregates and specialty chemical
products to commercial and civil customers through its Materials subsidiary,
provides environmental remediation services to commercial and U.S. Government
customers, and has investments in airport development and management as well as
other businesses.
Selected Financial Data By Business Segment
(In millions) 1995 1994 1993
==============================================================
Net sales
Space & Strategic Missiles $ 7,521 $ 6,719 $ 7,293
Aeronautics 6,617 7,091 6,601
Information & Technology Services 4,528 4,271 3,712
Electronics 3,294 4,055 4,092
Energy, Materials and Other 893 770 699
- --------------------------------------------------------------
$22,853 $22,906 $22,397
==============================================================
Operating profit
Space & Strategic Missiles $ 431 $ 476 $ 507
Aeronautics 394 511 479
Information & Technology Services 269 228 145
Electronics 261 456 331
Energy, Materials and Other 22 308 122
- --------------------------------------------------------------
$ 1,377 $ 1,979 $ 1,584
==============================================================
(In millions) 1995 1994 1993
==============================================================
Depreciation and amortization
Space & Strategic Missiles $ 205 $ 217 $ 218
Aeronautics 142 126 137
Information & Technology Services 67 77 92
Electronics 125 139 161
Energy, Materials and Other 66 79 72
- --------------------------------------------------------------
$ 605 $ 638 $ 680
==============================================================
Expenditures for property, plant
and equipment
Space & Strategic Missiles $ 165 $ 175 $ 163
Aeronautics 58 96 155
Information & Technology Services 64 67 77
Electronics 99 101 77
Energy, Materials and Other 145 70 64
- --------------------------------------------------------------
$ 531 $ 509 $ 536
==============================================================
Identifiable assets
Space & Strategic Missiles $ 3,734 $ 4,195 $ 3,341
Aeronautics 4,082 4,591 5,119
Information & Technology Services 2,758 2,450 2,138
Electronics 3,806 3,338 3,485
Energy, Materials and Other 3,268 3,475 3,025
- --------------------------------------------------------------
$17,648 $18,049 $17,108
==============================================================
75
Notes to Consolidated Financial Statements Continued
- ------------------------------------------
Net Sales By Customer Category
(In millions) 1995 1994 1993
==============================================================
U.S. Government(a)
Space & Strategic Missiles $ 6,025 $ 5,594 $ 6,663
Aeronautics 4,274 4,970 4,937
Information & Technology Services 2,885 2,849 2,737
Electronics 2,418 2,999 3,042
Energy, Materials and Other 168 152 118
- --------------------------------------------------------------
$15,770 $16,564 $17,497
==============================================================
Foreign governments
Space & Strategic Missiles $ 112 $ 290 $ 282
Aeronautics 1,966 1,958 1,408
Information & Technology Services 72 155 9
Electronics 837 1,037 1,028
Energy, Materials and Other -- -- --
- --------------------------------------------------------------
$ 2,987 $ 3,440 $ 2,727
==============================================================
Commercial
Space & Strategic Missiles $ 1,384 $ 835 $ 348
Aeronautics 377 163 256
Information & Technology Services 1,571 1,267 966
Electronics 39 19 22
Energy, Materials and Other 725 618 581
- --------------------------------------------------------------
$4,096 $ 2,902 $ 2,173
==============================================================
(a) Sales made to foreign governments through the U.S. Government are
included in sales to foreign governments.
Export sales were $3.7 billion, $3.6 billion and $2.8 billion in 1995, 1994
and 1993, respectively.
Note 16 - Summary of Quarterly Information (Unaudited)
1995 Quarters
-------------------------------------
(In millions, except per share data) First(a) Second(a) Third Fourth
==============================================================================
Net sales $ 5,644 $ 5,606 $ 5,551 $6,052
Earnings (loss) from operations 290 (55) 510 537
Net earnings (loss) 137 (53) 287 311
Earnings (loss) per common share,
assuming full dilution .62 (b) 1.29 1.38
==============================================================================
1994 Quarters
---------------------------------------
(In millions, except per share data) First(c)(d) Second(e) Third Fourth
===============================================================================
Net sales $ 5,036 $ 5,562 $ 5,704 $6,604
Earnings from operations 402 453 443 481
Earnings before cumulative effect of
change in accounting 272 259 254 270
Earnings per common share before
cumulative effect of change in
accounting, assuming full dilution 1.25 1.19 1.16 1.23
===============================================================================
(a) Earnings for the first and second quarters of 1995 include merger related
and consolidation expenses (see Note 2).
