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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(x) Quarterly Report Pursuant To Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 26, 1994
OR
( ) Transition Report Pursuant To Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from to
Commission file number 1-2193
LOCKHEED CORPORATION
(Exact name of registrant as specified in its charter)
State of Delaware 95-0941880
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4500 Park Granada Boulevard 91399
Calabasas, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (818) 876-2000
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 / /
At June 26, 1994, 62,857,773 of the Registrant's 100,000,000 auth-
orized shares of Common Stock were outstanding, and 9,775,996 shares
were held as treasury stock. (3,312,024 shares were reserved for stock
options granted.)
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
In millions, except Second Quarter Six Months
per-share data 1994 1993 1994 1993
==========================================================================
Sales $ 3,096 $ 3,349 $ 6,121 $ 5,857
Costs and expenses 2,888 3,149 5,719 5,499
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Program profits 208 200 402 358
Interest expense (39) (49) (77) (81)
Other income (deductions), net 1 (2) (6) (2)
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Earnings before income taxes 170 149 319 275
Provision for income taxes 66 55 123 105
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Net earnings $ 104 $ 94 $ 196 $ 170
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Earnings per share $ 1.64 $ 1.50 $ 3.09 $ 2.72
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Average number of common and common
equivalent shares outstanding 63.6 62.8 63.5 62.4
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Dividend per share $ .57 $ .53 $ 1.10 $ 1.06
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See accompanying notes.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued).
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Six Months
In millions 1994 1993
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 196 $ 170
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation and amortization 278 222
Changes in operating assets
and liabilities 71 (219)
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Net cash provided by operating activities 545 173
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, and equipment (126) (187)
Purchase of Lockheed Fort Worth Company (1,534)
Other, net (47) (23)
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Net cash used for investing activities (173) (1,744)
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CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in total debt (2) 1,397
Cash dividends (69) (65)
Stock options exercised 7 41
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Net cash provided by (used for) financing activities (64) 1,373
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Increase (decrease) in cash and cash equivalents 308 (198)
Cash and cash equivalents, beginning of period 147 294
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Cash and cash equivalents, end of period $ 455 $ 96
==========================================================================
See accompanying notes.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued).
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
Dollar figures in millions, June 26, December 26,
except per-share data 1994 1993
=====================================================================
Assets
Current assets
Cash and cash equivalents $ 455 $ 147
Accounts receivable 1,609 1,644
Inventories 1,697 1,699
Other current assets 179 350
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Total current assets 3,940 3,840
Property, plant, and equipment (net of
accumulated depreciation and amortization
of $2,571 in 1994 and $2,641 in 1993) 1,878 1,950
Intangible assets related to tactical
aircraft programs acquired (net of
accumulated amortization of $134 in
1994 and $84 in 1993) 1,376 1,425
Excess of purchase price over fair value of
assets acquired (net of accumulated
amortization of $220 in 1994 and $204 in 1993) 775 782
Other noncurrent assets 972 964
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$8,941 $8,961
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Liabilities and Stockholders' Equity
Current liabilities
Short-term borrowings $ 15 $ 21
Accounts payable 742 841
Salaries and wages 405 355
Income taxes 25 44
Customers' advances in excess of related costs 494 606
Current portion of long-term debt 271 28
Other current liabilities 661 638
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Total current liabilities 2,613 2,533
Long-term debt 2,296 2,547
Accumulated retiree medical benefit obligation 921 942
Other long-term liabilities 520 496
Stockholders' equity
Common stock, $1 par value, 100,000,000
shares authorized; 72,633,769 shares
issued (72,471,642 in 1993) 73 73
Additional capital 811 804
Retained earnings 2,557 2,427
Treasury shares, at cost (9,775,996 shares) (454) (454)
Guarantee of ESOP obligations (396) (407)
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Total stockholders' equity 2,591 2,443
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$8,941 $8,961
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See accompanying notes.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued).
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
General Comment
The accompanying unaudited consolidated financial information is condensed
from that which would appear in annual financial statements and should be
read in conjunction with the consolidated financial statements included in
Lockheed's Annual Report on Form 10-K for the year ended December 26, 1993.
