<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 1998 COMMISSION FILE NUMBER 1-11437
------------------ -------
LOCKHEED MARTIN CORPORATION
----------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
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
---------------
</TABLE>
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.
<TABLE>
<S> <C>
CLASS OUTSTANDING AS OF OCTOBER 15, 1998
- -------------------------- ----------------------------------
COMMON STOCK, $1 PAR VALUE 196,256,267
</TABLE>
<PAGE>
LOCKHEED MARTIN CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
____________
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Earnings -
Three Months and Nine Months Ended September 30, 1998 and 1997..................... 3
Condensed Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1998 and 1997...................................... 4
Condensed Consolidated Balance Sheet -
September 30, 1998 and December 31, 1997........................................... 5
Notes to Condensed Consolidated Financial Statements................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................... 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 23
Item 6. Exhibits and Reports on Form 8-K............................................. 23
Signatures.............................................................................. 25
Exhibit 3 Bylaws of Lockheed Martin Corporation, as amended
Exhibit 10(g) Form of Long-Term Incentive Performance Award Agreement
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges
Exhibit 27 Financial Data Schedule
</TABLE>
2
<PAGE>
LOCKHEED MARTIN CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
----------- ----------- ------------ -------------
(In millions, except per share data)
<S> <C> <C> <C> <C>
Net sales $6,349 $6,619 $19,086 $20,191
Cost of sales 5,653 5,942 17,135 18,221
------ ------ ------- -------
Earnings from operations 696 677 1,951 1,970
Other income and expenses, net 34 70 105 143
------ ------ ------- -------
730 747 2,056 2,113
Interest expense 221 213 655 615
------ ------ ------- -------
Earnings before income taxes 509 534 1,401 1,498
Income tax expense 191 203 525 569
------ ------ ------- -------
Net earnings $ 318 $ 331 $ 876 $ 929
====== ====== ======= =======
Earnings per common share:
Basic $ 1.69 $ 1.70 $ 4.67 $ 4.78
====== ====== ======= =======
Diluted $ 1.67 $ 1.51 $ 4.61 $ 4.28
====== ====== ======= =======
Cash dividends declared per common share $ .40 $ .40 $ 1.20 $ 1.20
====== ====== ======= =======
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
3
<PAGE>
LOCKHEED MARTIN CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
------------ ------------
(In millions)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 876 $ 929
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 744 780
Changes in operating assets and liabilities (913) (1,478)
----- -------
Net cash provided by operating activities 707 231
----- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to properties, net of purchased operations (477) (535)
Divestiture of L-3 Companies -- 464
Divestiture of Armament Systems and Defense Systems -- 450
Other acquisition, investment and divestiture activities 127 (70)
----- -------
Net cash (used for) provided by investing activities (350) 309
----- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings 699 (98)
Net repayments related to long-term debt (651) (133)
Issuances of common stock 58 71
Common stock dividends (229) (225)
Preferred stock dividends -- (45)
Final settlement for redemption of preferred stock (51) --
----- -------
Net cash used for financing activities (174) (430)
----- -------
Net increase in cash and cash equivalents 183 110
Cash and cash equivalents at beginning of period -- --
----- -------
Cash and cash equivalents at end of period $ 183 $ 110
===== =======
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
4
<PAGE>
LOCKHEED MARTIN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------- ---------------
(In millions)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 183 $ --
Receivables 5,127 5,009
Inventories 4,340 3,144
Deferred income taxes 1,196 1,256
Other current assets 768 696
------- -------
Total current assets 11,614 10,105
Property, plant and equipment 3,608 3,669
Intangible assets related to contracts and programs acquired 1,461 1,566
Cost in excess of net assets acquired 9,664 9,856
Other assets 3,415 3,165
------- -------
$29,762 $28,361
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,077 $ 1,234
Customer advances and amounts in excess of costs incurred 4,308 3,644
Salaries, benefits and payroll taxes 931 924
Income taxes 661 364
Short-term borrowings 1,193 494
Current maturities of long-term debt 579 876
Other current liabilities 1,373 1,653
------- -------
Total current liabilities 10,122 9,189
Long-term debt 10,183 10,528
Post-retirement benefit liabilities 1,958 1,982
Other liabilities 1,491 1,486
Stockholders' equity:
Common stock, $1 par value per share 195 194
Additional paid-in capital 194 25
Retained earnings 5,812 5,173
Unearned ESOP shares (193) (216)
------- -------
Total stockholders' equity 6,008 5,176
------- -------
$29,762 $28,361
======= =======
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
5
<PAGE>
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(UNAUDITED)
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 19, 1998 in its 1997 Annual Report on 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 nine months ended September 30,
1998 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 1998 presentation.
NOTE 2 - TRANSACTION AGREEMENT WITH COMSAT CORPORATION
On September 20, 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 (the Merger). The Merger Agreement
has been approved by the respective Boards of Directors of the Corporation and
Comsat. In connection with the first phase of this transaction, the Corporation
commenced a cash tender offer (the Tender Offer) on September 25, 1998, to
purchase up to 49 percent of the outstanding shares of common stock of Comsat on
the date of the purchase at a price of $45.50 per share, with an estimated value
of $1.3 billion. The second phase of the transaction, which will result in
consummation of the Merger, will be accomplished by an exchange of 0.5 shares of
Lockheed Martin common stock for each share of Comsat common stock at an
estimated value of $1.4 billion.
The consummation of the Tender Offer is subject to, among other things, the
approval of the Merger by the stockholders of Comsat and certain regulatory
approvals. This first phase of the transaction is expected to close in the first
half of 1999 and, upon closing, the Corporation will account for its 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 allow
Lockheed Martin to acquire the remaining shares of Comsat common stock and
certain additional regulatory approvals. The Merger is expected to be completed
by the end of 1999 and, upon consummation, will be accounted for under the
purchase method of accounting. If the Tender Offer is consummated but the
necessary legislation is not enacted or the additional regulatory approvals are
not obtained, each as required for consummation of the Merger, 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.
NOTE 3 - EARNINGS PER SHARE
Effective December 31, 1997, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share." Accordingly, all
prior period earnings per share data presented have been restated to conform to
the provisions of the new standard.
In November 1997, Lockheed Martin exchanged all of the outstanding capital
stock of its wholly-owned subsidiary, LMT Sub, for all of the outstanding Series
A preferred stock held by General Electric Company (GE) and certain subsidiaries
of GE. The Series A preferred stock, which was originally issued to GE in
connection with the acquisition of GE's aerospace businesses in 1993, was
convertible into approximately
6
<PAGE>
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
29 million shares of Lockheed Martin common stock. LMT Sub was composed of two
non-core commercial business units which contributed approximately five percent
of the Corporation's 1997 net sales, Lockheed Martin's investment in a
telecommunications partnership, and approximately $1.6 billion in cash, which
was initially financed through the issuance of commercial paper; however, $1.4
billion was subsequently refinanced with a note, due November 17, 2002 and
bearing interest at 6.04%, from Lockheed Martin to LMT Sub. During the second
quarter of 1998, the final determination of the closing net worth of the
businesses exchanged was completed, resulting in a payment of $51 million from
the Corporation to MRA Systems, Inc. (formerly LMT Sub). This final settlement
payment did not impact the gain previously recorded on the transaction.