(b) Loss per common share, assuming full dilution, of $.24 has not been
presented above as such amount was anti-dilutive when compared to the loss
per common share, assuming no dilution, of $.36.
(c) First quarter 1994 earnings exclude the cumulative effect of the change in
accounting for ESOP resulting from the adoption of SOP No. 93-6. The
cumulative effect reduced net earnings by $37 million, or $.17 per common
share assuming full dilution.
(d) Earnings for the first quarter of 1994 include the gain from the Materials
public offering (see Note 10).
(e) Earnings for the second quarter of 1994 include the acquisition termination
fee (see Note 10).
76
Lockheed Martin Corporation
Consolidated Financial Data
Six Year Summary
(In millions, except per share data) 1995 1994 1993 1992 1991 1990
====================================================================================================================
Operating Results
Net sales $22,853 $22,906 $22,397 $16,030 $15,871 $16,089
Costs and expenses 21,571 21,127 20,857 14,891 14,767 15,178
- --------------------------------------------------------------------------------------------------------------------
Earnings from operations 1,282 1,779 1,540 1,139 1,104 911
Other income and expenses, net 95 200 44 42 (49) 34
- --------------------------------------------------------------------------------------------------------------------
1,377 1,979 1,584 1,181 1,055 945
Interest expense 288 304 278 177 176 180
- --------------------------------------------------------------------------------------------------------------------
Earnings before income taxes and cumulative effect
of changes in accounting 1,089 1,675 1,306 1,004 879 765
Income tax expense 407 620 477 355 261 161
- --------------------------------------------------------------------------------------------------------------------
Earnings before cumulative effect of changes in
accounting 682 1,055 829 649 618 604
Cumulative effect of changes in accounting -- (37) -- (1,010) --
- --------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 682 $ 1,018 $ 829 $ (361) $ 618 $ 604
====================================================================================================================
Per Common Share
Assuming no dilution:
Before cumulative effect of changes in
accounting $ 3.28 $ 5.32 $ 3.99 $ 3.31 $ 3.05 $ 2.97
Cumulative effect of changes in accounting -- (.20) -- (5.15) --
- --------------------------------------------------------------------------------------------------------------------
$ 3.28 $ 5.12 $ 3.99 $ (1.84) $ 3.05 $ 2.97
====================================================================================================================
Assuming full dilution:
Before cumulative effect of changes in
accounting $ 3.05 $ 4.83 $ 3.75 $ 3.31 $ 3.05 $ 2.97
Cumulative effect of changes in accounting -- (.17) -- (5.15) --
- --------------------------------------------------------------------------------------------------------------------
$ 3.05 $ 4.66 $ 3.75 $ (1.84) $ 3.05 $ 2.97
====================================================================================================================
Cash Dividends $ 1.34 $ 1.14 $ 1.09 $ 1.04 $ .98 $ .90
====================================================================================================================
Condensed Balance Sheet Data
Current assets $ 8,177 $ 8,143 $ 6,961 $ 5,157 $ 5,553 $ 5,442
Property, plant and equipment 3,165 3,455 3,643 3,139 3,155 3,200
Intangible assets related to contracts
and programs acquired 1,808 1,971 2,127 42 52 59
Cost in excess of net assets acquired 2,817 2,831 2,697 841 864 882
Other assets 1,681 1,649 1,680 1,648 895 883
- --------------------------------------------------------------------------------------------------------------------
Total $17,648 $18,049 $17,108 $10,827 $10,519 $10,466
====================================================================================================================
Current liabilities--other $ 4,569 $ 5,350 $ 4,845 $ 3,176 $ 3,833 $ 4,235
Current maturities of long-term debt 722 285 346 327 298 30
Long-term debt 3,010 3,594 4,026 1,803 1,997 2,392
Post-retirement benefit liabilities 1,778 1,756 1,719 1,579 54 --
Other liabilities 1,136 978 971 460 112 38
Stockholders' equity 6,433 6,086 5,201 3,482 4,225 3,771
- --------------------------------------------------------------------------------------------------------------------
Total $17,648 $18,049 $17,108 $10,827 $10,519 $10,466
====================================================================================================================
Common Shares Outstanding at Year End 198.6 199.1 197.9 194.1 201.4 200.7
====================================================================================================================
77
Corporate Directory
- --------------------------------------------------------------------------------
Board of Directors
Norman R. Augustine
President and Chief Executive Officer,
Lockheed Martin Corporation
Marcus C. Bennett
Senior Vice President and
Chief Financial Officer,
Lockheed Martin Corporation
Lynne V. Cheney
W. H. Brady, Jr.,
Distinguished Fellow,
American Enterprise Institute
A. James Clark
Chairman and President,
Clark Enterprises, Inc.
