Preliminary Draft
8/4/99 1:52 PM
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JuneSeptember 30, 1999 COMMISSION FILE NUMBER 1-11437
------------------- ------------------------------- ---------
LOCKHEED MARTIN CORPORATION
-------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 52-1893632
- ------------------------------- ------------------------------------------------------ ----------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
6801 ROCKLEDGE DRIVE, BETHESDA, MD 20817
- -----------------------------------------------------------------------------------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (301) 897-6000
------------------------------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO _______
------------- ------------
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AS OF JulyOctober 31, 1999
- -------------------------- ------------------------------------------------------------ ----------------------------------
COMMON STOCK, $1 PAR VALUE 395,156,608395,952,944
LOCKHEED MARTIN CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNESEPTEMBER 30, 1999
____________
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Unaudited Condensed Consolidated Statement of Earnings -
Three Months and Nine Months Ended September 30, 1999 and 1998.......... 3
Unaudited Condensed Consolidated Statement of Cash
Flows -
Nine Months Ended September 30, 1999 and 1998........................... 4
Unaudited Condensed Consolidated Balance Sheet -
September 30, 1999 and December 31, 1998................................ 5
Notes to Unaudited Condensed Consolidated Financial Statements............ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 16
Part II. Other Information
Item 1. Legal Proceedings................................................ 28
Item 6. Exhibits and Reports on Form 8-K................................. 29
Signatures................................................................... 33
Exhibit 3 Bylaws of Operations -
Three Months and Six Months Ended June 30, 1999 and 1998 ................ 3
Unaudited Condensed Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1999 and 1998 ................................ 4
Unaudited Condensed Consolidated Balance Sheet -
June 30, 1999 and December 31, 1998 .................................... 5
Notes to Unaudited Condensed Consolidated Financial Statements ........... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................ 16
Part II. Other Information
Item 1. Legal Proceedings ............................................... 27
Item 4. Submission of Matters to a Vote of Security Holders ............. 28
Item 6. Exhibits and Reports on Form 8-K ................................ 28
Signatures ................................................................. 31Lockheed Martin Corporation, as amended
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges
Exhibit 27 Financial Data Schedule
2
Lockheed Martin Corporation
Unaudited Condensed Consolidated Statement of Operations
Lockheed Martin CorporationEarnings
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
1999 1998 1999 1998
------ ------ ------- --------------- -------- -------- --------
(In millions, except per share data)
Net sales $6,203 $6,520 $12,391 $12,737$6,157 $6,349 $18,548 $19,086
Cost of sales 6,072 5,882 11,773 11,4815,669 5,653 17,442 17,135
------ ------ ------- -------
Earnings from operations 131 638 618 1,256488 696 1,106 1,951
Other income and expenses, net 3 41 132 70 34 202 105
------ ------ ------- -------
134 679 750 1,326558 730 1,308 2,056
Interest expense 191200 221 383 434583 655
------ ------ ------- -------
(Loss) earningsEarnings before income taxes and
cumulative effect of change in accounting (57) 458 367 892358 509 725 1,401
Income tax (benefit) expense (16) 169 140 334141 191 281 525
------ ------ ------- -------
(Loss) earningsEarnings before cumulative effect of
change in accounting (41) 289 227 558217 318 444 876
Cumulative effect of change in accounting -- -- (355) --
------ ------ ------- -------
Net (loss) earnings $ (41)217 $ 289318 $ (128)89 $ 558
======876
======= ====== ======= =======
(Loss) earningsEarnings (loss) per common share:
- ------------------------------------------------------------------------------
Basic:
Before cumulative effect of change in accounting $ (.11).57 $ .77.84 $ .591.16 $ 1.492.33
accounting
Cumulative effect of change in accounting -- -- (.93) --
------ ------ ------- -------
$ (.11).57 $ .77.84 $ (.34).23 $ 1.49
======2.33
======= ====== ======= =======
Diluted:
Before cumulative effect of change in
accounting $ (.11).57 $ .76.83 $ .591.16 $ 1.472.30
Cumulative effect of change in accounting -- -- (.93) --
------ ------ ------- -------
$ (.11).57 $ .76.83 $ (.34).23 $ 1.47
======2.30
======= ====== ======= =======
Cash dividends declared per common share $ .22 $ .20 $ .44.66 $ .40
======.60
======= ====== ======= =======
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
3
Lockheed Martin Corporation
Unaudited Condensed Consolidated Statement of Cash Flows
Lockheed Martin Corporation
SixNine Months Ended
JuneSeptember 30,
1999 1998
---- ----
(In millions)-------- --------
(In millions)
Operating Activities:Activities
Earnings before cumulative effect of change in accounting $ 227444 $ 558876
Adjustments to reconcile earnings to net cash provided
by operating activities:
Depreciation and amortization 463 494705 744
Changes in operating assets and liabilities (866) (1,132)
-----(766) (913)
------- --------
Net cash used forprovided by operating activities (176) (80)
-----383 707
------- --------
Investing Activities:Activities
Expenditures for property, plant and equipment (276) (307)(442) (477)
Consummation of COMSAT Tender Offer (1,197) --
Sale of shares in L-3 Communications 182 --
Other 3 88
-----(108) 127
------- --------
Net cash used for investing activities (91) (219)
-----(1,565) (350)
------- --------
Financing Activities:Activities
Net increase in short-term borrowings 861 1,1041,881 699
Net repayments related to long-term debt (723)(743) (651)
Issuances of common stock 15 5017 58
Common stock dividends (171) (153)(258) (229)
Final settlement for redemption of preferred stock -- (51)
----- ------- --------
Net cash provided by (used for) provided by financing activities (18) 299
-----897 (174)
------- --------
Net decrease(decrease) increase in cash and cash equivalents (285) --183
Cash and cash equivalents at beginning of period 285 --
----- ------- --------
Cash and cash equivalents at end of period $ -- $ --
======183
======= ========
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
4
Lockheed Martin Corporation
Unaudited Condensed Consolidated Balance Sheet
Lockheed Martin Corporation
JuneSeptember 30, December 31,
1999 1998
---- ------------- --------
(In millions)
Assets
Current assets:
Cash and cash equivalents $ -- $ 285
Receivables 4,6664,426 4,178
Inventories 3,8773,939 4,293
Deferred income taxes 1,1081,035 1,109
Other current assets 721729 746
------- -------
Total current assets 10,37210,129 10,611
Property, plant and equipment 3,5983,565 3,513
Intangible assets related to contracts and programs acquired 1,3391,299 1,418
Cost in excess of net assets acquired 9,3949,230 9,521
Other assets 3,6795,335 3,681
------- -------
$28,382$29,558 $28,744
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,0961,365 $ 1,382
Customer advances and amounts in excess of costs incurred 4,2634,286 4,012
Salaries, benefits and payroll taxes 942957 842
Income taxes 37474 553
Short-term borrowings 7041,223 1,043
Current maturities of long-term debt 346347 886
Other current liabilities 1,3481,482 1,549
------- -------
Total current liabilities 9,0739,734 10,267
Long-term debt 9,98410,463 8,957
Post-retirement benefit liabilities 1,8721,836 1,903
Other liabilities 1,4821,399 1,480
Stockholders' equity:
Common stock, $1 par value per share 393394 393
Additional paid-in capital 146187 70
Retained earnings 5,5655,695 5,864
Accumulated other comprehensive income (loss) 339 (8)
Unearned ESOP shares (166)(159) (182)
------- -------
Total stockholders' equity 5,9716,126 6,137
------- -------
$28,382$29,558 $28,744
======= =======
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
5
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
Lockheed Martin Corporation
JuneSeptember 30, 1999
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Lockheed Martin Corporation (Lockheed Martin or the
Corporation) has continued to follow the accounting policies set forth in the
consolidated financial statements filed with the Securities and Exchange
Commission on March 22, 1999 in its 1998 Annual Report on Form 10-K (Form 10-K).
In the opinion of management, the interim financial information provided herein
reflects all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of the results of operations for the interim periods. The
results of operations for the three months and sixnine months ended JuneSeptember 30,
1999 are not necessarily indicative of results to be expected for the full year.
Certain amounts presented for prior periods have been reclassified to conform
with the 1999 presentation.
In October 1998, the Board of Directors of the Corporation authorized a two-for-onetwo-
for-one split of the Corporation's common stock in the form of a stock dividend.
The stock split was effected on December 31, 1998 to stockholders of record at
the close of business on December 1, 1998. In the accompanying unaudited
condensed consolidated financial statements and Notes to Unaudited
Condensed Consolidated Financial Statements,related notes, all references to
shares of common stock and per share amounts for prior periods have been
restated to reflect the stock split.
NOTE 2 -- TRANSACTION AGREEMENT WITH COMSAT CORPORATION
In September 1998, the Corporation and COMSAT Corporation (COMSAT) announced
that they had entered into an Agreement and Plan of Merger (the Merger
Agreement) to combine the companies in a two-phase transaction with a total
estimated value of approximately $2.7 billion at the date of the announcement
(the Merger). The Merger Agreement has beenwas approved by the respective Boards of
Directors of the Corporation and COMSAT.
In connection with the first phase of this transaction, the Corporation
commencedcompleted a cash tender offer (the Tender Offer) on September 25, 1998, to purchase up to18, 1999, at which
time it accepted for payment approximately 26 million shares of COMSAT common
stock, representing approximately 49 percent subject to certain
adjustments, of the outstanding shares of common stock of
COMSAT, onfor $45.50 a share pursuant to the dateterms of purchase at a price of $45.50 per share, with an estimatedthe Merger Agreement. The
total value of $1.2
billion. Under the Merger Agreement, the Tender Offer will be extended for
periods of up to 60 days until the earlier of (i) September 18, 1999, or (ii)
satisfaction of certain conditions to closing. The secondthis phase of the transaction which will resultwas $1.2 billion, and such amount
is included in consummation ofother assets in the Merger, will be
accomplished by an exchange of one share of Lockheed Martin common stock for
each share of COMSAT common stock.September 30, 1999 Unaudited Condensed
Consolidated Balance Sheet. The consummation of the Tender Offer iswas subject
to, among other things, the approval of the Merger by the stockholders of COMSAT
and certain regulatory approvals, including approval by the Federal
Communications Commission (FCC) and antitrust clearance by the Department of
Justice. TheJustice (DOJ). On August 20, 1999, the stockholders of COMSAT are
expected to vote onapproved the proposed
Merger at COMSAT's annual meetingstockholders meeting. On September 15, 1999, the FCC
issued an order allowing Lockheed Martin to effect transfer of stockholders, which has been rescheduledcontrol of a
COMSAT common carrier subsidiary into a Lockheed Martin subsidiary and to
be held on August 20, 1999. This
meeting was rescheduled, withdesignate such Lockheed Martin subsidiary as an "authorized common carrier"
under the concurrence1962 Communications Satellite Act, and allowing such Lockheed Martin
subsidiary to acquire and hold up to 49 percent of COMSAT's common stock. On
September 16, 1999, the DOJ, whose analysis included consideration of both
phases of the Corporation, becauseproposed Merger, stated that it did not intend to move to enjoin
consummation of the proximity of the originally scheduled meeting date to June 9, 1999, the date on
which the Corporation announced the completion of a financial review that
resulted in a substantial reduction in its earnings and cash flow outlook for
the rest of 1999 and the year 2000. Upon closing of the Tender Offer, theproposed Merger. The Corporation will account for its 49
percent investment in COMSAT under the equity method of accounting. Consummation of the Merger is subject to, among other things, the
enactment of legislation necessary to allowaccounting from October
1, 1999.
6
Lockheed Martin to acquire the
remaining shares
6
Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
On September 17, 1999, PanAmSat Corporation filed pleadings in the United
States District Court of Appeals for the District of Columbia Circuit (the
Court) seeking a review of certain actions taken by the FCC which resulted in
the FCC's authorization to proceed with the Tender Offer. The Corporation and
COMSAT have each filed pleadings stating their intention to intervene in the
matters before the Court.