Subsequently, the remainder of the cash included in the transaction was
refinanced with a note for $210 million, due November 17, 2002 and bearing
interest at 5.73%, from Lockheed Martin to MRA Systems, Inc.
Basic earnings per share were computed based on net earnings, less the
dividend requirement for preferred stock for the 1997 periods. The weighted
average number of common shares outstanding during the period was used in this
calculation. Diluted earnings per share were computed based on net earnings, and
the weighted average number of common shares outstanding was increased, for this
calculation, by the dilutive effect of stock options based on the treasury stock
method and, for the 1997 periods, by the assumed conversion of preferred stock.
The following table sets forth the computations of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------- --------------
(In millions, except per share data)
<S> <C> <C> <C> <C>
Net earnings applicable to common stock:
- ----------------------------------------
Net earnings $ 318 $ 331 $ 876 $ 929
Dividends on preferred stock - (15) - (45)
------ ------ ------ ------
Net earnings applicable to common stock for basic
earnings per share 318 316 876 884
Dividends on preferred stock - 15 - 45
------ ------ ------ ------
Net earnings applicable to common stock for diluted
earnings per share $ 318 $ 331 $ 876 $ 929
====== ====== ====== ======
Average common shares outstanding:
- ---------------------------------
Average number of common shares outstanding for
basic earnings per share 188.6 185.9 187.7 184.9
Assumed conversion of the Series A preferred stock - 28.9 - 28.9
Dilutive stock options based on the treasury stock
method 2.0 2.8 2.4 3.1
------ ------ ------ ------
Average number of common shares outstanding for
diluted earnings per share 190.6 217.6 190.1 216.9
====== ====== ====== ======
</TABLE>
7
<PAGE>
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------- --------------
(In millions, except per share data)
<S> <C> <C> <C> <C>
Basic earnings per share:
- ------------------------
Net earnings $1.69 $1.78 $4.67 $5.02
Dividends on preferred stock - (.08) - (.24)
----- ----- ------- -----
Earnings per share $1.69 $1.70 $4.67 $4.78
===== ===== ======= =====
Diluted earnings per share:
- --------------------------
Net earnings $1.67 $1.51 $4.61 $4.28
===== ===== ======= =====
</TABLE>
On October 22, 1998, the Board of Directors of the Corporation authorized a
two-for-one split of the Corporation's common stock. The stock split will be in
the form of a stock dividend; therefore, stockholders of record on December 1,
1998, will receive one additional share for each share of the Corporation's
common stock held. The new shares will be issued on December 31, 1998.
Subsequent to the consummation of the stock split, all references to shares of
common stock and per share amounts will be restated to reflect the stock split.
This will result in modification of the exchange ratio contemplated by the
Merger Agreement between the Corporation and Comsat from 0.5 shares of Lockheed
Martin common stock for each share of Comsat common stock, as previously
announced, to one share of Lockheed Martin common stock for each share of Comsat
common stock.
In addition, the Corporation's Board of Directors approved an increase to the
cash dividend per share of common stock to $.44 per share, or $1.76 annually, on
a pre-stock split basis. The increased dividend will be effective for dividends
declared beginning in the fourth quarter of 1998.
NOTE 4 - INVENTORIES
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------- ---------------
(In millions)
<S> <C> <C>
Work in process, primarily related to long-term
contracts and programs in progress $ 6,230 $ 5,155
Less customer advances and progress payments (2,496) (2,805)
------- -------
3,734 2,350
Other inventories 606 794
------- -------
$ 4,340 $ 3,144
======= =======
</TABLE>
Included in work in process are approximately $725 million and $490 million of
advances as of September 30, 1998 and December 31, 1997, respectively, to
foreign subcontractors, Khrunichev Enterprise and R D AMROSS, a joint venture
between Pratt & Whitney and NPO Energomash, for the manufacture of launch
vehicles and related launch services.
8
<PAGE>
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
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 and
in-house counsel, 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 -- In 1991, the Corporation entered into a consent
decree with the U.S. Environmental Protection Agency (EPA) relating to certain
property in Burbank, California, which 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 has
now entered a follow-on consent decree with the EPA which obligates the
Corporation to fund the continued operation and maintenance of these facilities
through the year 2018. The Corporation estimates that expenditures required to
comply with the consent decrees over their remaining terms will be approximately
$110 million.
The Corporation has also been operating under a cleanup and abatement order
from 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. Based on experience derived from
initial remediation activities, the Corporation estimates the anticipated costs
of these actions in excess of the requirements under the EPA consent decrees to
approximate $60 million over the remaining term of the project.
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 work, 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 million. Finally, the Corporation is coordinating with the
U.S. Air Force, which is conducting preliminary studies of the potential health
effects of exposure to perchlorates in connection with several sites across the
country, including the Redlands site. The results of these studies will
determine the extent of the Corporation's clean-up obligation, if any, with
respect to perchlorates.
In addition, 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. A
liability of approximately $260 million for those cases in which an estimate of
financial exposure can be determined has been recorded.
Under an agreement with the U.S. Government, the Burbank groundwater treatment
and soil remediation expenditures referenced above are being allocated to the
Corporation's operations as general and administrative costs and, under existing
government regulations, these and other environmental expenditures related to
U.S. Government business, after deducting any recoveries from insurance or other
potentially
9
<PAGE>
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
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. Though 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. 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
has incurred significant unanticipated costs and scheduling issues due to
complex technical and contractual matters which threaten the viability of the
overall Pit 9 program. Management completed its investigation to identify and
quantify the overall effect of these matters, and summarized its findings in a
request for equitable adjustment (REA) which was delivered to the DOE on
March 31, 1997. The provisions of the REA included, but were not limited to, 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 wrote a series of
letters to the DOE seeking technical direction, including an accurate inventory
of the Pit 9 contents. No direction was provided. To better focus the
Corporation's management resources on resolving these issues, the management and
reporting structure of the Pit 9 program were changed in September 1997;
however, 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.