Vance D. Coffman
Executive Vice President
and Chief Operating Officer,
Lockheed Martin Corporation
Edwin I. Colodny
Of Counsel, Paul, Hastings,
Janofsky & Walker
Lodwrick M. Cook
Chairman Emeritus, ARCO
James L. Everett, III
Retired Chairman,
Philadelphia Electric Company
Houston I. Flournoy
Special Assistant to the President, Governmental Affairs,
University of Southern California
James F. Gibbons
Dean, School of Engineering,
Stanford University
Edward L. Hennessy, Jr.
Retired Chairman,
AlliedSignal Inc.
Edward E. Hood, Jr.
Retired Vice Chairman,
General Electric Company
Caleb B. Hurtt
Retired President and
Chief Operating Officer,
Martin Marietta Corporation
Gwendolyn S. King
Senior Vice President,
Corporate and Public Affairs,
PECO Energy Company
Lawrence O. Kitchen
Retired Chairman of the Board
and Chief Executive Officer,
Lockheed Corporation
Gordon S. Macklin
Chairman, White River Corporation
Vincent N. Marafino
Retired Executive Vice President,
Lockheed Martin Corporation
Eugene F. Murphy
President and
Chief Executive Officer,
GE Aircraft Engines
Allen E. Murray
Retired Chairman and
Chief Executive Officer,
Mobil Corporation
David S. Potter
Retired Vice President
and Group Executive,
General Motors Corporation
Frank Savage
Chairman, Alliance Capital
Management International
Daniel M. Tellep
Chairman of the Board,
Lockheed Martin Corporation
Carlisle A. H. Trost
Retired Chief of Naval Operations
James R. Ukropina
Partner, O'Melveny & Myers
Douglas C. Yearley
Chairman, President
and Chief Executive Officer,
Phelps Dodge Corporation
Committees
Audit and Ethics Committee
Mr. Potter, Chairman.
Mrs. King, Messrs. Everett,
Flournoy, Hood, Kitchen,
Macklin and Ukropina.
Compensation Committee
Mr. Murray, Chairman.
Messrs. Clark, Cook, Hennessy,
Hood, Potter, Trost and Yearley.
Executive Committee
Mr. Tellep, Chairman.
Mrs. Cheney, Messrs. Augustine,
Clark, Colodny, Macklin,
Savage and Trost.
Finance Committee
Mr. Ukropina, Chairman.
Mmes. Cheney and King,
Messrs. Colodny, Everett, Hurtt,
Kitchen, Murphy, Savage
and Yearley.
Nominating Committee
Mr. Hennessy, Chairman.
Messrs. Cook, Flournoy, Gibbons,
Hurtt and Murphy.
Officers
Dean O. Allen
Vice President
Joseph D. Antinucci
Vice President
M. Sam Araki
Vice President
Norman R. Augustine
President and Chief Executive Officer
William F. Ballhaus
Vice President
Marcus C. Bennett
Senior Vice President and
Chief Financial Officer
78
Lockheed Martin Corporation
James A. Blackwell, Jr.