In the opinion of management, the interim financial data reflect all
adjustments necessary for a fair presentation. No material adjustments
other than a normal recurring nature were made. However, it should be
understood that accounting measurements at interim dates may be less
precise than those at year-end. Certain reclassifications have been made
to the 1993 information to conform to the 1994 presentation.
Inventories
Inventories consisted of the following components:
June 26, December 26,
In millions 1994 1993
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Work in process $3,338 $3,166
Materials and spare parts 281 310
Advances to subcontractors 252 394
Finished goods 131 105
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4,002 3,975
Less customer advances and
progress payments 2,305 2,276
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$1,697 $1,699
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued).
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(continued)
Long-term Debt
Long-term debt consisted of the following components:
June 26, December 26,
In millions 1994 1993
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Variable-rate notes due 1995 $ 200 $ 200
Fixed-rate notes due 1995 to 2004 140 140
4 7/8% notes due 1996 275 275
5.65% notes due 1997 100 100
5 7/8% notes due 1998 300 300
9 3/8% notes due 1999 300 300
6 3/4% notes due 2003 300 300
9% notes due 2022 200 200
7 7/8% debentures due 2023 300 300
Obligations under long-term
capital leases 21 17
Other obligations 35 36
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2,171 2,168
Guarantee of ESOP obligations 396 407
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2,567 2,575
Less portion due within one year 271 28
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$2,296 $2,547
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
SELECTED FINANCIAL DATA
Second Quarter Six Months
Dollar figures in millions 1994 1993 1994 1993
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Sales by segment
Aeronautical Systems $1,464 $1,571 $2,931 $2,418
Missiles and Space Systems 918 1,088 1,802 2,082
Electronic Systems 408 347 773 686
Technology Services 306 343 615 671
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Total sales $3,096 $3,349 $6,121 $5,857
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Program profits by segment
Aeronautical Systems $ 115 $ 99 $ 214 $ 153
Missiles and Space Systems 76 90 158 183
Electronic Systems 10 8 17 9
Technology Services 7 3 13 13
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Total program profits $ 208 $ 200 $ 402 $ 358
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Sales by customer
U. S. government: Defense 65% 65%
Nondefense 9 12
Foreign governments 15 13
Commercial 11 10
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Funded sign-ups* $5,751 $11,993
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June 26, December 26,
1994 1993
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Funded backlog** $12,751 $13,156
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Capitalization
Debt
Short-term borrowings 15 21
Long-term debt,
including current portion 2,171 2,168
Guarantee of ESOP obligations 396 407
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Total debt 2,582 2,596
Stockholders' equity 2,591 2,443
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Total capitalization 5,173 5,039
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Number of employees 77,500 83,500
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*1993 included acquisition of existing funded backlog of Lockheed Fort
Worth Company of approximately $7 billion.
**Total negotiated backlog was $25.8 billion at June 26, 1994, and $28.9
billion at December 26, 1993, and includes programs under contract to the
United States and foreign governments for which funds have not yet been
allocated.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Lockheed'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.
CONSOLIDATED OPERATIONS
Consolidated sales of $6.1 billion in the first half of 1994 were five
percent higher than the first half of 1993. This increase is primarily due
to the inclusion of sales from the Lockheed Fort Worth Division for a full
six months in 1994 compared to only four months in 1993 and higher
Electronic Systems sales. The increase was partly offset by lower Missiles
and Space Systems and Technology Services sales. Second quarter 1994
consolidated sales of $3.1 billion were eight percent lower than the $3.3
billion recorded in the same period in 1993. The decrease in the second
quarter of 1994 compared to 1993 reflects lower sales in all segments
except the Electronic Systems segment.
Program profits for the second quarter and six-month periods in 1994 were
$208 million and $402 million, four percent and 12 percent higher,
respectively, than the amounts reported for the same periods in 1993. The
higher program profits primarily reflects those segments with higher sales
as well as increased profit margins in most of the company's reporting
segments.
A discussion of operations by business segment begins on the next page.
INTEREST EXPENSE
Interest expense in both the second quarter and first half of 1994 was
lower than the same periods in 1993 because of lower average borrowing
levels and higher interest on borrowings that were redeemed in May, 1993.