The second phase of the transaction, which will result in consummation of the
Merger, is to be accomplished by an exchange of one share of Lockheed Martin
Corporationcommon stock for each remaining share of COMSAT common stock andstock. Consummation of
the Merger remains contingent upon the satisfaction of certain additional regulatory approvals.conditions,
including the enactment of federal legislation necessary to remove existing
restrictions on ownership of COMSAT voting stock. Legislation necessary to
remove these restrictions cleared the U.S. Senate on July 1, 1999. On November
10, 1999, the U.S. House of Representatives also passed legislation which, if
adopted into law, would remove these restrictions. There are substantial
differences between the two bills which the Corporation hopes will be resolved
in conference. As it is likely that Congress will adjourn in the near future,
there is no assurance that this will occur during this legislative session or at
all, or that any legislation that does become law would not have an adverse
effect on COMSAT's business. There are several features of the legislation that
passed the U.S. House of Representatives that, if passed into law, would likely
significantly injure COMSAT's business. Although the Corporation anticipates a
favorable outcome in conference, if Congress enacts legislation that the
Corporation determines in good faith, after consultation with COMSAT, would
reasonably be expected to have a Significant Adverse Effect on COMSAT's business
(as defined in the Merger Agreement), the Corporation would have the right to
elect not to complete the Merger.
Following the passage of legislation, the FCC must approve the Merger. The
Merger, upon consummation, will be accounted for under the purchase method of
accounting. If the Tender Offer is consummated but the necessary legislationMerger is not enacted andcompleted by September 18, 2000, under the
additional regulatory approvals areterms of the Merger Agreement, Lockheed Martin or COMSAT could terminate the
Merger Agreement or elect not obtained,to exercise this right, or both parties could
agree to extend this date. If the Merger is not consummated, the Corporation
will not be able to achieve all of its objectives with respect to the COMSAT
transaction and will be unable to exercise control over COMSAT.
The Corporation is not currently designated by the FCC as an "authorized
common carrier," and as such is prohibited from owning more than 10 percent of
COMSAT. The Corporation has filed an application with the FCC to be designated
an "authorized common carrier" and to purchase up to 49 percent of COMSAT. On
January 21, 1999, the Chairman of the House Committee on Commerce and the
Chairman of the Senate Subcommittee on Communications sent a joint letter to the
FCC urging the FCC not to take any action to permit any company to purchase more
than 10 percent of COMSAT prior to Congress adopting satellite industry reform
legislation.
On July 1, 1999, the Senate passed legislation which, among other things,
eliminated the restrictions on the ownership of COMSAT common stock. It is
expected that legislation will be introduced into the House of Representatives
later this year. The Corporation does not know when or if Congress will adopt
satellite reform legislation or whether any satellite reform legislation that is
adopted will permit the completion of the Merger. If the FCC does not proceed
with its review of Lockheed Martin's applications related to the Tender Offer,
or if the FCC's review does not otherwise proceed on the schedule that Lockheed
Martin and COMSAT anticipated, the Tender Offer may take longer than expected to
be completed, and the Merger may not occur in 1999. Further, if the FCC delays
its review pending Congressional action, the Tender Offer may not be completed
by September 18, 1999. If this occurs, under the terms of the Merger Agreement,
Lockheed Martin or COMSAT could terminate the Merger Agreement, or elect not to
exercise this right and extend this date. If Congress enacts legislation that
would reasonably be expected to have a Material Adverse Effect on COMSAT's
business (as defined in the Merger Agreement), the Corporation, following
consultation with COMSAT, would have the right to elect not to complete the
Tender Offer. If the legislation enacted would reasonably be expected to have a
Significant Adverse Effect on COMSAT's business (as defined in the Merger
Agreement), the Corporation, following consultation with COMSAT, would have the
right to elect not to complete the Merger.
NOTE 3 -- EARNINGS PER SHARE
Basic and diluted earnings per share are computed based on net earnings. The
weighted average number of common shares outstanding during the period was used
in the calculation of basic earnings per share, and this number of shares was
increased by the effects of dilutive stock options based on the treasury stock
method in the calculation of diluted earnings per share. As previously
disclosed, all share and per share amounts for prior periods have been restated
to reflect the Corporation's December 1998 two-for-one stock split in the form
of a stock dividend.
Basic and diluted (loss) earnings per
share were computed based on net (loss) earnings. The weighted average number of
common shares outstanding during the period was used in the calculation of basic
(loss) earnings per share, and this number of shares was increased by the
effects of dilutive stock options based on the treasury stock method in the
calculation of diluted earnings per share.
7
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Lockheed Martin Corporation
The following table sets forth the computations of basic and diluted (loss)
earnings
per share:
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
1999 1998 1999 1998
---- ---- ---- ----
-------- -------- -------- --------
(In millions, except per share data)
Net (loss) earnings for basic and diluted computations:
- -------------------------------------------------------
(Loss) earnings------------------------------------------------
Earnings before cumulative effect of change in accounting $ (41)217 $ 289318 $ 227444 $ 558876
Cumulative effect of change in accounting -- -- (355) --
------ ------ ------ ------
Net (loss) earnings $ (41)217 $ 289318 $ (128)89 $ 558876
====== ====== ====== ======
Average common shares outstanding:
- ----------------------------------
Average number of common shares outstanding for basic
computations 381.4 375.9 380.8 374.5382.8 377.1 381.5 375.5
Effects of dilutive stock options based on the treasury
stock method --/(a)/ 5.1 2.5 5.21.9 4.1 2.3 4.7
------ ------ ------ ------
Average number of common shares outstanding for diluted
computations 381.4/(a)/ 381.0 383.3 379.7384.7 381.2 383.8 380.2
====== ====== ====== ======
(Loss) earningsEarnings (loss) per common share:
- ---------------------------------
Basic:
Before cumulative effect of change in accounting $(.11) $ .77.57 $ .59.84 $ 1.491.16 $ 2.33
Cumulative effect of change in accounting -- -- (.93) --
------ ------ ------ ------
$(.11) $ .77.57 $ (.34).84 $ 1.49.23 $ 2.33
====== ====== ====== ======
Diluted:
Before cumulative effect of change in accounting $(.11) $ .76.57 $ .59.83 $ 1.471.16 $ 2.30
Cumulative effect of change in accounting -- -- (.93) --
------ ------ ------ ------
$(.11) $ .76.57 $ (.34).83 $ 1.47.23 $ 2.30
====== ====== ====== ======
(a) In accordance with Statement of Financial Accounting Standards No. 128, the
average number of common shares used in the calculation of diluted loss per
share before cumulative effect of change in accounting have not been
adjusted for the effects of stock options, as such shares would have an
antidilutive effect.
8
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Lockheed Martin Corporation
NOTE 4 -- INVENTORIES
JuneSeptember 30, December 31,
1999 1998
---- ----
(In millions)-------- --------
(In millions)
Work in process, primarily related to long-term
contracts and programs in progress $ 5,5625,654 $ 6,198
Less customer advances and progress payments (2,175)(2,141) (2,499)
------- -------
3,3873,513 3,699
Other inventories 490426 594
------- -------
$ 3,8773,939 $ 4,293
======= =======
Included in inventories at JuneSeptember 30, 1999 and December 31, 1998 were
amounts advanced to Russian manufacturers, Khrunichev State Research and
Production Space Center and
8
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
RD AMROSS, a joint venture between Pratt & Whitney and NPO Energomash, of
approximately $820$855 million and $840 million, respectively, for the manufacture
of launch vehicles and related launch services.
NOTE 5 -- 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. In the opinion of management,
the probability is remote that the outcome of these matters will have a material
adverse effect on the Corporation's consolidated results of operations or
financial position. These matters include the following items:
Environmental matters -- The Corporation entered into a consent decree with
the U.S. Environmental Protection Agency (EPA) in 1991 relatingis responding to certain
property in Burbank, California, which obligated the Corporation to design and
construct facilities to monitor, extract and treat groundwater, and to operate
and maintain such facilities for approximately eight years. The Corporation
entered into a follow-on consent decree in 1998 which obligates the Corporation
to fund the continued operation and maintenance of these facilities through the
year 2018. The Corporation has also been operating under a cleanup and abatement
order fromthree administrative
orders issued by the California Regional Water Quality Control Board (the
Regional 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. The Corporation estimates that total
expenditures required over the remaining terms of the consent decrees and the
Regional Board order will be approximately $110 million.
The Corporation is responding to three administrative orders issued by the
Regional Board in connection with the Corporation's former Lockheed Propulsion
Company facilities in Redlands, California. Under the orders, the Corporation
is investigating the impact and potential remediation of regional groundwater
contamination by perchlorates and chlorinated solvents. The Regional Board has
approved the Corporation's plan to maintain public water supplies with respect
to chlorinated solvents during this investigation, and the Corporation is
negotiating with local water purveyors to implement this plan, as well as to
address water supply concerns relative to perchlorate contamination. The
Corporation estimates that expenditures required to implement work currently
approved will be approximately $110$140 million. The Corporation is also
coordinating with the U.S. Air Force, which is conducting preliminary studies of
the potential
9
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Lockheed Martin Corporation health effects of exposure to perchlorates in connection with
several sites across the country, including the Redlands site. The results of
these studies indicate that current efforts with water purveyors regarding
perchlorate issues are appropriate; however, the Corporation currently cannot
project the extent of its ultimate clean-up obligation with respect to
perchlorates, if any.
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 obligated the Corporation to design and construct facilities
to monitor, extract and treat groundwater, and to operate and maintain such
facilities for approximately eight years. The Corporation entered into a
follow-on consent decree in 1998 which obligates the Corporation to fund the
continued operation and maintenance of these facilities through the year 2018.
The Corporation has also been operating under a cleanup and abatement order from
the Regional 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. The Corporation
estimates that total expenditures required over the remaining terms of the
consent decrees and the Regional Board order will be approximately $70 million.
The Corporation is involved in 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. In addition
to the amounts with respect to the Burbank and Redlands properties described
above, a liability of approximately $240$230 million for the other 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 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
9
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
environmental expenditures related to U.S. Government business, after deducting
any recoveries from insurance or other potentially responsible parties, are
allowable in establishing the prices of the Corporation's products and services.
As a result, a substantial portion of the expenditures are being reflected in
the Corporation's sales and cost of sales pursuant to U.S. Government agreement
or regulation. Although the Defense Contract Audit Agency has questioned certain
elements of the Corporation's practices with respect to the aforementioned
agreement, no formal action has been initiated, and it is management's opinion
that the treatment of these environmental costs is appropriate and consistent
with the terms of such agreement. On October 4, 1999, the Corporation requested
the issuance of a final decision regarding the propriety of the Corporation's
U.S. Government accounting practices for the treatment of environmental costs.
The Corporation has recorded an asset for the portion of environmental costs
that are probable of future recovery 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 future recovery of portions of the
environmental costs through insurance policy coverage or from other potentially
responsible parties, 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.
Waste remediation contract -- In 1994, the Corporation was awarded a $180
million fixed price contract by the U.S. Department of Energy (DOE) for the
Phase II design, construction and limited test of remediation facilities, and
the Phase III full remediation of waste found in Pit 9, located on the Idaho
National Engineering and Environmental Laboratory reservation. The Corporation
incurred significant unanticipated costs and scheduling issues due to complex
technical and contractual matters which threatened the viability of the overall
Pit 9 program. Based on an investigation by management to identify and quantify
the overall effect of these matters, the Corporation submitted a request for
equitable adjustment (REA) to the DOE on March 31, 1997 that sought, among other
things, the recovery of a portion of unanticipated costs incurred by the
Corporation and the restructuring of the contract to provide for a more
equitable sharing of the risks associated with the Pit 9 project. The
Corporation has been unsuccessful in reaching any agreements with the DOE on
cost recovery or other contract restructuring matters. Starting in May 1997,
the Corporation reduced work activities at the Pit 9 site while awaiting
technical direction from the DOE.
On June 1, 1998, the DOE, through Lockheed Martin Idaho Technologies Company
(LMITCO), its management contractor, terminated the Pit 9 contract for default.
On that same 10
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Lockheed Martin Corporation
date, the Corporation filed a lawsuit against the DOE in the U.S.
Court of Federal Claims in Washington, D.C., challenging and seeking to overturn
the default termination. In addition, on July 21, 1998, the Corporation
withdrew the REA previously submitted to the DOE and replaced it with a
certified REA. The certified REA is similar in substance to the REA previously
submitted, but its certification, based upon more detailed factual and
contractual analysis, raises its status to that of a formal claim. On August
11, 1998, LMITCO, at the DOE's direction, filed suit against the Corporation in
U.S. District Court in Boise, Idaho, seeking, among other things, recovery of
approximately $54 million previously paid by LMITCO to the Corporation under the
Pit 9 contract. The Corporation intends to resist this action while continuing
to pursue its certified REA. On January 26, 1999, the U.S. District Court in
Idaho granted the Corporation's motion and stayed the Idaho proceeding until
resolution of the motion to dismiss the lawsuit in the U.S. Court of Federal
Claims, or until August 2, 1999. A status conference was held in the U.S.