Vice President and President
and Chief Operating Officer,
Aeronautics Sector
Harold T. Bowling
Vice President
Peter A. Bracken
Vice President
Melvin R. Brashears
Vice President and President
and Chief Operating Officer,
Space & Strategic Missiles Sector
William B. Bullock
Vice President
Michael F. Camardo
Vice President
Joseph R. Cleveland
Vice President
Vance D. Coffman
Executive Vice President
and Chief Operating Officer
Thomas A. Corcoran
Vice President and President
and Chief Operating Officer,
Electronics Sector
Robert B. Corlett
Vice President
Peter DeMayo
Vice President
Philip J. Duke
Vice President
John F. Egan
Vice President
Ronald R. Finkbiner
Vice President
Jack S. Gordon
Vice President
John Hallal
Vice President
Dain M. Hancock
Vice President
Alfred G. Hansen
Vice President
Alexander L. Horvath
Vice President
John R. Kreick
Vice President
Gary P. Mann
Vice President
John F. Manuel
Vice President
Carol R. Marshall
Vice President
James W. McAnally
Vice President
Russell T. McFall
Vice President
Janet L. McGregor
Vice President
John S. McLellan
Vice President
Frank H. Menaker, Jr.
Vice President and General Counsel
John E. Montague
Vice President
L. David Montague
Vice President
Albert Narath
Vice President and President
and Chief Operating Officer,
Energy & Environment Sector
Gerald T. Oppliger
Vice President
David S. Osterhout
Vice President
Stephen Pavlosky
Vice President
Susan M. Pearce
Vice President
Robert J. Polutchko
Vice President
John B. Ramsey
Vice President
Joseph B. Reagan
Vice President
Robert E. Rulon
Vice President and Controller
Walter E. Skowronski
Vice President and Treasurer
Albert E. Smith
Vice President
Michael A. Smith
Vice President
William R. Sorenson
Vice President
Kenneth R. Swimm
Vice President
Peter B. Teets
Vice President and President
and Chief Operating Officer,
Information & Technology
Services Sector
Joseph T. Threston
Vice President
Robert E. Tokerud
Vice President
Lillian M. Trippett
Secretary and
Associate General Counsel
Leonard L. Victorino
Vice President
William T. Vinson
Vice President and Chief Counsel
79
Lockheed Martin Corporation
General Information
- -------------------
As of December 31, 1995, there were approximately 43,361 holders of record of
Lockheed Martin common stock and 198,601,608 shares outstanding.
Common Stock Prices (New York Stock Exchange--composite transactions)
================================================
High Low Close
1995 Quarters
1st* 54 3/8 50 1/4 52 7/8
2nd 64 7/8 50 63 1/8
3rd 68 1/8 59 3/8 67 1/8
4th 79 1/2 63 79
================================================
*March 16, 1995-March 31, 1995, reflecting the completion of the merger
March 15, 1995.
Transfer Agent & Registrar
First Chicago Trust Company of New York
P. O. Box 2536, Suite 4694
Jersey City, New Jersey 07303-2536
Telephone: 1-800-519-3111
Dividend Reinvestment Plan
Lockheed Martin's Dividend Reinvestment and Stock Purchase Plan offers
stockholders an opportunity to purchase additional shares through automatic
dividend reinvestment and/or voluntary cash investments. For more information,
contact our transfer agent, First Chicago Trust Company of New York at 1-800-
519-3111.
Independent Auditors
Ernst & Young LLP
1225 Connecticut Avenue, N.W.
Washington, D.C. 20036
Common Stock
Stock symbol: LMT
Listed: New York
Annual Report on Form 10-K
Stockholders may obtain, without charge, a copy of Lockheed Martin's Annual
Report on Form 10-K, as filed with the Securities and Exchange Commission for
the fiscal year ended December 31, 1995 by writing to:
Lockheed Martin Investor Relations
6801 Rockledge Drive
Bethesda, MD 20817
or calling Lockheed Martin Shareholder Direct at 1-800-LMT-9758.
Lockheed Martin recently introduced Shareholder Direct. Updates on earnings,
dividends and company news are available by calling 1-800-LMT-9758, 24 hours a
day, seven days a week.
80
This Annual Report contains statements which, to the extent that they are not
recitations of historical fact, constitute "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. All forward looking statements involve risks
and uncertainties. The forward looking statements in this document are intended
to be subject to the safe harbor protection provided by Sections 27A and 21E.