OTHER INCOME (DEDUCTIONS), NET
Other deductions were greater in the first half of 1994 compared to the
first half of 1993 primarily due to greater miscellaneous expenses in 1994
and lower interest income from the temporary investment of excess cash.
PROVISION FOR INCOME TAXES
Income tax expense increased in 1994 versus 1993 due to the higher income
and a slightly higher tax rate of 38.5 percent in 1994 versus 38 percent in
1993.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
NET EARNINGS
The higher net earnings in 1994 reflects both the higher program profits
and the lower interest expense offset in part by the higher provision for
income taxes.
OPERATIONS BY BUSINESS SEGMENT
Aeronautical Systems sales of $2.9 billion were 21 percent higher in the
six months of 1994 compared to the first half of 1993 primarily due to the
inclusion of Lockheed Fort Worth Division, acquired in March 1993, for a
full six months in 1994, higher C-130 deliveries (14 versus 6), and higher
F-22 revenues. Partially offsetting these increases were reduced sales in
various antisubmarine warfare, special mission, and aircraft maintenance
programs. The lower revenues in the second quarter of 1994 compared to the
second quarter of 1993 was due to lower antisubmarine warfare, special
mission, aircraft maintenance, and F-16 (reflecting lower spares and
support sales offset in part by more aircraft deliveries) programs.
Program profits increased 40 percent from $153 million in the first six
months of 1993 to $214 million in 1994. This is due to the sales increases
mentioned above as well as improved profit margins in most programs offset
in part by greater activity in 1994 to develop the updated C-130J
airlifter. Program profits for the quarter improved 16 percent from the
second quarter of 1993 to $115 million in 1994 reflecting increased margins
in most programs
Missiles and Space Systems revenues in 1994 were 16 percent and 13 percent
lower in the second quarter and first half, respectively, than last year's
amounts. The sales decreases in both periods reflect declines in most of
the missiles and space systems lines of business offset in part by
increases in the Theater High Altitude Area Defense (THAAD) development
program and various research and development programs. The lower program
profits in both the second quarter and six months of 1994 compared to 1993
reflect the sales variances offset in part by performance incentives for
the Milstar and fleet ballistic missiles programs and various missiles
systems programs. Overall program profit margins in this segment were
stable compared to 1993 for the quarter and the six month periods.
Electronic Systems sales were higher for both the second quarter and first
half of 1994 compared to the same periods in 1993 due to higher sales in
various commercial electronic programs. Defense electronic sales remained
stable in the comparable periods in 1994 versus 1993. Program profits for
the second quarter of 1994 were higher compared to 1993 due to improved
performance on computer peripherals lines of business. On a year-to-date
basis, the increased program profits in 1994 versus 1993 reflects improved
performance for defense electronics programs and computer peripheral
business.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Technology Services revenues were lower in both the second quarter and the
six months of 1994 compared to 1993 reflecting lower NASA and field support
activities. Program profits for the second quarter of 1994 versus 1993 are
higher due to improved program profit margins for the shuttle processing
program for NASA and various environmental service programs. Program
profits for the first half of 1994 were relatively unchanged from the same
period in 1993. Improved performance in various programs was offset by the
lower sales mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $545 million for the six
months of 1994 compared to $173 million in 1993. This significant increase
reflects the higher earnings, the collection of over $60 million in
progress payments related to the Lockheed Fort Worth Company material cost
allocation system previously withheld by the U.S. government, and
fluctuations in working capital requirements.
The company continuously reviews its property, plant and equipment
requirements to assess adequacy, extent of utilization, and future needs.
Because of the diversity of its operations, depending on the outcome of
these reviews the company may dispose of certain facilities and may require
capital expenditures at other locations. The company spent $126 million on
additions to property, plant, and equipment during the first half of 1994
compared with $187 million in 1993. This decrease reflects the current
plan for lower capital expenditures in 1994.
The company's cash balance at June 26, 1994 was $455 million, an increase
of $308 million from year-end 1993. This level of cash is presently
expected to continue until the end of this fiscal year. Cash in excess of
immediate operating needs is temporarily invested in interest-bearing
instruments.