District Court in Idaho on August 2, 1999. The1999, following which the Court ordered
discovery to
10
Lockheed Martin Corporation
is awaitingNotes to Unaudited Condensed Consolidated Financial Statements (continued)
commence. In the court's ruling.U.S. Court of Federal Claims, on October 1, 1999, the Court
stayed the DOE's Motion to Dismiss the Corporation's lawsuit, finding that the
Court has jurisdiction. Also, the U.S. Court of Federal Claims ordered discovery
to commence and gave leave to the DOE to convert its motion to dismiss to a
motion for summary judgment if supported by discovery. The Corporation continues
to assert its position in the litigation while continuing its efforts to resolve
the dispute through non-litigation means.
NOTE 6 -- INFORMATION ON BUSINESS SEGMENTS
TheOn September 27, 1999, Lockheed Martin announced the results of its strategic
and organizational review that began June 9, 1999. As a result of this review,
the Corporation operates inhas implemented a new organizational structure, effective
October 1, 1999, that realigns its core lines of business into four principal
business segments: Space &
Strategic Missiles, Electronics, Aeronautics and Information & Services.segments. All other activities of the Corporation fall within the
Corporate and Other segment. Effective January 1, 1999,Prior period amounts have been adjusted to conform
with the Corporation combined its investments in
several existing joint ventures and certain elementsnew organizational realignment. Following is a brief description of the
Corporation withactivities of each business segment:
. Systems Integration - Includes missiles and fire controls, naval systems,
platform integration, and command, control, communications, computers and
intelligence (C4I) lines of business.
. Space Systems - Includes space launch, commercial and government satellites,
and strategic missiles lines of business.
. Aeronautical Systems - Includes tactical aircraft, airlift, and aeronautical
research and development lines of business.
. Technology Services - Includes federal services, energy programs and
aeronautical services lines of business.
. Corporate and Other - Includes commercial information technology and state
and local government services lines of business. Also includes Lockheed
Martin Global Telecommunications, Inc., a wholly-owned subsidiary of the
Corporation, which is includedwas formed effective January 1, 1999 from the combination
of investments in several existing joint ventures and certain other elements
of the Corporate and Other segment.Corporation. Such investments were transferred from the Systems
Integration and Space & Strategic Missiles and Information
& ServicesSystems segments. The prior period amounts related to
these joint ventures and elements transferred were not material to the
respective segments and, therefore, the prior period segment information hasin prior periods was
not been restated to conform with the 1999 presentation. In addition, this segment
includes the Corporation's investment in COMSAT and in certain other joint
ventures and businesses.
11
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Lockheed Martin Corporation
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
1999 1998 1999 1998
------ ------ ------- --------------- -------- -------- --------
(In millions)
Selected Financial Data by Business Segment
Net Salessales
- ---------
Systems Integration $2,708 $2,511 $ 7,980 $ 7,702
Space & Strategic Missiles $1,484 $2,005 $ 3,110 $ 3,912
Electronics 1,816 1,770 3,566 3,468
Aeronautics 1,464 1,381 3,000 2,732
Information &Systems 1,400 1,614 4,345 5,332
Aeronautical Systems 1,214 1,500 3,980 3,974
Technology Services 1,367 1,282 2,568 2,494584 469 1,569 1,408
Corporate and Other 72 82 147 131251 255 674 670
------ ------ ------- -------
$6,203 $6,520 $12,391 $12,737$6,157 $6,349 $18,548 $19,086
====== ====== ======= =======
Operating Profit (Loss)profit (loss)
- -----------------------
Systems Integration $ 296 $ 273 $ 712 $ 723
Space & Strategic Missiles $ 15 $ 234 $ 140 $ 501
Electronics 181 182 333 323
Aeronautics (117) 152 52 303
Information &Systems 101 256 268 750
Aeronautical Systems 105 164 151 471
Technology Services 59 71 120 12629 39 97 102
Corporate and Other (4) 40 105 7327 (2) 80 10
------ ------ ------- -------
$ 134558 $ 679730 $ 7501,308 $ 1,3262,056
====== ====== ======= =======
Intersegment Revenue/(a)/revenue(a)
- -----------------------
Systems Integration $ 163 $ 161 $ 499 $ 508
Space & Strategic Missiles $ 20 $ 10 $ 40 $ 26
Electronics 97 114 190 224
AeronauticsSystems 22 9 62 35
Aeronautical Systems 25 22 50 38
Information &15 68 43
Technology Services 167100 133 372 294401 354
Corporate and Other 14 11 25 238 16 38 45
------ ------ ------- -------
$ 323318 $ 290334 $ 6771,068 $ 605985
====== ====== ======= =======
(a) Intercompany transactions between segments are eliminated in consolidation,
and excluded from the net sales and operating profit (loss) amounts
presented above.
September 30, December 31,
1999 1998
-------- --------
(In millions)
Assets
- ------
Systems Integration $ 13,320 $ 13,435
Space Systems 4,773 5,228
Aeronautical Systems 3,261 3,593
Technology Services 1,501 1,421
Corporate and Other 6,703 5,067
-------- --------
$ 29,558 $ 28,744
========= ========
NOTE 7 -- OTHER
In June 1999, the Corporation recorded negative adjustments in the
AeronauticsAeronautical Systems segment totaling approximately $210 million which resulted
from changes in estimates on the C-130J airlift aircraft program due to cost
growth and a reduction in production rates, based on a current evaluation of the
program's performance. These adjustments, net of state income tax
12
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
benefits, negatively impacted (loss)reduced earnings before income taxes and cumulative effect of change
in accounting by $197 million, and increased thedecreased net lossearnings by $128 million, or
$.33 per diluted share. Also in June 1999, the Corporation recorded negative
adjustments in the Space & Strategic MissilesSystems segment totaling approximately $90 million
related to the Titan IV program which included the effects of changes in
estimates for award and incentive fees resulting from the Titan IV launch
failure on April 30, 1999, as well as a more conservative assessment of future
program performance. These adjustments, net of state income tax benefits,
negatively impacted (loss)reduced earnings before income taxes and cumulative effect of change in
accounting by $84 million, and increased thedecreased net lossearnings by $54 million, or $.14
per diluted share.
12
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Lockheed Martin Corporation
In February 1999, the Corporation sold 4.5 million of its shares in L-3
Communications Holdings, Inc. (L-3) as part of a secondary public offering by L-3.L-
3. This transaction resulted in a reduction in the Corporation's ownership to
approximately seven percent and the recognition of a pretax gain of $114 million
which is reflected in other income and expenses for the sixnine months ended
JuneSeptember 30, 1999. The gain favorably impacted theincreased net lossearnings by $74 million, or $.19 per
diluted share. After the transaction was consummated, the Corporation began
accounting for its remaining investment in L-3 as an available-for-sale
investment, as defined in Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
Accordingly, as of JuneSeptember 30, 1999, the investment in L-3 washas been adjusted
to reflect its current market value, and an unrealized gain of $45$30 million,
which is net of income taxes, was included in stockholders' equity as a
component of accumulated other comprehensive income.
The components of comprehensive lossincome for the three months and sixnine months
ended JuneSeptember 30, 1999 consisted of the following:
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
1999 1999
------ -------------- --------
(In millions)
Net lossearnings $ (41) $(128)217 $ 89
Other comprehensive (loss) income:
Net foreign currency translation (9) (13)
adjustments (11) (4)
Net unrealized (loss) gain 3 45(15) 30
----- -----
Other comprehensive (loss) income (8) 41(24) 17
----- -----
Comprehensive lossincome $ (49)193 $ (87)106
===== =====
Comprehensive income was $289$318 million for the three months ended JuneSeptember 30,
1998 and $558$876 million for the sixnine months ended JuneSeptember 30, 1998, equal to net
earnings for the respective periods, as the components of other comprehensive
income were not material, individually or in the aggregate, in those periods.
In the fourth quarter of 1998, the Corporation recorded a nonrecurring and
unusual pretax charge, net of state income tax benefits, of $233 million related
to actions surrounding the decision to fund a timely non-bankruptcy shutdown of
the business of CalComp Technology, Inc. (CalComp), a majority-owned subsidiary.
As of JuneSeptember 30, 1999, CalComp had, among other actions, consummated sales of
substantially all of its assets, and had terminated substantially all of its
13
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
work force.force, and initiated the corporate dissolution process under the applicable
state statutes. The financial impacts of these actions were within the
parameters established by the Corporation's plans and estimates. Management
expects that the shutdown process, other than the resolution of matters in
dispute or litigation, will be substantially completed by the end of 1999 and
believes that the remaining amount recorded is adequate to complete the plan.
Commercial paper borrowings of approximately $2.2$3.2 billion were outstanding at
JuneSeptember 30, 1999. Of this amount, $1.5$2.0 billion has been classified as long-termlong-
term debt in the Corporation's Unaudited Condensed Consolidated Balance Sheet
based on management's ability and intention to maintain this level of debt
outstanding for at least one year. Commercial paper borrowings are supported by
a short-term revolving credit facility in the amount of $1.0 billion which
expires on 13
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Lockheed Martin Corporation
May 27,28, 2000, and a long-term revolving credit facility in the amount
of $3.5 billion which expires on December 20, 2001. On November 3 and November
9, 1999, the Corporation borrowed $1.0 billion under the short-term revolving
credit facility and $385 million under the long-term revolving credit facility,
respectively. The Corporation will borrow an additional $1.0 billion under its
long-term revolving credit facility on November 15, 1999, and may borrow
additional amounts after that date. The proceeds from the above borrowings have
been or will be used to repay maturing commercial paper.
The Corporation's total interest payments were $383$490 million and $442$550 million
for the sixnine months ended JuneSeptember 30, 1999 and 1998, respectively.
The Corporation's federal and foreign income tax payments, net of refunds
received, were $227$497 million and $150$155 million for the sixnine months ended JuneSeptember
30, 1999 and 1998, respectively.
New accounting pronouncements adopted -- Effective January 1, 1999, the
Corporation adopted the American Institute of Certified Public Accountants'
(AICPA) Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-
Up Activities." SOP No. 98-5 provides authoritative guidance on accounting and
financial reporting related to costs of start-up activities. This SOP requires
that, at the effective date of adoption, costs of start-up activities previously
capitalized be expensed and reported as a cumulative effect of a change in
accounting principle, and further requires that such costs subsequent to
adoption be expensed as incurred. The adoption of SOP No. 98-5 resulted in the
recognition of a cumulative effect adjustment which negatively impactedreduced net
(loss) earnings for the
sixnine months ended JuneSeptember 30, 1999 by $355 million, or $.93 per diluted share.
The cumulative effect adjustment was recorded net of income tax benefits of $227
million, and was primarily composed of approximately $560 million of costs which
were included in inventories as of December 31, 1998.
Effective January 1, 1999, the Corporation adopted the AICPA's SOP No. 97-3,
"Accounting by Insurance and Other Enterprises for Insurance Related
Assessments." SOP No. 97-3 provides authoritative guidance on the recognition,
measurement and disclosure of liabilities for guaranty-fund and certain other
insurance-related assessments, as well as certain related assets. The impact of
the adoption of this SOP was not material to the Corporation's consolidated
results of operations, cash flows or financial position.
Also, effective January 1, 1999, the Corporation adopted the AICPA's SOP No.
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This SOP, which requires the capitalization of certain costs
incurred in connection with developing or obtaining software for internal use
after the date of adoption, will affect the timing of future cash
14
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
flows under contracts with the U.S. Government. However, the impact of the
adoption of SOP No. 98-1 was not material to the Corporation's consolidated
results of operations, cash flows or financial position.
New accounting pronouncements to be adopted -- In June 1998, the Financial
Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 provides
authoritative guidance on accounting and financial reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
The Statement requires the recognition of all derivatives as either assets or
liabilities in the consolidated balance sheet, and the periodic measurement of
those instruments at fair value. The classification of gains and losses
resulting from changes in the fair values of derivatives is dependent on the
intended use of the derivative and its resulting designation, as further defined
in the Statement. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities-DeferralActivities - Deferral of the Effective Date
of FASB Statement No. 133," which deferred the required date of adoption of SFAS
No. 133 for one year, to fiscal years beginning after June 15, 2000; however,
early adoption is allowed, and initial application must be as of the beginning
of a
14
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Lockheed Martin Corporation fiscal quarter. Additionally, SFAS No. 133 cannot be applied retroactively
to prior periods. At adoption, existing hedging relationships must be
designated anew and documented pursuant to the provisions of the Statement. The
Corporation is continuing its process of analyzing and assessing the impact that
the adoption of SFAS No. 133 is expected to have on its consolidated results of
operations, cash flows and financial position, but has not yet reached any
conclusions.