On February 27, 1998, the Corporation received a cure notice alleging that
certain actions taken by the Corporation were conditions endangering performance
of the Pit 9 contract. The notice advised that, unless these conditions were
cured within 30 days, the contract might be terminated for default. The
Corporation believed (and continues to believe) that termination for default was
neither permissible under the Pit 9 contract nor warranted under the
circumstances and, on April 13, 1998, submitted its reply to the cure notice
setting forth its rationale for these positions. On June 1, 1998, despite the
Corporation's reply, the DOE, through Lockheed Martin Idaho Technologies Company
(LMITCO), its management contractor, terminated the Pit 9 contract for default.
On that same 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. The Government has not yet responded to the suit.
Additionally, on July 21, 1998, the Corporation withdrew the REA previously
submitted to the DOE in March 1997 and replaced it with a certified REA. This
action resulted from the DOE's dissatisfaction with the uncertified nature of
the original 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. It is
anticipated that the DOE will require several months to consider this certified
REA. On August 11, 1998, LMITCO, at the DOE's direction, filed suit against the
Corporation in U.S. Federal District Court in Boise, Idaho, seeking recovery of
approximately $54 million previously paid by LMITCO to the Corporation under the
Pit 9 contract. The
10
<PAGE>
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
Corporation intends to resist this action while continuing to pursue its
certified REA. The parties in both lawsuits have obtained extensions of time to
file their respective responses to complaints included therein; such responses
are expected to be filed during the fourth quarter of 1998. The Corporation
continues to assert its position in the litigation while continuing efforts to
resolve the dispute through non-litigation means.
NOTE 6 - OTHER
On July 3, 1997, the Corporation and Northrop Grumman Corporation (Northrop
Grumman) announced that they had entered into an Agreement and Plan of Merger
(the Merger Agreement) to combine the companies (the Merger). Under the terms of
the Merger Agreement, which was approved by the respective Boards of Directors
of the Corporation and Northrop Grumman, Northrop Grumman would become a wholly-
owned subsidiary of Lockheed Martin. The Merger Agreement provided for its
termination, and therefore termination of the Merger, by action of the Board of
Directors of either the Corporation or Northrop Grumman if the Merger had not
been consummated by March 31, 1998. In July 1998, the Board of Directors of
Lockheed Martin terminated the Merger Agreement, thereby terminating the Merger.
In March 1997, the Corporation executed a definitive agreement valued at
approximately $525 million to reposition 10 non-core business units as a new
independent company, L-3 Communications Corporation (L-3), in which the
Corporation retained a 34.9 percent ownership interest at closing. These
business units, primarily composed of high-technology, product-oriented
companies, contributed approximately two percent of the Corporation's net sales
during the three month period ended March 31, 1997. The transaction, which
closed on April 30, 1997 with an effective date of March 30, 1997, did not have
a material impact on the Corporation's earnings. During May 1998, L-3 completed
an Initial Public Offering resulting in the issuance of an additional 6.9
million shares of its common stock to the public. This transaction resulted in a
reduction in the Corporation's ownership to approximately 25 percent, and the
recognition of a pretax gain of $18 million in other income and expenses. The
gain increased net earnings by $12 million, or $.06 per diluted share.
In September 1998, the Corporation recorded an adjustment in the Space &
Strategic Missiles segment which resulted from a significant improvement in the
Atlas II launch vehicle program related to the retirement of program and
technical risk based upon a current evaluation of the program's historical
performance. This change in estimate increased pretax earnings by $120 million,
net of state income taxes, and increased net earnings by $78 million, or $.41
per diluted share.
Commercial paper borrowings of approximately $2.2 billion were outstanding at
September 30, 1998. Of this amount, $1 billion has been classified as long-term
debt in the Corporation's condensed consolidated balance sheet based on
management's ability and intention to maintain this debt outstanding for at
least one year. During May 1998, the Corporation increased the amount of its
short-term revolving credit facility, which matures on May 28, 1999, from $1.5
billion to $2.5 billion. The Corporation's long-term revolving credit facility
in the amount of $3.5 billion, which matures on December 20, 2001, remains
unchanged.
The Corporation's total interest payments were $550 million and $498 million
for the nine months ended September 30, 1998 and 1997, respectively.
The Corporation's federal and foreign income tax payments, net of refunds
received, were $155 million and $909 million for the nine months ended
September 30, 1998 and 1997, respectively.
11
<PAGE>
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
Effective January 1, 1998, the Corporation adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes new rules for reporting and
disclosure of comprehensive income, which is composed of net earnings and
certain items of other comprehensive income as defined in the Statement, for all
periods presented; however, the adoption of SFAS No. 130 had no impact on the
Corporation's net earnings or stockholders' equity. The components of other
comprehensive income, both individually and in the aggregate, were not material
for the three month and nine month periods ended September 30, 1998 and 1997.
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 establishes standards for the way in which publicly-held companies
report financial and descriptive information about their operating segments in
financial statements for both interim and annual periods. The Statement also
requires additional disclosures with respect to products and services,
geographic areas of operation and major customers. The Statement is effective
for fiscal years beginning after December 15, 1997; however, application is not
required for interim periods in 1998. The adoption of SFAS No. 131 will have no
impact on the number or composition of the Corporation's reported business
segments, or on its consolidated results of operations, cash flows or financial
position, but is expected to increase the level of disclosure of segment
information.
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The SOP is effective
for fiscal years beginning after December 15, 1998, and will require the
capitalization of certain costs incurred in connection with developing or
obtaining software for internal use after the date of adoption. The Corporation
is in the process of analyzing and assessing the impact of this SOP, and plans
to adopt effective January 1, 1999. Although the adoption of this SOP is
expected to affect the timing of future cash flows under contracts with the U.S.
Government, management does not currently expect its adoption will have a
material effect on the Corporation's consolidated results of operations, cash
flows or financial position.
In April 1998, the AICPA issued 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. SOP No. 98-5 is effective for fiscal years
beginning after December 15, 1998. Management currently estimates that the
amount of the after-tax cumulative effect adjustment to be recognized upon the
adoption of the SOP will be between $300 million and $400 million. The
Corporation is continuing to analyze and assess the timing of the adoption and
its impact on the Corporation's consolidated results of operations and financial
position.
In June 1998, the 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. SFAS No. 133 requires adoption no later than January 1, 2000,
but early adoption is allowed, and initial application must be as of the
beginning of a fiscal quarter. Additionally, the Statement
12
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LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
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 currently 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.
13
<PAGE>
LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
TRANSACTION AGREEMENT WITH COMSAT CORPORATION
On September 20, 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 (the Merger). The Merger Agreement
has been approved by the respective Boards of Directors of the Corporation and
Comsat. In connection with the first phase of this transaction, the Corporation
commenced a cash tender offer (the Tender Offer) on September 25, 1998, to
purchase up to 49 percent of the outstanding shares of common stock of Comsat on
the date of purchase at a price of $45.50 per share, with an estimated value of
$1.3 billion. The second phase of the transaction, which will result in
consummation of the Merger, will be accomplished by an exchange of 0.5 shares of
Lockheed Martin common stock for each share of Comsat common stock at an
estimated value of $1.4 billion.