For a discussion identifying some important factors that could cause actual
results to differ materially from those anticipated in the forward looking
statements see the Corporation's Securities and Exchange Commission filings,
including but not limited to, the discussion of "Competition and Risk" and the
discussion of "Government Contracts and Regulations" on pages 10 through 12 and
pages 13 through 14, respectively, of the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995 (Form 10-K); "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 44 through 56 of this Annual Report and "Note 1-Summary of Significant
Accounting Policies" and "Note 14-Commitments and Contingencies" of the Notes to
Consolidated Financial Statements on pages 62 through 63 and 73 through 74,
respectively, of the Audited Consolidated Financial Statements included in this
Annual Report and incorporated by reference into the Form 10-K.
Lockheed Martin Code of Ethics and Business Conduct
We are committed to the ethical treatment of those to whom we have an
obligation.
For our employees we are committed to honesty, just management, and fairness,
providing a safe and healthy environment, and respecting the dignity due
everyone.
For our customers we are committed to produce reliable products and services,
delivered on time, at a fair price.
For the communities in which we live and work we are committed to acting as
concerned and responsible neighbors, reflecting all aspects of good citizenship.
For our shareholders we are committed to pursuing sound growth and earnings
objectives and to exercising prudence in the use of our assets and resources.
For our suppliers we are committed to fair competition and the sense of
responsibility required of a good customer.
Principal photography by Eric Schulzinger
Designed and produced by Taylor & Ives, Inc NYC
Shareholders desiring additional information about the Corporation's ethics
program may write to the Corporation care of Carol R. Marshall, Vice President,
Ethics and Business Conduct, P.O. Box 34143, Bethesda, MD 20827-0143.
APPENDIX TO THE EDGAR VERSION OF THE 1995 ANNUAL REPORT TO
SECURITY HOLDERS FILED PURSUANT TO RULE 304 OF REGULATION S-T
This appendix is being filed pursuant to Rule 304 of Regulation S-K and
represents Lockheed Martin Corporation's good faith effort to fairly and
accurately describe certain graphic and image material that is included in the
paper version of the 1995 Annual Report to Shareholders (the "1995 Annual
Report") but has been omitted from the EDGAR version.
A description of the pictures omitted from the 1995 Annual Report in its
EDGAR format follows. Generally, the omitted pictures are described in the
associated captions and represent products produced by Lockheed Martin
Corporation which are discussed at various locations in the text of the
document. In some instances, the pictures are of officers, directors and
employees of the Corporation or of persons using the Corporation's products. The
pictures are included primarily to add visual interest to the 1995 Annual Report
and are neither individually nor in the aggregate material to an understanding
of the Report.
The 1995 Annual Report in its EDGAR format also omits certain graphic
material. This material is also described fully in the text. A description of
the omitted graphic material follows:
Page 45 - The omitted graph sets forth in columnar format net sales, in millions
of dollars, for the years 1993, 1994 and 1995 and corresponds to the textual
description of net sales.
Page 46 - The graph omitted at the top of the page sets forth in columnar format
net earnings, in millions of dollars, for the years 1993, 1994 and 1995 as well
as including a column pertaining to 1994 to which footnote (a) relates and a
column pertaining to 1995 to which footnote (b) relates. The graph corresponds
to the textual description of net earnings.
Page 46 - The graph omitted at the bottom of the page sets forth in columnar
format earnings per common share, assuming full dilution, in dollars, for the
years 1993, 1994 and 1995 and includes a column pertaining to 1994 to which
footnote (a) relates and a column pertaining to 1995 to which footnote (b)
relates. The graph corresponds to the textual description of earnings per common
share.
Page 52 - The omitted graph sets forth in columnar format negotiated backlog, in
millions of dollars, for the years 1993, 1994 and 1995 and corresponds to the
textual description of negotiated backlog.
Page 53 - The graph omitted at the top of the page sets forth in columnar format
net cash provided by operating activities, of millions in dollars, for the years
1993, 1994 and 1995 and corresponds to the textual description of net cash
provided by operating activities.
Page 53 - The graph omitted at the bottom of the page sets forth in columnar
format dividends per common share, in dollars, for the years 1993, 1994 and 1995
and corresponds to the textual description of dividends per common share.