NOTE 8 -- SUBSEQUENT EVENTS
In October 1999, the Corporation exited its commercial 3-D graphics business
through a series of transactions. The combined effects of these transactions
are expected to result in a pretax gain ranging from $40 million to $50 million,
which will be recognized in the fourth quarter.
Also in October 1999, the Corporation sold its remaining interest in L-3
Communications Holdings, Inc. This transaction is expected to result in a
pretax gain of approximately $35 million to $45 million, which will be
recognized in the fourth quarter.
15
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Lockheed Martin Corporation
June 30, 1999
TRANSACTION AGREEMENT WITH COMSAT CORPORATION
In September 1998, the Corporation and COMSAT Corporation (COMSAT) announced
that they had entered into an agreement (the Merger Agreement) to combine the
companies in a two-phase transaction (the Merger). In connection with the first
phase of this transaction, the Corporation commencedcompleted a cash tender offer (the
Tender Offer) on September 18, 1999, after satisfaction of all conditions to purchase up toits
closing. As a result, the Corporation now owns approximately 49 percent subject to certain adjustments, of the
outstanding shares of common stock of COMSAT. UnderCOMSAT and will account for its investment under the
Merger Agreement,equity method of accounting from October 1, 1999. The total value of this first
phase of the transaction was $1.2 billion, and such amount is included in other
assets in the September 30, 1999 Unaudited Condensed Consolidated Balance Sheet.
On September 17, 1999, PanAmSat Corporation filed pleadings in the United
States District Court of Appeals for the District of Columbia Circuit (the
Court) seeking a review of certain actions taken by the FCC which resulted in
the FCC's authorization to proceed with the Tender Offer will be extended for periods of upOffer. The Corporation and
COMSAT have each filed pleadings stating their intention to 60 days untilintervene in the
earlier of
(i) September 18, 1999, or (ii) satisfaction of certain conditions to closing.
The consummation ofmatters before the Tender Offer is subject to, among other things, the
approval of the Merger by the stockholders of COMSAT and certain regulatory
approvals, including approval by the Federal Communications Commission (FCC) and
antitrust clearance by the Department of Justice. The stockholders of COMSAT are
expected to vote on the proposed Merger at COMSAT's annual meeting of
stockholders, which was rescheduled to be held on August 20, 1999.Court.
The second phase of the transaction, which will result in consummation of the
Merger, is to be accomplished by an exchange of one share of Lockheed Martin
common stock for each remaining share of COMSAT common stock. Consummation of
the Merger is subject to, among other things,remains contingent upon the satisfaction of certain conditions,
including the enactment of federal legislation necessary to allow Lockheed Martin to acquire the remaining shares of COMSAT
common stock and certain additional regulatory approvals.
The Corporation is not currently designated by the FCC as an "authorized
common carrier," and as such is prohibited from owning more than 10 percent of
COMSAT. The Corporation has filed an application with the FCC to be designated
an "authorized common carrier" and to purchase up to 49 percent of COMSAT. On
January 21, 1999, the Chairman of the House Committee on Commerce and the
Chairman of the Senate Subcommittee on Communications sent a joint letter to the
FCC urging the FCC not to take any action to permit any company to purchase more
than 10 percent of COMSAT prior to Congress adopting satellite industry reform
legislation.
On July 1, 1999, the Senate passed legislation which, among other things,
eliminated theremove existing
restrictions on the ownership of COMSAT commonvoting stock. It is
expected that legislation will be introduced intoLegislation necessary to
remove these restrictions cleared the U.S. Senate on July 1, 1999. On November
10, 1999, the U.S. House of Representatives lateralso passed legislation which, if
adopted into law, would remove these restrictions. There are substantial
differences between the two bills which the Corporation hopes will be resolved
in conference. As it is likely that Congress will adjourn in the near future,
there is no assurance that this year. Thewill occur during this legislative session or at
all, or that any legislation that does become law would not have an adverse
effect on COMSAT's business. There are several features of the legislation that
passed the U.S. House of Representatives that, if passed into law, would likely
significantly injure COMSAT's business. Although the Corporation does not know when oranticpiates a
favorable outcome in conference, if Congress will adopt
satellite reform legislation or whether any satellite reformenacts legislation that is
adopted will permit the
completion ofCorporation determines in good faith, after consultation with COMSAT, would
reasonably be expected to have a Significant Adverse Effect on COMSAT's business
(as defined in the Merger Agreement), the Corporation would have the right to
elect not to complete the Merger.
Following the passage of legislation, the FCC must approve the Merger. The
Merger, upon consummation, will be accounted for under the purchase method of
accounting. If the FCC doesMerger is not proceed
with its review of Lockheed Martin's applications related to the Tender Offer,
or if the FCC's review does not otherwise proceed on the schedule that Lockheed
Martin and COMSAT anticipated, the Tender Offer may take longer than expected to
be completed, and the Merger may not occur in 1999. Further, if the FCC delays
its review pending Congressional action, the Tender Offer may not be completed by September 18, 1999. If this occurs,2000, under the
terms of the Merger Agreement, Lockheed Martin or COMSAT could terminate the
Merger Agreement or elect not to exercise this right, andor both parties could
agree to extend this date. If Congress enacts legislation that
would reasonably be expected to have a Material Adverse Effect on COMSAT's
business (as defined in the Merger Agreement),is not consummated, the Corporation
following
consultationwill not be able to achieve all of its objectives with respect to the COMSAT
would havetransaction and will be unable to exercise control over COMSAT.
STRATEGIC AND ORGANIZATIONAL REVIEW
On September 27, 1999, Lockheed Martin announced the right to elect not to completeresults of the Tender Offer. If the legislation enacted would reasonably be expected to havestrategic
and organizational review that began June 9, 1999. As a Significant Adverse Effect on COMSAT's business (as defined in the Merger
Agreement),result of this review,
the Corporation following consultation with COMSAT, wouldannounced plans to realign its businesses effective October 1,
1999 (as more fully described in Note 6, "Information on Business Segments"),
and to evaluate the repositioning of certain businesses to maximize their value
and growth potential and the divestiture of certain non-core business units.
The Corporation intends to evaluate alternatives relative to maximizing the
value of three business units that serve the commercial information technology
and state and local government services markets. These units have the
right to elect not to complete the Merger.been
identified by management as having high growth
16
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Lockheed Martinpotential, but are distinct from the Corporation's core business segments. As
each of these businesses will require additional capital and expertise to fully
maximize their value, the Corporation may seek support through strategic
partnerships or joint ventures, or by accessing public equity markets, although
the outcome of those efforts cannot be predicted.
The Corporation also intends to evaluate the divestiture, subject to
appropriate valuation, negotiation and approval, of certain business units in
the aerospace electronics, control systems and environmental management lines of
business. Based on preliminary data, and assuming that the potential
divestiture transactions are approved by the Board and ultimately consummated in
the future, management estimates that the potential one-time effects, if
combined, could result in a decrease in the Corporation's net earnings of
approximately $1 billion, primarily non-cash. However, the potential proceeds
from these transactions, if consummated, could also generate in excess of $1
billion in cash, after transaction costs and associated tax payments, that will
be used to repay debt. Financial effects that may result, if any, would be
recorded when the transactions are consummated or when losses can be estimated.
Management cannot predict the timing of the potential divestitures, the amount
of proceeds that may be realized or whether any or all of the potential
transactions will take place.
On an ongoing basis, the Corporation will continue to explore the sale of
various investment holdings and excess real estate, review its businesses to
identify ways to improve organizational effectiveness and performance, and
clarify and focus on its core business strategy.
GLOBAL TELECOMMUNICATIONS SUBSIDIARY
Effective January 1, 1999, investments in several existing joint ventures and
certain elements of the Corporation were combined with Lockheed Martin Global
Telecommunications, Inc. (Global Telecommunications), a wholly-owned subsidiary
of the Corporation focused on capturing a greater portion of the worldwide
telecommunications services market. The Corporation intends to combine the
operations of Global Telecommunications and COMSAT upon consummation of the
Merger. Given the substantial investment necessary for the growth of the global
telecommunications services business, support from strategic partners for Global
Telecommunications may be sought and public debt or equity markets may be
accessed to raise capital, although the Corporation cannot predict the outcome
of these efforts.
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 quarter, or quarter-to-quarter comparisons of recorded
sales and profits, may not be indicative of future operating results. The
following comparative analysis should be viewed in this context. In the
following discussion, all references to shares of common stock and per share
amounts for prior periods have been restated to reflect the stock split which
was effected on December 31, 1998.
Consolidated net sales for the secondthird quarter of 1999 were $6.2 billion, a
fivethree percent decrease from the $6.5$6.3 billion recorded for the comparable period
in 1998. Decreases in net sales in the Space Systems and Aeronautical Systems
segments more than offset increases in the Systems Integration and Technology
Services segments. Consolidated net sales for the sixnine months ended JuneSeptember
30, 1999 were $12.4$18.5 billion, a three percent decrease from the $12.7$19.1 billion
reported for the same period in 1998. A decrease in net sales in the Space
& Strategic MissilesSystems segment in both periods more than
17
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
offset increases in the remaining significant business segments. The
Corporation's operating profit (earnings before interest and taxes) for the
secondthird quarter of 1999 was $134$558 million versus $679$730 million for the comparable
1998 period. This variance resulted from decreases in operating profit in the
Space Systems and Aeronautical Systems segments. The Corporation's operating
profit for the sixnine months ended JuneSeptember 30, 1999 was $750 million,$1.3 billion, a significant36
percent decrease from the $1.3$2.1 billion reported for the comparable 1998 period.
As discussed more fully below, during the second quarter of 1999, the
Corporation recorded negative adjustments resulting from changes in estimates on
the C-130J and Titan IV programs.
The Corporation recorded a net lossearnings for the secondthird quarter of 1999 of $41$217
million, or $.11$.57 per diluted share, a significant decrease fromas compared to reported secondthird quarter 1998
net earnings of $289$318 million, or $.76$.83 per diluted share. The Corporation's net
lossearnings for the sixnine months ended JuneSeptember 30, 1999 was $128were $89 million, or $.34$.23
per diluted share, as compared to reported net earnings of $558$876 million, or
$1.47$2.30 per diluted share, for the sixnine months ended JuneSeptember 30, 1998. DuringThird
quarter 1999 net earnings included a pretax gain of $34 million associated with
the sale of the Corporation's interest in Airport Group International as well as
a $24 million pretax gain associated with the sale of certain surplus real
estate. The combination of these two items contributed $35 million to net
earnings, or $.09 per diluted share. No gains or losses related to transactions
of a similar nature were included in the comparable 1998 period. In addition to
the third quarter 1999 items noted above, pretax earnings for the first quarternine
months of 1999 further included a $20 million write-down of the Corporation recordedCorporation's
investment in Iridium LLC and a pretax gain of $114 million resulting from the
sale of 4.5 million shares of stock in L-3 Communications CorporationHoldings, Inc. (L-3)
in a secondary offering of L-3's common stock which favorably
impactedstock. The combination of these four
items increased net earnings for the net lossfirst nine months of 1999 by $74$97 million,
or $.19$.25 per diluted share. In addition,Also, the Corporation adopted Statement of Position
No. 98-5, "Reporting on the Costs of Start-Up Activities," effective January 1,
1999, which resulted in the recognition of a cumulative effect adjustment which
negatively impactedreduced net
(loss) earnings for the sixnine months ended JuneSeptember 30, 1999 by $355
million, or $.93 per diluted share. ExcludingPretax earnings for the effectsfirst nine months
of these nonrecurring and unusual
items,1998 included a gain of $18 million related to an initial public offering of
L-3's common stock in May 1998. This item contributed $12 million to net
earnings, for six months ended June 30, 1999 would have been $153
million, or $.40$.03 per diluted share.
17
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Lockheed Martin Corporation
The Corporation's backlog of undelivered orders was approximately $45.0$44.2
billion at JuneSeptember 30, 1999, versus $45.3 billion reported at December 31,
1998. The Corporation received orders for approximately $12$17.4 billion in new
and follow-
onfollow-on business during the first sixnine months of 1999 which were more than
offset by sales recorded during the period. Significant new orders received
during 1999 principally related to various aircraft modification and
maintenance, systems
integration, postal systems, technology services and surface ship systems
activities.