The consummation of the Tender Offer is subject to, among other things, the
approval of the Merger by the stockholders of Comsat and certain regulatory
approvals. This first phase of the transaction is expected to close in the first
half of 1999 and, upon closing, the Corporation will account for its 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 allow
Lockheed Martin to acquire the remaining shares of Comsat common stock and
certain additional regulatory approvals. The Merger is expected to be completed
by the end of 1999 and, upon consummation, will be accounted for under the
purchase method of accounting. If the Tender Offer is consummated but the
necessary legislation is not enacted or the additional regulatory approvals are
not obtained, each as required for consummation of the Merger, 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.
FORMATION OF GLOBAL TELECOMMUNICATIONS SUBSIDIARY
On August 11, 1998, the Corporation announced the formation of Lockheed Martin
Global Telecommunications, Inc. (Global Telecommunications), a wholly-owned
subsidiary of the Corporation. Global Telecommunications will combine several
existing joint ventures and elements of the Corporation under a dedicated
management team focused on capturing a greater portion of the worldwide network
services market. In its announcement, the Corporation indicated that the
following operations will be included in Global Telecommunications: Lockheed
Martin Intersputnik, Ltd., a strategic venture with Moscow-based Intersputnik
that is scheduled to deploy its first satellite in 1999; Astrolink TM
International Ltd., a strategic venture that will provide global interactive
multimedia services using next-generation broadband satellite technology;
Communications Systems, which markets commercial satellite communications
systems capabilities; the elements of Lockheed Martin Management & Data Systems
and Lockheed Martin Western Development Laboratories that provide commercial
communications capabilities; and Satco (Asia), LLC, a joint venture with GE
Americom that is scheduled to launch a satellite next year that will serve
broadcasters in the Asia-Pacific region. Additionally, the Corporation intends
to include in Global Telecommunications the operations of Comsat upon
consummation of the Tender Offer and the Merger.
TRANSACTION AGREEMENT WITH GENERAL ELECTRIC COMPANY
In November 1997, Lockheed Martin exchanged all of the outstanding capital
stock of its wholly-owned subsidiary, LMT Sub, for all of the outstanding Series
A preferred stock held by General Electric Company (GE) and certain subsidiaries
of GE. The Series A preferred stock, which was originally issued to GE in
14
<PAGE>
LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
connection with the acquisition of GE's aerospace businesses in 1993, was
convertible into approximately 29 million shares of Lockheed Martin common
stock. LMT Sub was composed of two non-core commercial business units which
contributed approximately five percent of the Corporation's 1997 net sales,
Lockheed Martin's investment in a telecommunications partnership, and
approximately $1.6 billion in cash, which was initially financed through the
issuance of commercial paper; however, $1.4 billion was subsequently refinanced
with a note, due November 17, 2002 and bearing interest at 6.04%, from Lockheed
Martin to LMT Sub. During the second quarter of 1998, the final determination
of the closing net worth of the businesses exchanged was completed, resulting
in a payment of $51 million from the Corporation to MRA Systems, Inc. (formerly
LMT Sub). This final settlement payment did not impact the gain previously
recorded on the transaction. Subsequently, the remainder of the cash included
in the transaction was refinanced with a note for $210 million, due
November 17, 2002 and bearing interest at 5.73%, from Lockheed Martin to MRA
Systems, Inc.
The debt incurred to finance the GE Transaction resulted in an increase in the
Corporation's leverage ratio. In anticipation of this increase, Lockheed Martin
negotiated an increase in the leverage ratio permitted under its credit
facilities, which support its outstanding commercial paper borrowings, in order
to permit the GE Transaction to take place. As the issuance of the
Corporation's common stock contemplated in connection with the Northrop Grumman
transaction was expected to reduce the leverage ratio, this negotiated increase
was temporary, expiring on June 30, 1998. Following the termination of the
Northrop Grumman merger agreement, Lockheed Martin has negotiated a further
amendment to the leverage restrictions under its credit facilities so as to be
in compliance with these restrictions subsequent to June 30, 1998.
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.
Consolidated net sales for the third quarter of 1998 were $6.3 billion, a four
percent decrease from the $6.6 billion recorded for the comparable period in
1997. Consolidated net sales for the nine months ended September 30, 1998 were
$19.1 billion, a five percent decrease from the $20.2 billion reported for the
same period in 1997. The 1997 results include the operations of two non-core
commercial businesses divested to General Electric Company in November 1997, the
operations of L-3 Communications Corporation (L-3), which was repositioned as an
independent company effective March 30, 1997, and the operations of the
Corporation's Commercial Electronics business unit which was divested in the
first quarter of 1998. Excluding the effects of these divested operations, net
sales both for the quarter and for the nine months ended September 30, 1998
would have increased by three percent over comparable 1997 results. The
Corporation's operating profit (earnings before interest and taxes) for the
third quarter of 1998 was $730 million as compared to $747 million for the
comparable 1997 period. The Corporation's operating profit for the nine months
ended September 30, 1998 was $2.06 billion as compared to $2.11 billion for the
comparable 1997 period. Excluding the impact of the divested operations
described above, operating profit both for the quarter and for the nine months
ended September 30, 1998 would have remained consistent with the comparable 1997
amounts.
Net earnings for the third quarter of 1998 were $318 million, a four percent
decrease from reported third quarter 1997 net earnings of $331 million. The
Corporation's diluted earnings per share reported for the
15
<PAGE>
LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
third quarter of 1998 was $1.67, an 11 percent increase from third quarter 1997
diluted earnings per share of $1.51. Net earnings for the nine months ended
September 30, 1998 were $876 million, a six percent decrease from reported net
earnings of $929 million for the comparable 1997 period. The Corporation's
diluted earnings per share for the nine months ended September 30, 1998 was
$4.61, an eight percent increase from the comparable 1997 diluted earnings per
share of $4.28. The 1998 earnings per share amounts reflect the impact of the
fourth quarter 1997 redemption of the Corporation's Series A preferred stock
formerly held by GE. The effective income tax rate for the third quarter and
nine months ended September 30, 1998 was 37.5 percent as compared to 38 percent
for the third quarter and nine months ended September 30, 1997. The effective
rates for each period were higher than the statutory corporate federal income
tax rate principally due to the nondeductibility for tax purposes of certain
costs in excess of net assets acquired associated with previous acquisition
activities.
The Corporation's backlog of undelivered orders was approximately $43.9
billion at September 30, 1998, versus $47.1 billion reported at December 31,
1997. The Corporation received orders for approximately $17.1 billion in new
and follow-on business, which were more than offset by sales during the first
nine months of 1998.