Total debt outstanding at June 26, 1993 was relatively unchanged from the
balances at year-end 1993. Total debt consists primarily of intermediate
and long-term notes placed in the public markets as well as $396 million of
ESOP debt which is guaranteed by the company. Approximately $245 million
of variable-rate and fixed rate debt becomes due in the first half of 1995
and is reflected in current liabilities at the end of June 1994.
At June 26, 1994, the company had no outstanding commercial paper
borrowings or borrowings under committed credit lines from a group of
domestic and foreign banks.
Cash on hand and temporarily invested, internally generated funds, and
available financing resources are sufficient to meet anticipated operating
and debt service requirements and discretionary investment needs.
Stockholder's equity was approximately $2.6 billion at the end of first
half of 1994, up $148 million from the end of 1993. The increase reflects
the retention of first-half earnings in excess of cash dividends paid, and
the issuance of new shares upon the exercise of employee stock options.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
ACCOUNTING MATTERS
Lockheed has adopted Statement of Financial Accounting Standards No. 112
(SFAS 112), "Employers' Accounting for Postemployment Benefits" as of
December 27, 1993. Due to the design of Lockheed's postemployment
benefit plans and previously employed accounting practices for the costs
of these benefits, the adoption of SFAS 112 had an insignificant impact on
Lockheed's financial results.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On June 22, 1994, an indictment was returned by a federal Grand Jury
sitting in Atlanta, Georgia against the registrant and two of its
employees. The indictment charges that the registrant and the two
employees, one of whom was a regional vice president of one of registrant's
subsidiaries and the other a divisional director of sales for the Middle
East and North Africa, violated the Foreign Corrupt Practices Act,
conspired to violate the act, conspired to commit wire fraud and impaired
and impeded agencies of the United States Department of Defense. The
indictment relates to allegations that the registrant retained a sales and
marketing consultant in Egypt who was a member of the Egyptian Parliament,
and that the consultant received retainer payments and a one million dollar
contract termination payment in connection with the sale by registrant of
three C-130 Hercules Aircraft, in violation of the Foreign Corrupt
Practices Act.
The registrant denies the alleged violations and intends to vigorously
defend itself against all charges. The registrant cooperated with the U.S.
government during the course of its investigation. After review, Lockheed
believes its policies and practices with respect to the engagement of
foreign consultants have been, and continue to be, consistent with the
spirit and intent of all applicable laws and regulations.
As a result of this indictment other agencies of the U.S. government
are reviewing what action, if any, may be appropriate regarding the
Company. No determinations have been made as of the time of this filing
which would have a material adverse impact on the Company.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12 Computation of Ratio of Earnings to Fixed Charges.
The registrant undertakes to file with the Commission
upon its request any agreements otherwise excluded from
Item 601 (b)(4) as not exceeding 10 percent of the total
assets of the registrant and its subsidiaries on a
consolidated basis.
(b) Reports on Form 8-K
Form 8-K dated June 22, 1994, Item 5, Other Events; and
Item 7, Financial Statements, Pro Forma Financial
Information and Exhibits.
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 CORPORATION
(Registrant)
Date: August 5, 1994 By: /s/ C. R. MARSHALL
--------------------------------
C. R. Marshall
Vice President and Secretary
Date: August 5, 1994 By: /s/ R. E. RULON
--------------------------------
R. E. Rulon
Vice President and Controller
(Principal Accounting Officer)
Exhibit 12
COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
(In millions except ratios)
SECOND QUARTER
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1994 1993
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EARNINGS BEFORE TAX $ 319 $ 275
FIXED CHARGES
Capitalized interest 1
Interest expense 77 81
Interest expense for finance subsidiary 1
Interest portion of rental expense 19 22
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TOTAL FIXED CHARGES $ 97 $ 104
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TOTAL FIXED CHARGES EXCLUDING CAPITALIZED INTEREST $ 96 $ 104
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EARNINGS PLUS FIXED CHARGES EXCLUDING CAPITALIZED INTEREST $ 415 $ 379
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RATIO OF EARNINGS TO FIXED CHARGES 4.3 3.6
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