On September 27, 1999, the Corporation announced the results of the strategic
and organizational review that began in June 1999. As a result of this review,
the Corporation has implemented a new organizational structure, effective
October 1, 1999, that realigns its core lines of business into four principal
business segments. The following discussion of the results of operations of the
Corporation's business segments isreflects the new organizational structure based
on information contained in "Note 6 -- Information on Business Segments" of the
Notes to Unaudited Condensed Consolidated Financial Statements included in this
Form 10-Q, including the financial data in the tables under the headings "Net
Sales"sales" and "Operating Profit (Loss)profit (loss )"."
The Space & Strategic MissilesSystems and AeronauticsAeronautical Systems segments generally include programs
that are substantially larger in terms of sales and operating results than those
included in the other
18
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
segments. Accordingly, due to the significant number of smaller programs in the
ElectronicsSystems Integration and Information &Technology Services segments, the impacts of performance
by individual programs typically are not as material to these segments' results
of operations.
Net sales of the Systems Integration segment for the quarter and nine months
ended September 30, 1999 increased by eight percent and four percent,
respectively, from the comparable 1998 periods. During the third quarter of
1999, the segment experienced sales volume increases of approximately $55
million from missiles and fire control activities, $45 million from tactical
training systems, nearly $40 million from surface ship systems and $30 million
from increased electronics systems activities in the United Kingdom. For the
first nine months of 1999 as compared to 1998, the increase in net sales was
attributable to nearly $100 million from surface ship systems, $90 million from
postal program activities and $90 million from the segment's United Kingdom
electronics systems activities. These year-to-date increases were partially
offset by reduced volume on a number of the segment's maturing production
programs. Operating profit for the quarter ended September 30, 1999 increased
by eight percent from the amount reported for the comparable 1998 period as a
result of the sales increases in missile and fire control activities and from
United Kingdom electronics systems activities discussed above. In addition,
during the third quarter of 1999, the U.S. Government announced its decision to
advance the Theater High Altitude Area Defense (THAAD) missile program to the
engineering and manufacturing development phase as a result of a second
consecutive successful intercept. Consequently, the Corporation reversed a $20
million provision set aside in the first quarter of 1999 for potential failures
on future flight tests. This offset the effect of the absence in the third
quarter of 1999 of a favorable arbitration settlement the segment experienced
during the third quarter of 1998. The increase in third quarter 1999 operating
profit over the comparable period of 1998 reduced the decrease in operating
profit for the nine months ended September 30, 1999 to two percent as compared
to the nine months ended September 30, 1998.
Net sales of the Space & Strategic MissilesSystems segment decreased by 2613 percent and 2119 percent
for the quarter and sixnine months ended JuneSeptember 30, 1999, respectively, as
compared to the same 1998 periods. DuringA majority of the third quarter 1999 decrease
resulted from volume decreases in classified activities. The segment also
experienced a reduction of approximately $40 million in commercial and civil
satellite activities and volume decreases in military satellite programs of
approximately $25 million. These decreases were somewhat offset by the
successful launch of an Atlas launch vehicle during the third quarter of 1999.
Nearly half of the year-to-date decrease in net sales resulted from volume
decreases in classified activities. The segment was also negatively impacted by
reductions in commercial and civil satellite activities of approximately $175
million and by reduced volume of military satellite programs of approximately
$100 million. The segment completed one less Atlas launch in 1999 as compared to
1998. In addition, during the second quarter of 1999, the segment recorded
negative adjustments related to the Titan IV program which included the effects
of changes in estimates for award and incentive fees resulting from the Titan IV
launch failure on April 30, 1999, as well as a more conservative assessment of
future program performance. These adjustments negatively impactedreduced net sales by approximately
$90 million. In addition,These decreases were somewhat offset by a $130 million increase in
sales resulting from a greater number of Proton launches in 1999 versus the
segment experienced sales volume decreases in militarycomparable 1998 period. Operating profit decreased by 61 percent and 64 percent
for the quarter and nine months ended September 30, 1999, respectively, as
compared to the same 1998 periods. Third quarter 1999 operating profit as
compared to the same 1998 quarter decreased by $20 million related to commercial
satellite programs of
approximately $60 million. Ofperformance. Also, during the remaining decrease, a majority resulted
equally from volume decreases in classified activities, and from reductions in
manned space, launch vehicle and other activities. The year-to-date net sales
decrease resulted from the Titan IV adjustments referred to above and military
satellite program volume decreases of approximately $90 million. In addition,
the segment was negatively impacted by reductions in commercial and civil
satellite activities and reduced volume of fleet ballistic missile activities of
approximately $140 million. As was the case in the secondthird quarter of 1999, the remaining decrease in the first six months of 1999 compared to the same period
in 1998 resulted equally from volume decreases in classified activities, and
from reductions in manned space,segment
experienced a launch vehicle and other activities. Operating
profit decreased significantly for both the quarter and six months ended June
30, 1999 as compared to the respective 1998 periods. The impactcontract cancellation, resulting in a charge of
the Titan IV
adjustments discussed above reduced operating profit for the quarter by
approximately $90$30 million. In addition, operating profit for the third quarter
was adversely affected by the decline in classified sales volume discussed above
and the expensing of start-up costs relating to launch vehicle investments.
These decreases were
19
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
partially offset by a $24 million gain resulting from the sale of certain
surplus property and the restoration in the third quarter of approximately $20
million of losses previously recorded on a military satellite contract.
Operating profit was also favorably impacted by the third quarter Atlas launch
mentioned previously. During the third quarter of 1998, the segment recorded an
adjustment of $120 million, net of state income taxes, which resulted from a
significant improvement in the Atlas II launch vehicle program related to the
retirement of program and technical risk based upon an evaluation of the
program's historical performance. The year-to-date decrease resulted from the
impact of the Titan IV adjustments of $90 million and the third quarter 1998
favorable Atlas adjustment of $120 million discussed above. In addition,
operating profit was adversely impacted by approximately $20$30 million related to
an assessmentthe cancellation of performance onthe launch vehicle contract discussed above, a military satellite program as well as bydecrease of
approximately $30 million from reduced fleet ballistic missile activities, and a
$20 million write-
downwrite-down of the Corporation's investment in Iridium LLC. Volume
decreases in classified activities and the expensing of start-up costs
associated with launch vehicle investments accounted for roughlymore than half of the
remaining variance.
The
year-to-date decrease in operating profit includes the effects of the second
quarter 1999 items related to Titan IV, military satellites and Iridium LLC
discussed above, accounting for approximately $130 million of the decrease. In
addition, during the first quarter of 1999, the segment incurred a $15 million
penalty related to the Theater High Altitude Area Defense (THAAD) missile
program for failure to intercept the target during a test firing. The segment
also recorded a $20 million charge during the first quarter for further
potential exposure related to this program. Approximately half of the remaining
decrease was attributable in relatively equivalent proportions to a reduction in
civil and commercial
18
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Lockheed Martin Corporation
satellite activities, reduced fleet ballistic missile activities, decreases in
classified activities, and the expensing of start-up costs associated with
launch vehicle investments.
Net sales of the ElectronicsAeronautical Systems segment increased three percent for both the
quarter and six months ended June 30, 1999 from the comparable 1998 periods.
During the second quarter of 1999, the segment experienced net sales increases
of approximately $40 million from surface ship system sales volume and $30
million from increased electronics systems activities in the United Kingdom.
These increases were partially offset by reduced volume on a number of maturing
production programs. For the first six months of 1999 as compared to 1998, the
increase in net sales was attributable to approximately $100 million of greater
volume from postal program activities and approximately $80 million from the
segment's United Kingdom electronics systems activities. As was the case in the
second quarter of 1999, these year-to-date increases were partially offset by
reduced volume on a number of the segment's maturing production programs.
Operating profit for the quarter ended JuneSeptember
30, 1999 was consistent with the
amount reported for the comparable 1998 period. Operating profit for the six
months ended June 30, 1999 increaseddecreased by three19 percent as compared to the six
months ended June 30, 1998, consistent with the increase in net sales.
Net sales of the Aeronautics segment for the quarter and six months ended
June 30, 1999 increased by six percent and 10 percent, respectively, as compared to the same 1998 periods.period. Net sales
for the nine months ended September 30, 1999 were consistent with the reported
1998 amount. The quarter-to-quarter increasedecrease reflects a net sales
increase of approximately $300 million resulting from greater deliveries of
C-130J transport aircraft, offset principally by a $200$240 million decrease
in overall sales relating to the F-16 product area.area and a $50 million decrease in
overall net sales associated with the C-130J transport aircraft. For the six-monthnine-
month period in 1999 compared to the same 1998 period, sales increases from the
C-130J program of nearly $600$550 million more than
offset the $300 million decreasedecreases in the F-16 product area.
Operating profit decreased significantlyby 36 percent and 68 percent in the secondthird quarter and
sixnine months ended JuneSeptember 30, 1999, respectively, as compared to the same
periods in 1998. DuringA majority of the quarter-to-quarter decrease in operating
profit is consistent with the decrease in net sales discussed above, with the
remainder resulting from reduced C-130J margins as compared to the prior year.
The year-to-date decrease principally reflects negative adjustments recorded
during the second quarter of 1999 the segment recorded adjustments that resulted from changes in estimates in the
C-130J program due to cost growth and a reduction in production rates, based on
a current evaluation of the program's performance. These adjustments negatively impactedreduced
operating profit by $210 million. The remaining decrease resulted from reduced
F-16 sales volume.
Net sales of the Information &Technology Services segment for the quarter and sixnine months
ended JuneSeptember 30, 1999 increased by seven25 percent and three11 percent, respectively,
from the comparable 1998 periods. The increases for both the quarter and six-monthnine-
month periods related principally to recorded net sales of approximately $70$85
million and $110$190 million, respectively, related to the operations under the
Consolidated Space Operations Contract, which was awarded in September 1998.
Operating profit for the quarter and sixnine months ended JuneSeptember 30, 1999
decreased by $12$10 million and $6$5 million, respectively, from the comparable 1998
periods dueperiods. The third quarter 1999 decrease resulted from the timing of award fees
on certain energy related contracts as well as from the absence of earnings from
a contract to a write-offmanage two uranium enrichment facilities which expired during the
second quarter of inventory related to a terminated1999. The year-to-date decrease principally resulted from the
timing of award fees discussed earlier, offset by improved performance in the
segment's aircraft maintenance and modification lines of business.
Net sales of the Corporate and Other segment for the quarter and nine months
ended September 30, 1999 were consistent with the comparable 1998 amounts.
Increases in sales volume of approximately $30 million for the third quarter and
$85 million for the year-to-date period resulting from information technology
outsourcing programprograms and from increased costs related to
start-up activities on certainstate and municipal services contracts. These decreasescontracts were partly offset by the absence
in 1999 of losses incurred during 1998sales recorded by the segment's CalComp subsidiary.subsidiary in the
20
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
third quarter and nine-month period of 1998 of $35 million and $115 million,
respectively. CalComp has not operated during 1999, consistent with the
Corporation's actions in the fourth quarter of 1998 surrounding the decision to
fund a timely non-bankruptcy shutdown of CalComp's business. The segment's
operating profit for the quarter ended September 30, 1999 included a $34 million
pretax gain resulting from the sale of the Corporation's investment in Airport
Group International, which develops and operates airport terminals. This gain,
combined with the absence in 1999 of losses from the segment's commercial
products businesses during 1998, more than offset operating losses of $27
million incurred by Global Telecommunications during the third quarter of 1999.
Operating profit for the nine months ended September 30, 1999 increased
significantly compared to the same period in 1998. Included in operating profit
for the nine-month period of 1999 was a $114 million pretax gain from the sale
of L-3 common stock discussed above. The segment's $34 million gain on the sale
of the investment in Airport Group International and the absence in 1999 of
losses incurred by the CalComp subsidiary in 1998 were offset by operating
losses of $74 million incurred by Global Telecommunications. As discussed in
"Note 7 -- Other" of the Notes to Unaudited Condensed Consolidated Financial
Statements, CalComp is continuing its timely non-bankruptcy shutdown and
management expects that the shutdown process, other than the resolution of
matters in dispute or litigation, will be substantially completed by the end of
1999. Net salesIn addition, the segment incurred increased costs related to start-up
activities on certain municipal services contracts and a write-off of the Corporate and Other segment for the quarter ended June 30,
1999 decreasedinventory
related to a terminated information technology outsourcing program.