The following table displays third quarter and year-to-date net sales and
operating profit for the Corporation's business segments.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
----------------- -------------------- --------------- ---------------
(In millions)
<S> <C> <C> <C> <C>
Net Sales:
Space & Strategic Missiles $1,714 $1,944 $ 5,626 $ 5,828
Electronics 1,708 1,699 5,176 5,192
Information & Services 1,237 1,631 3,731 4,958
Aeronautics 1,638 1,294 4,370 4,100
Energy and Other 52 51 183 113
------ ------ ------- -------
$6,349 $6,619 $19,086 $20,191
====== ====== ======= =======
Operating Profit:
Space & Strategic Missiles $ 261 $ 310 $ 762 $ 874
Electronics 226 169 549 435
Information & Services 39 46 165 224
Aeronautics 171 152 474 439
Energy and Other 33 70 106 141
------ ------ ------- -------
$ 730 $ 747 $ 2,056 $ 2,113
====== ====== ======= =======
</TABLE>
Effective January 1, 1998, management responsibility for United Space
Alliance, a limited liability company owned by the Corporation and The Boeing
Company, was reassigned from the Information & Services segment to the Space &
Strategic Missiles segment. Management reporting of certain other activities was
also reassigned among the Space & Strategic Missiles, Electronics, and Energy
and Other segments. Consequently, 1997 operating profit amounts for these
segments have been restated to conform with the 1998 presentation.
Net sales of the Space & Strategic Missiles segment decreased by 12 percent
and three percent for the quarter and nine months ended September 30, 1998,
respectively, from the comparable 1997 periods. These decreases were primarily
attributable to reduced launch vehicle activities in the third quarter versus
the prior
16
<PAGE>
LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
year period as well as a decrease in Trident fleet ballistic missile program
activities. These factors also contributed to the decrease in operating profit
of 16 percent and 13 percent for the quarter and nine months ended September 30,
1998, respectively, from the comparable 1997 periods. However, these decreases
were partially offset by an adjustment recorded in the third quarter of 1998
totaling $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 a current evaluation of the
program's historical performance.
Net sales of the Electronics segment remained relatively consistent for the
quarter and nine months ended September 30, 1998 as compared to the same periods
in 1997. Excluding the net sales of the Commercial Electronics business unit
divested in the first quarter of 1998, net sales for the quarter and nine months
ended September 30, 1998 would have increased by four percent and three percent,
respectively, from the comparable 1997 amounts. These increases were principally
the result of increased production deliveries of postal systems equipment.
Operating profit for the quarter and nine months ended September 30, 1998
increased significantly as compared to the respective 1997 amounts, primarily
due to performance improvements across many of the segment's programs. In
addition, third quarter 1998 operating profit was impacted by a favorable
arbitration resolution.
Net sales of the Information & Services segment for the quarter and nine
months ended September 30, 1998 decreased by 24 percent and 25 percent,
respectively, from the comparable 1997 periods. Excluding the 1997 net sales of
the non-core businesses divested to L-3 and GE, net sales for the third quarter
1998 would have decreased by three percent as compared to the same period in
1997. Net sales for the nine months ended September 30, 1998, excluding the net
sales of the divested businesses, would have remained relatively stable in
comparison to the comparable 1997 period. Sales volume increases in certain
technology services programs and welfare and family services programs were
offset by reduced activities resulting from maturing programs in both 1998
periods. Operating profit for the quarter and nine months ended September 30,
1998 decreased by 15 percent and 26 percent from the comparable 1997 periods,
respectively. These percentage decreases would have remained relatively
consistent after excluding the 1997 operating profit from divested entities.
These decreases primarily resulted from adverse performance in the segment's
commercial product lines.
Net sales of the Aeronautics segment for the third quarter of 1998 increased
significantly from the comparable 1997 period due principally to increases in
deliveries of F-16 fighter aircraft and C-130 airlift aircraft. Net sales for
the nine months ended September 30, 1998 increased by seven percent as compared
to the same 1997 period as a result of the aforementioned third quarter 1998
sales activity. In addition, the 1997 net sales amounts include the operations
of the segment's Aerostructures business unit which was divested to GE during
the fourth quarter of 1997. Operating profit for the third quarter and nine
months ended September 30, 1998 increased by 13 percent and eight percent,
respectively, as compared to the same periods in 1997. Excluding the operations
of the Aerostructures business unit, operating profit would have increased by 27
percent and 17 percent for the third quarter and nine months ended September 30,
1998, respectively. These increases were principally due to the increase in
aircraft deliveries noted above.
Net sales of the Energy and Other segment for the third quarter of 1998
increased slightly as compared to 1997. Net sales for the nine months ended
September 30, 1998 increased significantly from the comparable 1997 period due
to an increase in environmental systems activities. Operating profit for the
third quarter and nine months ended September 30, 1998 decreased significantly
from the comparable 1997 periods due to the recognition of a gain in the third
quarter of 1997 from the sale of a portion of the Corporation's real estate
portfolio. In 1994, the Corporation was awarded a $180 million fixed price
contract by the U.S. Department
17
<PAGE>
LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
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 has incurred significant unanticipated costs and
scheduling issues due to complex technical and contractual matters which
threaten the viability of the overall Pit 9 program. Management completed its
investigation to identify and quantify the overall effect of these matters, and
summarized its findings in a request for equitable adjustment (REA) which was
delivered to the DOE on March 31, 1997. The provisions of the REA included, but
were not limited to, 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 wrote a series of letters to the DOE seeking technical direction,
including an accurate inventory of the Pit 9 contents. No direction was
provided. To better focus the Corporation's management resources on resolving
these issues, the management and reporting structure of the Pit 9 program were
changed in September 1997; however, 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.
On February 27, 1998, the Corporation received a cure notice alleging that
certain actions taken by the Corporation were conditions endangering performance
of the Pit 9 contract. The notice advised that, unless these conditions were
cured within 30 days, the contract might be terminated for default. The
Corporation believed (and continues to believe) that termination for default was
neither permissible under the Pit 9 contract nor warranted under the
circumstances and, on April 13, 1998, submitted its reply to the cure notice
setting forth its rationale for these positions. On June 1, 1998, despite the
Corporation's reply, the DOE, through Lockheed Martin Idaho Technologies Company
(LMITCO), its management contractor, terminated the Pit 9 contract for default.
On that same 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. The Government has not yet responded to the suit.
Additionally, on July 21, 1998, the Corporation withdrew the REA previously
submitted to the DOE in March 1997 and replaced it with a certified REA. This
action resulted from the DOE's dissatisfaction with the uncertified nature of
the original 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. It is
anticipated that the DOE will require several months to consider this certified
REA. On August 11, 1998, LMITCO, at the DOE's direction, filed suit against the
Corporation in U.S. Federal District Court in Boise, Idaho, seeking 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. The parties in both lawsuits have obtained
extensions of time to file their respective responses to complaints included
therein; such responses are expected to be filed during the fourth quarter of
1998. The Corporation continues to assert its position in the litigation while
continuing efforts to resolve the dispute through non-litigation means.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1998, $707 million of cash was provided by
operating activities, compared to $231 million during the comparable 1997
period. This fluctuation resulted principally from decreased working capital
requirements. Net cash used for investing activities for the nine months ended
September 30, 1998 was $350 million as compared to $309 million provided by
investing activities during the corresponding 1997 period. The 1997 amount
included the receipt of $450 million from General Dynamics Corporation related
to the sale of the Corporation's Armament Systems and Defense Systems operations
and $464 million from the divestiture of the L-3 operations. The remaining
difference between
18
<PAGE>
LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
the periods relates to other acquisition and divestiture activities. Net cash
used by financing activities was $174 million during the nine months ended
September 30, 1998 versus $430 million used for financing activities in the
comparable 1997 period. The fluctuation between periods was primarily due to a
$48 million increase, net of noncash acquisition activities, in the
Corporation's total debt position during 1998 versus a $231 million net decrease
in total debt during the comparable 1997 period.
Commercial paper borrowings of approximately $2.2 billion were outstanding at
September 30, 1998. Of this amount, $1 billion has been classified as long-term
debt in the Corporation's condensed consolidated balance sheet based on
management's ability and intention to maintain this debt outstanding for at
least one year. During May 1998, the Corporation increased the amount of its
short-term revolving credit facility, which matures on May 28, 1999, from $1.5
billion to $2.5 billion. The Corporation's long-term revolving credit facility
in the amount of $3.5 billion, which matures on December 20, 2001, remains
unchanged. The $699 million increase in short-term borrowings was utilized to
finance working capital requirements. Total debt, including short-term
borrowings, amounted to approximately 67 percent of total capitalization at
September 30, 1998, a reduction from the nearly 70 percent reported at December
31, 1997. The increase in stockholders' equity for the nine months ended
September 30, 1998 resulted from net earnings for the period and employee stock
option, ESOP and other stock activities, offset by dividends totaling $229
million.
On October 22, 1998, the Board of Directors of the Corporation authorized a
two-for-one split of the Corporation's common stock. The stock split will be in
the form of a stock dividend; therefore, stockholders of record on December 1,
1998, will receive one additional share for each share of the Corporation's
common stock held. The new shares will be issued on December 31, 1998.
Subsequent to the consummation of the stock split, all references to shares of
common stock and per share amounts will be restated to reflect the stock split.
This will result in modification of the exchange ratio contemplated by the
Merger Agreement between the Corporation and Comsat from 0.5 shares of Lockheed
Martin common stock for each share of Comsat common stock, as previously
announced, to one share of Lockheed Martin common stock for each share of Comsat
common stock.
In addition, the Corporation's Board of Directors approved an increase to the
cash dividend per share of common stock to $.44 per share, or $1.76 annually, on
a pre-stock split basis. The increased dividend will be effective for dividends
declared beginning in the fourth quarter of 1998.
The Corporation actively seeks to finance its business in a manner that
preserves financial flexibility while minimizing borrowing costs to the extent
practicable. To achieve this objective, management continually reviews changing
financial, market and economic conditions with a view toward managing the types,
amounts and maturities of the Corporation's indebtedness. From time to time, the
Corporation may refinance existing indebtedness, vary its mix of variable rate
and fixed rate debt and the maturities of that debt, or seek alternative sources
of financial support for its cash and operational needs.
Cash on hand and temporarily invested, internally generated funds and
available financing resources are expected to be sufficient to meet anticipated
operating and debt service requirements and discretionary investment needs.
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.
19
<PAGE>
LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
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). This 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. The
Corporation has completed its assessments which address both internal and
external (customer products and deliverables) systems. In many of the
Corporation's business units, renovation work is well underway and validation
testing has begun relative to internal systems. In the area of customer
products and deliverables, numerous contracts have been reviewed and customers
notified if Year 2000 issues were identified. Renovation of these products,
where requested and funded by the customer, is in process or planned.
Lockheed Martin has developed a plan to achieve its overall goal of Year 2000
readiness in advance of the century change. During 1998, much of the renovation
and validation testing will be completed, and 1999 will be used to address late
availability of vendor or government furnished equipment, planned replacement
systems and overflow validation testing. Based on information available at this
time, management believes that the costs to implement the Program will not have
a material impact on the Corporation's consolidated results of operations, cash
flows or financial position in any period. Such costs are allowable in
establishing prices for the Corporation's products and services under contracts
with the U.S. Government, and therefore 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 best estimates, which were derived utilizing numerous
assumptions related to future events, including each vendor's ability to modify
proprietary software, unanticipated issues identified in the ongoing compliance
review, and other similar uncertainties. There can be no guarantee that these
estimates of costs or timing, or that the objectives of the Program, will be
achieved. However, the Corporation continues to monitor activities related to
the Program through program reviews and internal audits designed to ensure Year
2000 readiness, and management currently believes that activities to date are
consistent with the Program's design. Contingency and crisis plans are being
prepared and will be implemented if necessary.
In addition, as part of the Program, formal communication with the
Corporation's suppliers, customers and other support services has been
initiated. Interfaces to external suppliers and customers (including banks and
U.S. Government customers) have been included in assessments and validation
testing. Also, certain systems utilized by the Corporation include embedded
vendor products for which responsibility for Year 2000 compliance rests with the
respective vendor. The Corporation does not have control over these third
parties and, as a result, cannot currently estimate to what extent future
operating results may be adversely affected by the failure of these third
parties to successfully address their Year 2000 issues. However, the
Corporation's Program includes actions designed to identify and minimize any
third party exposures and management believes that, based on third party
exposures identified to date, Program activities are consistent with its design.
OTHER MATTERS
On October 27, 1998, CalComp Technology, Inc. (CalComp), a majority-owned
public subsidiary of the Corporation, made a decision to divest certain of its
nonstrategic businesses. As a result of this decision, CalComp has announced
that it will recognize a non-cash charge approximating $60 million in the fourth
quarter of 1998 to reduce the carrying value of the net assets of these
businesses to their fair value. CalComp
20
<PAGE>
LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
also has announced that it is evaluating the business strategy for its
continuing operations, and currently expects to record non-cash charges of
approximately $30 million to $35 million in the fourth quarter of 1998 related
to the impairment of certain long-lived assets. These charges will be reflected
in the Corporation's consolidated financial statements in the fourth quarter.