LIQUIDITY AND CAPITAL RESOURCES
The decrease in cash provided by 12 percent from the comparable 1998 period. The effect of the
absence of certain waste remediation program sales recorded in the second
quarter of 1998 was partially offset by the inclusion in 1999 of the net sales
of Global Telecommunications totaling approximately $16
19
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Lockheed Martin Corporation
million. Net sales increased by 12 percent foroperating activities between the first sixnine
months ended June
30,of 1999 as compared toand the same period in 1998 principally due tois consistent with the inclusioncorresponding
decrease in 1999earnings before cumulative effect of Global Telecommunications net sales of approximately $32
million. The segment recorded a slight operating losschange in accounting principle
for the second quarter of
1999, while operating profit for the six months ended June 30, 1999 increased
significantly compared to the same period in 1998. Included in operating profit
for the six-month period of 1999 was a $114 million pretax gain from the sale of
L-3 common stock discussed above. Excluding this nonrecurring and unusual gain,
the segment would have recorded a slight operating loss for the six-month period
of 1999 as well. Global Telecommunications incurred operating losses of
approximately $23 million and $47 million for the quarter and six months ended
June 30, 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the first half of 1999, $176 million of cash was used for operating
activities, compared to $80 million used during the first half of 1998. This
fluctuation resulted principally from increased working capital requirements
related to certain aircraft and space related programs.periods. Net cash used for investing activities during the first
halfnine months of 1999 was $91 million,$1.6 billion, compared to $219$350 million used during the
first halfnine months of 1998. The 1999 amount includes the payment of approximately
$1.2 billion for the acquisition of 49 percent of COMSAT discussed above, offset
by the receipt of $182 million of proceeds from the sale of L-3 common stock mentioned
previously.stock.
Net cash used forprovided by financing activities was $18$897 million induring the first halfnine
months of 1999 versus $299$174 million provided byused for financing activities in the
comparable 1998 period. The variance between periods was primarily due to a $138
million$1.1
billion increase in the Corporation's total debt during the first halfnine months of
1999 versus an increase in total debtto initially finance the consummation of $453 million during the first half of 1998.
Total debt did not increase as significantly in the first half of 1999 as
compared to the same period in 1998 primarily due to the $285 million of cash on
hand at the beginning of 1999.COMSAT Tender Offer.
Commercial paper borrowings of approximately $2.2$3.2 billion were outstanding at
JuneSeptember 30, 1999. Of this amount, $1.5$2.0 billion has been classified as long-termlong-
term debt in the Corporation's condensed consolidated balance sheetUnaudited Condensed Consolidated Balance Sheet
based on management's ability and intention to maintain this level of debt
outstanding for at least one year. Through March 31, 1999, the Corporation had previously
classified $300 million of its commercialCommercial paper borrowings as long-term. The
increase in the amount classified as long-term primarily relates to the
Corporation's completion ofare supported by
a financial review that resulted in a substantial
reduction in its cash flow projections for the rest of 1999 and the year 2000,
as announced in the second quarter of 1999. On May 28, 1999, the Corporation's
$2.5 billion short-term revolving credit facility expired and was renewed in the amount of $1.0 billion.billion which
expires on May 28, 2000, and a long-term revolving credit facility in the amount
of $3.5 billion which expires on December 20, 2001. On November 3 and November
9, 1999, the Corporation borrowed $1.0 billion under the short-term revolving
credit facility and $385 million under the long-term revolving credit facility,
respectively. The Corporation will borrow an additional $1.0 billion under its
long-term revolving credit facility on November 15, 1999, and may borrow
additional amounts after that date. The proceeds from the above borrowings have
been or will be used to repay maturing commercial paper.
21
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Total debt, including short-term borrowings, amounted to approximately 6566
percent of total capitalization at JuneSeptember 30, 1999, a slight increase from 64
percent reported at December 31, 1998. During the first halfnine months of 1999,
total stockholders' equity decreased by $166$11 million due to the payment of $258
million in dividends, offset principally by reported year-to-date net lossearnings
of $128$89 million and the payment of $171 million in
dividends, partially offset by $41 million of other comprehensive income and $92
million of employee stock option and ESOP activity.activity of $140 million.
The Corporation ultimately expects to finance a portion of the COMSAT Tender
Offer through its disposition of various investment holdings; however, it
is likely that the
Tender Offer willwas initially be financed through the issuance of debt obligations, as
market conditions and limitations on the Corporation's ability to dispose of
such investments makesdid not allow disposition prior to completion of the Tender
Offer unlikely. Following the issuance of the Corporation's June 9,
1999 press release
20
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Lockheed Martin Corporation
regarding completion of a financial review that resulted in a substantial
reduction in its earnings and cash flow outlook, the Corporation's senior long-
term debt rating was placed under review by two rating agencies.Offer.
In January 1999, the Corporation filed a shelf registration with the
Securities and Exchange Commission to provide for the issuance of up to $2.5
billion in debt securities. The registration statement was declared effective in
the first quarter of 1999. On November 5, 1999, the Corporation announced its
intention to issue approximately $2.0 billion of intermediate and long-term debt
securities under this shelf registration. The proceeds from the offering will be
used for general corporate purposes, including the repayment of commercial
paper. On November 10, 1999, the Corporation entered into agreements with third
parties to hedge against interest rate fluctuations relating to a portion of
this proposed debt offering, and expects to close such agreements on the date on
which the interest rates and other terms related to the debt securities are set.
The Corporation actively seeks to finance its business in a manner that
preserves financial flexibility while minimizing borrowing costs to the extent
practicable. The Corporation's management continually reviews the changing
financial, market and economic conditions to manage the types, amounts and
maturities of the Corporation's indebtedness. Periodically, the Corporation may
refinance existing indebtedness, vary its mix of variable rate and fixed rate
debt, or seek alternative financing sources for its cash and operational needs.
Cash and cash equivalents including temporary investments, internally
generated cash flow from operations and other available financing resources are
expected to be sufficient to meet anticipated operating, capital expenditure and
debt service requirements and discretionary investment needs during the next
twelve months. Consistent with the Corporation's desire to generate cash to
invest in its core businesses and reduce debt, management anticipates that,
subject to prevailing financial, market and economic conditions, the Corporation
may continue to divest certain non-core businesses, passive equity investments
and surplus properties.
YEAR 2000 ISSUES
Like most companies, Lockheed Martin is affected by Year 2000 issues.
Accordingly, all of the Corporation's business units are actively involved in
its Year 2000 Compliance Program (the Program). The Program has been designed
to minimize risk to the Corporation's business units and its customers using a
standard six-phase industry approach. The six phases include: Awareness,
Assessment, Renovation, Validation, Implementation and Post-Implementation. In
the Awareness phase, the problem is defined, risks and magnitude of repairs are
communicated, and executive level support and sponsorship is obtained. During
the Assessment phase, an inventory of assets that could be impacted by Year 2000
compliance issues is prepared which includes internal information technology
(IT) systems (e.g. hardware, program applications, data
22
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
centers), external IT systems (e.g. customer products and deliverables,
interfaces with third parties) and non-IT systems (e.g. facilities, non-IT
equipment).
In the Renovation phase, a plan for remediation is developed for each system
or product based on its critical nature and risk. Renovation is considered
complete when these plans have been implemented and the actual conversion of the
hardware, firmware or software has occurred. Renovation of customer products
and deliverables, where requested and funded by the customer, is also a part of
this phase. The Validation phase involves testing of all renovated systems to
ensure that they will operate correctly across and during the Year 2000. During
the Implementation phase, renovated and validated systems are placed into live
production environments. The Post-Implementation phase occurs in the Year 2000.
This phase will entail monitoring of systems to ensure Year 2000 compliance and
implementing business continuity and contingency plans as considered necessary.
The Program was designed to achieve the Corporation's overall goal of Year
2000 readiness in advance of the century change. The Corporation views Year
2000 awareness as a continuous 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Lockheed Martin Corporation
phase of the Program that has resulted in
distribution of news letters, development of internal and external web sites and
an internal Year 2000 Awareness Week. During 1998, the Assessment phase was
completed. As of JuneSeptember 30, 1999, the Renovation, Validation and
Implementation phases were completed with few exceptions that include planned
new and contingency implementations. The remainder of 1999 will be used to
address late availability of vendor or government furnished equipment, monitoringmonitor
the status of Year 2000 compliance of vendors and customers (related to both
products and readiness), completingand complete planned replacement of systems and developing
business continuity plans.
Business continuity planning is required to ensure a smooth transition into
the Year 2000. The purpose is to identify and mitigate risks that may disrupt
the Corporation's operations or its ability to meet commitments. Business
continuity teams have been identified, and command centers, call-out procedures
and emergency procedures are being established. Each business unit has
identified and is focusing business continuity planning on its critical first
quarter Year 2000 operations. Lockheed Martin has developed guidelines for when
contingency plans are required and a standard template for use in documenting
such plans. For example, contingency plans have been developed for any work
that is scheduled to be completed after June 1999, and for new system
implementations where schedule or technical issues are assessed to be
significantly at risk, in which case renovation of legacy systems has been or
will be performed. Lockheed Martin has established a moratorium period
regarding any changes to its systems and environments from November 30, 1999
through January 15, 2000, the purpose of which is to manage these compliant
systems and environments and to mitigate risk associated with major changes or
implementations prior to the Year 2000. Additionally, while management believes
that most of the Corporation's non-IT systems will function without substantial
compliance problems, preparation for events that are generally outside the
direct control of the Corporation (e.g. loss of power or telecommunications
capabilities) have been included as part of business continuity planning. The
Corporation's plans include coordination with existing emergency or crisis
management teams within our facilities to ensure that appropriate scenarios are
utilized in training and drills during 1999. Business continuity teams are being identified, and command
centers, call-out procedures and emergency procedures are being established.
Additionally, Lockheed Martin has established a moratorium period regarding any
changes to its systems and environments from November 30, 1999 through January
15, 2000, the purpose of which is to manage these compliant systems and
environments and to mitigate risk associated with major changes or
implementations prior to the Year 2000.
Management currently estimates that total costs of the Program will be less
than $80 million, approximately $65$70 million of which had been expended through
JuneSeptember 30, 1999. These costs have not been material to the Corporation's
consolidated results of operations, cash flows or
23
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
financial position for any prior period and, based on information available at
this time, are not expected to be material in any future period. The remaining
costs are expected to be directed primarily toward business continuity planning
activities. These estimates include internal costs as well as costs for outside
consulting services, but do not include estimated costs for system replacements
which were not accelerated due to Year 2000 issues. No significant IT projects
have been deferred due to Year 2000 efforts. The costs incurred for the Program
are allowable in establishing prices for the Corporation's products and services
under contracts with the U.S. Government. Therefore, a substantial portion of
these costs are being reflected in the Corporation's sales and cost of sales.
The costs to implement and the time frame contemplated by the Program are
based on management's estimates, which were derived utilizing numerous
assumptions related to future events, including each vendor's ability to modify
proprietary software, the ability of other third parties (including domestic and
foreign customers and suppliers) to successfully address their Year 2000 issues,
unanticipated issues identified in executing the Program, and other similar
uncertainties. While the Corporation expects to resolve all Year 2000 risks
without a material adverse impact to its consolidated results of operations,
cash flows or financial position, there can 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Lockheed Martin Corporation
be no guarantee that these estimates of costs or timing, or that the objectives
of the Program will be achieved. To mitigate these risks,this risk, the Corporation has
formal measurement and reporting processes in place. For example, internal
auditors meet weekly with Program personnel to review the current status of the
Program and related issues, and Program reviews are conducted monthly with each
of the Corporation's segments and quarterly at the business unit level. In
addition, updates are presented periodically to executive management, the Board
of Directors and the Audit and Ethics Committee. The Corporation has obtained
additional assurance through the use of internal independent test environments,
third party verification of randomly selected renovated and validated
applications, and internal audits designed to ensure Year 2000 readiness.
Program assessments have been conducted by customers and the Defense Contract
Audit Agency throughout the Program. With respect to third parties, the
Corporation is aware that a number of its domestic and foreign suppliers and
customers have just recently begun to aggressively address their Year 2000
issues and, therefore, believes there is risk associated with their achieving
timely Year 2000 compliance. To mitigate this risk, formal communication with
all of the Corporation's key suppliers and customers (including banks and U.S.
Government customers) has been initiated as part of the Program. In response to
this communication, the Corporation has received differing levels of information
from these third parties to assist in the assessment of their Year 2000
readiness; however, in most cases, the Corporation is unable to verify the
accuracy of their responses. Based on information available at this time,
management believes that Program activities to date are consistent with the
Program's design.
The Corporation is aware that a "reasonably likely worst case" scenario of
Year 2000 risks could include isolated interruption of deliveries from critical
domestic and foreign suppliers, the inability of critical domestic and foreign
customers to conduct business due to disruption of their operations, product
liability issues, isolated performance problems with manufacturing or
administrative systems, and late availability of embedded vendor products for
which responsibility for Year 2000 compliance rests with the respective vendor.