The Corporation has been reviewing its relationship with CalComp. This review,
which has not been completed, has included assessments of CalComp's business
strategy and proposed operating plans, CalComp's role in the Corporation's
overall business strategy, and the Corporation's role as the primary source of
financing for CalComp's operations. If, upon completion of this review, the
Corporation should adopt a plan to terminate its role as a funding source or
otherwise reduce its involvement with CalComp, significant charges in addition
to those described in the preceding paragraph would likely be recognized by the
Corporation in its consolidated financial statements at the time of plan
adoption. These charges, which could range from $60 million to $100 million
based on the preliminary data available, would be associated with the value of
the Corporation's investment and estimated costs related to the specific actions
required by the plan.
The Corporation is currently engaged in its normal long-term business planning
process, and, as such, all major lines of business and related strategies are
being evaluated. The Launch Vehicle line of business includes the existing
commercial Atlas, Athena and Air Force Titan products; the development of a new
family of Evolved Expendable Launch Vehicles (EELV); and providing launch
services through Lockheed Krunichev Energia International, Inc. and R D AMROSS,
a joint venture between Pratt & Whitney and NPO Energomash. This particular
business strategy review includes an evaluation of marketing strategy,
international economic and political risk and an assessment of the impact of the
recent Air Force EELV launch services award on the Corporation's investment in
this line of business. Financial effects, if any, which result from this review
will be addressed in the fourth quarter of 1998.
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. Readers are cautioned not to
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 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 14 through
17 and pages 18 through 19, respectively, of the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 (Form 10-K); "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 11 through 24 of the 1997 Annual Report, and "Note 1 - Summary of
Significant Accounting Policies" and "Note 16 - Commitments and Contingencies"
of the Notes to the
21
<PAGE>
LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Consolidated Financial Statements on pages 31 through 32 and pages 41 through
42, respectively, of the Audited Consolidated Financial Statements included in
the 1997 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 14 through 22 of this Form 10-Q, and "Note 2 - Transaction
Agreement with Comsat Corporation," "Note 3 - Earnings Per Share," "Note 5 -
Contingencies" and "Note 6 - Other" of the Notes to Unaudited Condensed
Consolidated Financial Statements on page 6, pages 6 through 8, pages 9 through
11 and pages 11 through 13, respectively, of the Unaudited Condensed
Consolidated Financial Statements included in this Form 10-Q.
22
<PAGE>
LOCKHEED MARTIN CORPORATION
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Corporation is primarily engaged in providing products and services under
contracts with the United States Government and, to a lesser degree, under
direct foreign sales contracts, some of which are funded by the United States
Government. All such contracts are subject to extensive legal and regulatory
requirements and, from time to time, agencies of the United States Government
investigate whether the Corporation's operations are being conducted in
accordance with these requirements. United States Government investigations of
the Corporation, whether relating to these Government 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 United States Government
contracting. The Corporation is also a party to or has its property subject to
various other litigation and proceedings, including matters arising under
provisions relating to the protection of the environment (collectively,
proceedings).
The Corporation has previously reported a continuing United States Government
investigation into allegations of fraud related to the obtaining and performance
of certain LANTIRN program contracts. These allegations were first made in qui
tam complaints filed against the Corporation and unsealed on July 16, 1996. In
connection with its investigation, in September 1998, the United States
Government served 10 employees with grand jury subpoenas issued by the United
States District Court for the Middle District of Florida. The Corporation is
cooperating in the investigation.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
1. Exhibit 3 Bylaws of Lockheed Martin Corporation, as amended.
2. Exhibit 10(a) Agreement and Plan of Merger, dated as of September 18,
1998, among Lockheed Martin Corporation, Deneb Corporation
and COMSAT Corporation, incorporated by reference from the
Schedule 14D-1 filed by the Corporation on September 25,
1998, in respect of the Common Stock of COMSAT Corporation.
3. Exhibit 10(b) Registration Rights Agreement, dated as of September 18,
1998, between COMSAT Corporation and Lockheed Martin
Corporation, incorporated by reference from the Schedule
14D-1 filed by the Corporation on September 25, 1998, in
respect of the Common Stock of COMSAT Corporation.
4. Exhibit 10(c) Shareholders Agreement, dated as of September 18,
1998, between COMSAT Corporation and Lockheed Martin
Corporation, incorporated by reference from the Schedule
14D-1 filed by the Corporation on September 25, 1998, in
respect of the Common Stock of COMSAT Corporation.
5. Exhibit 10(d) Carrier Acquisition Agreement, dated as of September 18,
1998, by and among COMSAT Corporation, Lockheed Martin
Corporation, Regulus, LLC and COMSAT Government Systems,
Inc., incorporated by reference from the Schedule 14D-1
filed by the Corporation on September 25, 1998, in respect
of the Common Stock of COMSAT Corporation.
23
<PAGE>
LOCKHEED MARTIN CORPORATION
PART II - OTHER INFORMATION (continued)
6. Exhibit 10(e) Confidentiality Agreements, dated August 5, 1997,
between COMSAT Corporation and Lockheed Martin Corporation,
incorporated by reference from the Schedule 14D-1 filed by
the Corporation on September 25, 1998, in respect of the
Common Stock of COMSAT Corporation.
7. Exhibit 10(f) Offer to Purchase, dated September 25, 1998, incorporated
by reference from the Schedule 14D-1 filed by the
Corporation on September 25, 1998, in respect of the Common
Stock of COMSAT Corporation.
8. Exhibit 10(g) Form of Long-Term Incentive Performance Award Agreement.
9. Exhibit 12. Lockheed Martin Corporation Computation of Ratio of
Earnings to Fixed Charges for the nine months ended
September 30, 1998.
10. Exhibit 27. Financial Data Schedule for the nine months ended
September 30, 1998.
(b) Reports on Form 8-K filed in the third quarter of 1998.
1. Current report on Form 8-K filed on July 17, 1998.
Item 5. Other Events
On July 17, 1998, the registrant filed information concerning the
termination of the Agreement and Plan of Merger dated July 2, 1997 among the
registrant, a wholly-owned subsidiary of the registrant and Northrop Grumman
Corporation.
2. Current report on Form 8-K filed on September 21, 1998 (as amended by a
Form 8-K/A filed on September 25,1998).
Item 5. Other Events
The registrant filed information concerning an Agreement and Plan of
Merger dated as of September 18, 1998 among the registrant, Deneb Corporation
(a wholly-owned subsidiary of the registrant) and Comsat Corporation.
(c) Reports on Form 8-K filed subsequent to the third quarter of 1998.
1. Current report on Form 8-K filed on October 27, 1998.
Item 5. Other Events
The registrant filed information concerning its declaration of a two-for-
one stock split of the Corporation's common stock in the form of a stock
dividend and the related impact of the stock split on the exchange ratio
contemplated in the Corporation's transaction with Comsat Corporation.