The consequences of these issues may include increases in manufacturing and
general and administrative expenses until the issues are resolved, lost
revenues, lower or delayed cash receipts, and product liability. The
Corporation cannot currently quantify the potential effect of these issues on
its consolidated results of operations, cash flows or financial position, should
some or a combination of these events come to pass. However, based on
information available at this time, management believes
24
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
that activities of the Program designed to mitigate these types of issues are
consistent with the Program's design.
OTHER MATTERS
As more fully described in Note 5 of the Notes to Unaudited Condensed
Consolidated Financial Statements, the Corporation is continuing to pursue
recovery of a significant portion of the unanticipated costs incurred in
connection with the $180 million fixed price contract with the U.S. Department
of Energy (DOE) for the remediation of waste found in Pit 9. The Corporation has
been unsuccessful to date in reaching any agreements with the DOE on cost
recovery or other contract restructuring matters. In 1998, the management
contractor for the project, a wholly-owned subsidiary of the Corporation, at the
DOE's direction, terminated the Pit 9 contract for default. At the same time,
the Corporation filed a lawsuit seeking to overturn the default termination.
Subsequently, the Corporation took actions to raise the status of its request
for equitable adjustment to a formal claim. Also in 1998, the management
contractor, again at the DOE's direction, filed suit against the Corporation
seeking recovery of approximately $54 million previously paid to the Corporation
under the Pit 9 contract. In January 1999, the U.S. 23
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Lockheed Martin Corporation
District Court in Idaho
granted the Corporation's motion and stayed the Idaho proceeding until
resolution of the motion to dismiss the lawsuit in the U.S. Court of Federal
Claims, or until August 2, 1999. A status conference was held in the U.S.
District Court in Idaho on August 2, 1999. The Corporation is
awaiting1999, following which the court's ruling.Court ordered
discovery to commence. In the U.S. Court of Federal Claims, on October 1, 1999,
the Court stayed the DOE's Motion to Dismiss the Corporation's lawsuit, finding
that the Court has jurisdiction. Also, the U.S. Court of Federal Claims ordered
discovery to commence and gave leave to the DOE to convert its motion to dismiss
to a motion for summary judgment if supported by discovery. The Corporation
continues to assert its position in the litigation while continuing its efforts
to resolve the dispute through non-
litigationnon-litigation means.
As more fully described in Management's Discussion and Analysis in Lockheed
Martin's 1998 Annual Report on Form 10-K (Form 10-K), the Corporation is
involved in two joint ventures with Russian government-owned space firms. The
operations of these joint ventures include marketing Proton launch services,
which are subject to a U.S. Government-imposed quota on the number of Russian
launches of satellites into certain orbits. The majority of customer advances
received for Proton launch vehicle services is forwarded to Khrunichev State
Research and Production Space Center, a launch vehicle manufacturer in Russia.
Significant portions of these advances would be required to be refunded to
customers if launch services were not provided within the contracted time frame.
Through JuneSeptember 30, 1999, launch services provided through these joint
ventures have been in accordance with contract terms.
At JuneSeptember 30, 1999, approximately $955$685 million related to launches not yet
provided was included in customer advances and amounts in excess of costs
incurred (approximately $180 million(no portion of this amount is related to launches in excess of the
quota), and approximately $745$800 million of payments to the Russian manufacturer
for launches not yet provided was included in inventories (approximately $130$220
million of this amount is related to launches in excess of the quota). The
amountsamount above related to launches in excess of the quota werewas determined taking
into account the quota increase from 16 to 20 launches approved by the U.S.
Government in July 1999, and werewas determined without regard to the quota's
current expiration date of December 31, 2000. Based on management's current
estimates as to the number and timing of Proton launches during the remaining
period of the quota, planned Proton launches that would be subject to the quota
are not expected to exceed the quota's current limitations. There can be no
assurance, however, that the
25
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
number, timing or types of anticipated launches will not change, or that the
quota will not be renewed or its expiration date extended. Such changes could
impair the Corporation's ability to achieve certain of its business objectives
related to launch services, satellite manufacture and telecommunications market
penetration. Management is continuing to work toward eliminating any U.S.
Government limitation on the number of Russian launches.
Also as more fully described in Management's Discussion and Analysis in its
Form 10-K, the Corporation is involved in agreements with RD AMROSS, a Russian
manufacturer of booster engines, for the development and purchase, subject to
certain conditions, of up to 101 RD-180 booster engines for use in two models of
the Corporation's launch vehicles. Terms of the agreements call for payments to
be made to RD AMROSS upon the achievement of certain milestones in the
development and manufacturing processes. Included in inventories at JuneSeptember
30, 1999 and December 31, 1998 were payments made under these agreements of
approximately $75$55 million and $100 million, respectively.
On April 27, 1999, an Athena launch vehicle failed to place a commercial
imaging satellite in its proper orbit. Both the launch vehicle and the satellite
had been built by the Corporation. The satellite was to be operated by and was
insured by Space Imaging LP, a limited partnership in which Lockheed Martin
holds an approximate 46% investment which is accounted for under the equity
method of accounting. The effects of the launch failure did not have a
significant effect on
24
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Lockheed Martin Corporation
the Corporation's consolidated financial statements. A second satellite is
expected to be launched in the third quarter of 1999. A failure of the second
satellite to achieve operational status could have a significant effect on the
Corporation's consolidated financial statements. At June 30, 1999, the
Corporation's investment in and other assets related to Space Imaging LP
amounted to approximately $150 million.
OnIn July 22, 1999, the House of Representatives approved a defense budget that
omitsomitted funding for initial production of the F-22 fighter aircraft. Although
management believesIn October
1999, Congress approved a defense budget that restored funding for the
Departmentdevelopment of Defense supports the same number of F-22 programaircraft as originally planned. Since
the funding approved is for the development of the aircraft and that the F-22not for initial
production, Congress will still need to determine whether to approve funding will be restored when House and Senate
members meet in a conference committee later this year to resolve differences
between their defense spending bills, it is possible that the funding may not be
restored, may only be partially restored or the related time period for the
funding may be lengthened. Any of these actions could adversely affect the
Corporation's business units that produce or contribute to the production of the
F-22. Management is continuing to work diligently toward achieving restoration
of the
initial production funding of the F-22 program.
As discussed previously, on June 9, 1999, the Corporation announced the
completion ofat a financial review that resulted in a substantial reduction in its
earnings and cash flow outlook. This financial review was part of a continuing
assessment of the Corporation's activities directed toward improving
organizational effectiveness, performance and strategic alignment. The
Corporation plans to begin implementation of strategic initiatives resulting
from this assessment, if any, at such time as they are identified and approved.
Financial effects, if any, that may result cannot be estimated until the
assessments are completed.future date.
FORWARD LOOKING STATEMENTS
This Form 10-Q 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, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act"). The words "estimate," "anticipate," "project," "intend,"
"expect," and similar expressions are intended to identify forward looking
statements. All forward looking statements involve risks and uncertainties,
including, without limitation, statements and assumptions with respect to future
revenues, program performance and cash flows, the outcome of contingencies
including litigation and environmental remediation, and anticipated costs of
capital investments and planned dispositions. The Corporation is necessarily
subject to various risks and uncertainties and, therefore, actual outcomes are
dependent upon many factors, including, without limitation, our successful
performance of internal plans; the outcome of legislation to permit completion
of the COMSAT transaction; the successful resolution of our Year 2000 issues;
government customers' budgetary constraints; customer changes in short-
rangeshort-range and
long-range plans; domestic and international competition in the defense, space
and commercial areas; product performance; continued development and acceptance
of new products; timing of product delivery and launches, including timing
issues resulting from Atlas and Proton launches being placed on hold pending completion of
reviews related to recent launch failures; performance issues with key suppliers
and subcontractors; government import and export policies; termination of
government contracts; the outcome of political and legal processes, including
uncertainty regarding the current Congressional debate regardingfull funding of the F-22 program; the outcome of
contingencies including completion of acquisitions and divestitures, litigation
and environmental remediation; legal, financial, and governmental risks related
to international transactions and global needs for military and commercial
aircraft and electronic systems and support; as well as other economic,
political and technological risks and uncertainties. Readers are cautioned not
to 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Lockheed Martin Corporation
place undue reliance on these forward looking statements which speak only as
of the date of this Form 10-Q. The Corporation does not undertake any obligation
to publicly
26
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
release any revisions to these forward looking statements to reflect events,
circumstances or changes in expectations after the date of this Form 10-Q, or to
reflect the occurrence of unanticipated events. The forward looking statements
in this document are intended to be subject to the safe harbor protection
provided by Sections 27A of the Securities Act and 21E of the Exchange Act.
For a discussion identifying some important factors that could cause actual
results to vary 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 19 through 21 and
pages 21 through 23, respectively, of the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1998 (Form 10-K); "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 15 through 25 of the 1998 Annual Report, and "Note 1 -- Summary of
Significant Accounting Policies," "Note 2 -- Transaction Agreement with COMSAT
Corporation" and "Note 16 -- Commitments and Contingencies" of the Notes to
Consolidated Financial Statements on pages 32 through 34, page 34, and pages 42
through 43, respectively, of the Audited Consolidated Financial Statements
included in the 1998 Annual Report and incorporated by reference into the Form
10-K; and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 16 through 2627 of this Form 10-Q, and "Note 2 --
Transaction Agreement with COMSAT Corporation," "Note 5 -- Contingencies"- Contingencies," "Note
7 - Other," and "Note 7 -- Other"8 - Subsequent Events" of the Notes to Unaudited Condensed
Consolidated Financial Statements on pages 6 through 7, pages 9 through 11,
and pages 12 through 15, and page 15, respectively, of the Unaudited Condensed
Consolidated Financial Statements included in this Form 10-Q.
2627
Lockheed Martin Corporation
Part II--OtherII - Other Information
Item 1. Legal Proceedings
The Corporation is a party to or has property subject to litigation and other
proceedings, including matters arising under provisions relating to the
protection of the environment, both as specifically described below, in the
Corporation's 1998 Annual Report on Form 10-K and in the Corporation'sits first and second quarter
1999 Quarterly Reports on Form 10-
Q for the quarter ended March 31, 1999,10-Q, or arising in the ordinary course of
business. In the opinion of management, the probability is remote that the
outcome of any such litigation or other proceedings will have a material adverse
effect on the Corporation's consolidated results of operations or financial position.
The Corporation is primarily engaged in providing products and services under
contracts with the U.S. Government and, to a lesser degree, under direct foreign
sales contracts, some of which are funded by the U.S. Government. These
contracts are subject to extensive legal and regulatory requirements and, from
time to time, agencies of the U.S. Government investigate whether the
Corporation's operations are being conducted in accordance with these
requirements. U.S. Government investigations of the Corporation, whether
relating to these contracts or conducted for other reasons, could result in
administrative, civil or criminal liabilities, including repayments, fines or
penalties being imposed upon the Corporation, or could lead to suspension or
debarment from future U.S. Government contracting. U.S. Government
investigations often take years to complete and many result in no adverse action
against the Corporation. For the U.S. Government investigations noted below, it
is too early for the Corporation to determine whether adverse decisions relating
to these investigations could ultimately have a material adverse effect on its
consolidated results of operations or financial condition.
The following describes new matters or developments regardingof previously reported matters that have
occurred since filing of the Corporation's 1998 Annual Report on Form 10-K and
its first and second quarter 1999 Quarterly Reports on Form 10-Q for the quarter ended March 31, 1999.10-Q. See the
"Legal Proceedings" section of those reportsReports for a description of previously
reported matters. There have not been any new matters in the third quarter of
1999.
In 1994, the Corporation was awarded a $180 million fixed price contract by
the U.S. Department of Energy (DOE) for the Phase II design, construction and
limited test of remediation facilities, and the Phase III full remediation of
waste found in Pit 9, located on the Idaho National Engineering and
Environmental Laboratory reservation. The Corporation incurred significant
unanticipated costs and scheduling issues due to complex technical and
contractual matters which threatened the viability of the overall Pit 9 program.
Based on an investigation by management to identify and quantify the overall
effect of these matters, the Corporation submitted a request for equitable
adjustment (REA) to the DOE on March 31, 1997 that sought, among other things,
the recovery of a portion of unanticipated costs incurred by the Corporation and
the restructuring of the contract to provide for a more equitable sharing of the
risks associated with the Pit 9 project. The Corporation has been unsuccessful
in reaching any agreements with the DOE on cost recovery or other contract
restructuring matters. Starting in May 1997, the Corporation reduced work
activities at the Pit 9 site while awaiting technical direction from the DOE.
On June 1, 1998, the DOE, through Lockheed Martin Idaho Technologies Company
(LMITCO), its management contractor, terminated the Pit 9 1999,contract for default.
On that same date, the Corporation issued a press release and filed a Form
8-K with the Securities and Exchange Commission announcing that a financial
review resulted in a substantial reduction of its current earnings and cash flow
outlook for the remainder of 1999 and the year 2000. The Corporation disclosed
that it expects lower earnings per diluted share and lower free cash flow for
both of these periods. On June 15, 1999, Carole Kops, Barbara Zappala and Doug
Perkins filed a lawsuit against the DOE in the United States DistrictU.S.
Court forof Federal Claims in Washington, D.C., challenging and seeking to overturn
the Central
District of California againstdefault termination. In addition, on July 21, 1998, the Corporation
and four of its officers or
directors (Vance D. Coffman, Marcus C. Bennett, Philip Duke, and Thomas A.
Corcoran). The complaint contains class action allegations and states that it is
filed on behalf ofwithdrew the named plaintiffs as well as on behalf of purchasers of
the Corporation's common stock between January 28, 1999 and June 9, 1999. The
complaint alleges that the defendants violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 in that they or persons they controlled
allegedly committed fraud upon class members in connection with their purchases
of the Corporation's common stock. The complaint further alleges that the
statutory safe harbor provided for forward-looking statements does not applyREA previously submitted to the allegedly false forward-looking statements. AccordingDOE and replaced it with a
certified REA. The certified REA is similar in substance to the complaint,
class members were damaged as, in reliance on the integrity of the market, they
paid artificially inflated prices for the Corporation's stock. Plaintiffs seek a
judgment awarding damages with interestREA previously
submitted, but its certification, based upon more detailed factual and
such other relief as the court may
deem proper. The Corporation believes that the allegations are without any merit
whatsoever and will vigorously defend this and any related actions.
27contractual analysis, raises
28
Lockheed Martin Corporation
Part II--OtherII - Other Information (continued)
As is common with private securities class action litigation,its status to that of a formal claim. On August 11, 1998, LMITCO, at the DOE's
direction, filed suit against the Corporation has been named as a defendant in additional, multiple actions
purportedly brought on behalfU.S. District Court in Boise,
Idaho, seeking, among other things, recovery of our shareholders, which were filed subsequentapproximately $54 million
previously paid by LMITCO to the June 15, 1999 complaint. These additional actions assert substantiallyCorporation under the same claims made in that complaint. It is possible that additional related
actions could be filed.Pit 9 contract. The
Corporation expectsintends to resist this action while continuing to pursue its
certified REA. On January 26, 1999, the U.S. District Court in Idaho granted the
Corporation's motion and stayed the Idaho proceeding until resolution of the
motion to dismiss the lawsuit in the U.S. Court of Federal Claims, or until
August 2, 1999. A status conference was held in the U.S. District Court in Idaho
on August 2, 1999, following which the Court ordered discovery to commence. In
the U.S. Court of Federal Claims, on October 1, 1999, the Court stayed the DOE's
Motion to Dismiss the Corporation's lawsuit, finding that the multiple actions will
be consolidatedCourt has
jurisdiction. Also, the U.S. Court of Federal Claims ordered discovery to
commence and that the court will appoint as lead plaintiff the member or
members of the purported plaintiff class that the court determines to be most
capable of adequately representing the interests of class members.
On July 15, 1999, the Corporation was served with a grand jury subpoena
issued by the United States District Court for the Central District of
California. The subpoena seeks documents relatinggave leave to the 1990 international sale
of area defense radar systemsDOE to convert its motion to dismiss to a motion
for summary judgment if supported by the predecessor of Lockheed Martin Sanders and
the compensation of an international sales consultant in connection with that
sale.discovery. The Corporation is cooperating withcontinues to
assert its position in the Government'slitigation while continuing investigation of this matter.
Item 4. Submission of Mattersits efforts to a Vote of Security Holders
On April 22, 1999,resolve
the Corporation held its Annual Meeting of Stockholders.
A description of matters voted upon by stockholders at this meeting, and the
results of such votes, were disclosed in Item 4 of Lockheed Martin Corporation's
Form 10-Q for the quarter ended March 31, 1999 filed with the Securities and
Exchange Commission on May 17, 1999.dispute through non-litigation means.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1. Exhibit 3. Bylaws of Lockheed Martin Corporation, as amended.
In October 1999, the Board of Directors amended several provisions of
the Corporation's Bylaws. Among other amendments, the Board revised the
Bylaws relating to advance notice requirements for stockholders desiring
to bring nominations or other business before a stockholders' meeting.
This does not impact the process or timing for stockholder proposals
submitted for inclusion in the Corporation's proxy statement under Rule
14a-8 of the Securities Exchange Act of 1934. The Bylaws, as amended,
require that stockholders must deliver written notice of nominations or
new business proposals to the Secretary of the Corporation at its
principal executive office, 6801 Rockledge Drive, Bethesda, Maryland
20817, not less than 90 days nor more than 120 days prior to the
anniversary date of the mailing of the notice of the preceding year's
annual meeting. The former requirement was not less than 90 days nor
more than 120 days prior to the anniversary date of the preceding year's
annual meeting. Since the notice of the 1999 Annual Meeting of
Stockholders of the Corporation was mailed on March 19, 1999, to be
properly brought before the 2000 Meeting, written notice of nominations
or other business to be introduced by a stockholder of the Corporation
must be received by the Corporate Secretary between the dates of
November 24, 1999 and December 24, 1999, inclusive.
In addition, the Bylaws were amended to state, consistent with the
Corporation's Charter, that the minimum number of directors would not be
less than twelve, and to provide that the Corporation has opted out of
the Maryland Control Share Acquisition Act.
2. Exhibit 12. Lockheed Martin Corporation Computation of Ratio of Earnings
to Fixed Charges for the sixnine months ended JuneSeptember 30, 1999.
2.3. Exhibit 27. Financial Data Schedule for the sixnine months ended JuneSeptember
30, 1999.
(b) Reports on Form 8-K filed in the second quarter of 1999.
1. Current report on Form 8-K filed on April 21, 1999.
Item 5. Other Events
The Corporation filed information contained in its press
release dated April 20, 1999 concerning its results of
operations for the quarter ended March 31, 1999.
Item 7. Financial Statements and Exhibits
Lockheed Martin Corporation Press Release dated
April 20, 1999.
2. Current report on Form 8-K filed on June 9, 1999.
Item 5. Other Events
The Corporation filed information contained in its press
release dated June 9, 1999 concerning its outlook regarding
its financial performance for the second quarter of fiscal
1999 and subsequent periods.
28
Lockheed Martin Corporation
Part II--Other Information (continued)
Item 7. Financial Statements and Exhibits
Lockheed Martin Corporation Press Release dated June 9, 1999.
3. Current report on Form 8-K filed on June 14, 1999.
Item 5. Other Events
The Corporation filed information to report that on June 11,
1999, COMSAT Corporation issued a press release announcing its
Annual Meeting of Shareholders had been postponed until August
20, 1999. At this meeting, COMSAT Corporation shareholders
will vote on the proposed merger of Lockheed Martin
Corporation and COMSAT Corporation.
4. Current report on Form 8-K filed on June 24, 1999.
Item 5. Other Events
The Corporation, on behalf of a predecessor company, Lockheed
Aircraft Corporation, filed information concerning a proposal
to amend CPS-730 pertaining to the Foreign Corrupt Practices
Act.
Item 7. Financial Statements and Exhibits
Lockheed Martin Corporation Corporate Policy Statement No:
CPS-730 (Compliance with the Foreign Corrupt Practices Act),
as amended.
5. Current report on Form 8-K filed on June 28, 1999.
Item 5. Other Events
The Corporation filed information concerning the filing of a
purported class action lawsuit on June 15, 1999, by Carole
Kops, Barbara Zappala and Doug Perkins, on behalf of
themselves and on behalf of purchasers of Lockheed Martin
Corporation (the Corporation) Common Stock between January 28,
1999 and June 9, 1999, against the Corporation and four of its
officers or directors alleging the defendants violated
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934.
(c) Reports on Form 8-K filed subsequent to the secondthird quarter of 1999.
1. Current report on Form 8-K filed on July 22, 1999.
29
Lockheed Martin Corporation
Part II - Other Information (continued)
Item 5. Other Events
The Corporation filed information contained in its press release dated
July 20, 1999 concerning its results of operations for the quarter
ended June 30, 1999.
29
Lockheed Martin Corporation
Part II--Other Information (continued)
Item 7. Financial Statements and Exhibits
Lockheed Martin Corporation Press Release dated July 20, 1999.
2. Current report on Form 8-K filed on September 7, 1999.
Item 5. Other Events
The Corporation filed information regarding the status of compliance
with a request for additional information issued by the Antitrust
Division of the Department of Justice in the Hart-Scott Rodino Act
antitrust review process as to the Corporation's simultaneous
ownership of shares of Loral Space & Communications Ltd. and shares of
COMSAT Corporation (COMSAT) following consummation of the tender offer
for COMSAT shares.
3. Current report on Form 8-K filed on September 16, 1999.
Item 5. Other Events
The Corporation filed information contained in its press release dated
September 15, 1999 which reported on the status of its pending tender
offer and merger related to COMSAT, particularly one of the conditions
to the tender offer regarding the Federal Communications Commission.
Item 7. Financial Statements and Exhibits
Lockheed Martin Corporation Press Release dated September 15, 1999.
4. Current report on Form 8-K filed on September 16, 1999.
Item 5. Other Events
The Corporation filed information contained in its press release dated
September 16, 1999 which reported on the status of its pending tender
offer and merger related to COMSAT, particularly one of the conditions
to the tender offer regarding the Department of Justice.
Item 7. Financial Statements and Exhibits
Lockheed Martin Corporation Press Release dated September 16, 1999.
5. Current report on Form 8-K filed on September 20, 1999.
Item 5. Other Events
30
Lockheed Martin Corporation
Part II - Other Information (continued)
The Corporation filed information contained in its press release dated
September 18, 1999 which reported on the completion of the
Corporation's tender offer for up to 49% of COMSAT.
Item 7. Financial Statements and Exhibits
Lockheed Martin Corporation Press Release dated September 18, 1999.
(c) Reports on Form 8-K filed subsequent to the third quarter of 1999.
1. Current report on Form 8-K filed on October 4, 1999.
Item 5. Other Events
The Corporation filed information contained in its September 27, 1999
announcement of the results of the strategic and organizational review
that began June 9, 1999. As a result of this review, the Corporation
announced plans to realign its businesses, flatten its management
structure, reduce corporate staff, evaluate the divestiture of non-
core operations, and enhance financial management processes. The new
organizational structure took effect October 1, 1999.
2. Current report on Form 8-K filed on October 27, 1999.
Item 5. Other Events
The Corporation filed information in relation to its September 27,
1999 announcement of the results of the strategic and organizational
review that began June 9, 1999. As a result of this review, the
Corporation implemented a new organizational structure, effective
October 1, 1999, that realigns its core lines of business into four
principal business segments. The information filed includes a brief
description of the activities of each business segment and unaudited
selected financial data by business segment for certain periods which
reflect the organizational realignment.
3. Current report on Form 8-K filed on October 29, 1999 (as amended by a Form
8-K/A filed on November 2, 1999).
Item 5. Other Events
The Corporation filed information contained in three press releases,
each dated October 29, 1999. The Corporation filed information
contained in its first press release concerning its results of
operations for the quarter ended September 30, 1999 and financial
outlook for the year 2000. The Corporation also filed information
contained in its second press release which announced the retirement
of Peter B. Teets, the Corporation's President and COO, from the
Corporation and his position on the Board of Directors. Effective
immediately, Chairman and CEO Vance Coffman will also assume COO
duties. The Corporation also filed information contained in its third
press release which announced the retirement of James A. "Micky"
Blackwell, the Executive Vice President of the
31
Lockheed Martin Corporation
Part II - Other Information (continued)
Corporation's Aeronautical Systems business area. Dain M. Hancock was
announced as his successor.
Item 7. Financial Statements and Exhibits
Three Lockheed Martin Corporation Press Releases, each dated October
29, 1999.
32
LOCKHEED MARTIN CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LOCKHEED MARTIN CORPORATION
---------------------------------------------------------------
(Registrant)
Date: August 9,November 12, 1999 by: /s/Todd J. Kallman
------------------------------ ------------------------------------------------------------ --------------------------------
Todd J. Kallman
Vice President and Controller
(Chief Accounting Officer)
3133