Item 7. Financial Statements and Exhibits
- Lockheed Martin Corporation Press Release dated October 22, 1998.
24
<PAGE>
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: November 2, 1998 by: /s/ Todd J. Kallman
------------------------------- --------------------------------
Todd J. Kallman
Vice President and Controller
(Chief Accounting Officer)
25
<PAGE>
Exhibit 3
ByLaws of Lockheed Martin Corporation
Adopted August 26, 1994
(Amended February 6, 1995)
(Amended April 27, 1995)
(Amended September 28, 1995)
(Amended January 1, 1996)
(Amended April 25, 1996)
(Amended January 23, 1997)
(Amended September 25, 1997)
(Amended October 23, 1997)
(Amended January 22, 1998)
(Amended June 26, 1998)
(Amended July 23, 1998)
1.0 CONTENTS
ARTICLE 1 : STOCKHOLDERS
------------
Section 1.01 Annual Meetings
Section 1.02 Special Meetings
Section 1.03 Place of Meetings
Section 1.04 Notice of Meetings
Section 1.05 Conduct of Meetings
Section 1.06 Quorum
Section 1.07 Votes Required
Section 1.08 Proxies
Section 1.09 List of Stockholders
Section 1.10 Inspectors of Election
Section 1.11 Director Nominations and Stockholder Business
ARTICLE II: BOARD OF DIRECTORS
------------------
Section 2.01 Powers
Section 2.02 Number of Directors
Section 2.03 Election of Directors
Section 2.04 Chairman of the Board
Section 2.05 Vice Chairmen
Section 2.06 Removal
Section 2.07 Vacancies
Section 2.08 Regular Meetings
Section 2.09 Special Meetings
Section 2.10 Notice of Meetings
Section 2.11 Presence at Meeting
Section 2.12 Presiding Officer and Secretary at Meetings
Section 2.13 Quorum
<PAGE>
Section 2.14 Compensation
Section 2.15 Voting of Shares by Certain Holders
ARTICLE III: COMMITTEES
----------
Section 3.01 Executive Committee
Section 3.02 Finance Committee
Section 3.03 Audit and Ethics Committee
Section 3.04(a) Compensation Committee
Section 3.04(b) Stock Option Subcommittee Section 3.05 Nominating Committee
Section 3.06 Other Committees
Section 3.07 Meetings of Committees
ARTICLE IV: OFFICERS
--------
Section 4.01 Executive Officers--Election and Term of Office
Section 4.02 Chairman of the Board
Section 4.03 President
Section 4.04 Vice Presidents
Section 4.05 Secretary
Section 4.06 Treasurer
Section 4.07 Subordinate Officers
Section 4.08 Other Officers and Agents
Section 4.09 When Duties of an Officer May be Delegated
Section 4.10 Officers Holding Two or More Offices
Section 4.11 Compensation
Section 4.12 Resignations
Section 4.13 Removal
ARTICLE V: STOCK
-----
Section 5.01 Certificates
Section 5.02 Transfer of Shares
Section 5.03 Transfer Agents and Registrars
Section 5.04 Stock Ledgers
Section 5.05 Record Dates
Section 5.06 New Certificates
ARTICLE VI: INDEMNIFICATION
---------------
Section 6.01 Indemnification of Directors, Officers, and Employees
Section 6.02 Standard
Section 6.03 Advance Payment of Expenses
Section 6.04 General
ARTICLE VII: SUNDRY PROVISIONS
-----------------
Section 7.01 Seal
Section 7.02 Voting of Stock in Other Corporations
Section 7.03 Amendments
<PAGE>
2.0 BYLAWS
(Incorporated under the laws of Maryland, August 26, 1994, and herein referred
to as the "Corporation.")
ARTICLE I: STOCKHOLDERS
Section 1.01. ANNUAL MEETINGS. The Corporation shall hold an annual meeting of
stockholders for the election of directors and the transaction of any business
within the powers of the Corporation on such date during the month of April in
each year as shall be determined by the Board of Directors. Subject to Article
I, Section 1.11 of these Bylaws, any business of the Corporation may be
transacted at such annual meeting. Failure to hold an annual meeting at the
designated time shall not, however, invalidate the corporate existence or affect
otherwise valid corporate acts.
Section 1.02. SPECIAL MEETINGS. At any time in the interval between annual
meetings, special meetings of the stockholders may be called by the Chairman of
the Board, President, or by the Board of Directors or by the Executive Committee
by vote at a meeting or in writing with or without a meeting. Special meetings
of stockholders shall also be called by the Secretary of the Corporation on the
written request of stockholders entitled to cast at least a majority of all the
votes entitled to be cast at the meeting.
Section 1.03. PLACE OF MEETINGS. All meetings of stockholders shall be held at
such place within the United States as may be designated in the notice of
meeting.
Section 1.04. NOTICE OF MEETINGS. Not less than thirty (30) days nor more than
ninety (90) days before the date of every stockholders' meeting, the Secretary
shall give to each stockholder entitled to vote at such meeting and each other
stockholder entitled to notice of the meeting, written or printed notice stating
the time and place of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, either by mail or by
presenting it to him or her personally or by leaving it at his or her residence
or usual place of business. If mailed, such notice shall be deemed to be given
when deposited in the United States mail addressed to the stockholder at his or
her post office address as it appears on the records of the Corporation, with
postage thereon prepaid. Notwithstanding the foregoing provision for notice, a
waiver of notice in writing, signed by the person or persons entitled to such
notice and filed with the records of the meeting, whether before or after the
holding thereof, or actual attendance at the meeting in person or by proxy,
shall be deemed equivalent to the giving of such notice to such persons. Any
meeting of stockholders, annual or special, may adjourn from time to time
without further notice to a date not more than one hundred twenty (120) days
after the original record date at the same or some other place.
Section 1.05. CONDUCT OF MEETINGS. Each meeting of stockholders shall be
<PAGE>
conducted in accordance with such rules and procedures as the Board of Directors
may determine subject to the requirements of applicable law and the Charter. The
Chairman of the Board, or in his or her absence the Chief Executive Officer, or
in their absence the person designated in writing by the Chairman of the Board,
or if no person is so designated, then a person designated by the Board of
Directors, shall preside as chairman of the meeting; if no person is so
designated, then the meeting shall choose a chairman by a majority of all votes
cast at a meeting at which a quorum is present. The Secretary or in the absence
of the Secretary a person designated by the chairman of the meeting shall act as
secretary of the meeting.
Section 1.06. QUORUM. At any meeting of stockholders, the presence in person or
by proxy of stockholders entitled to cast a majority of the votes thereat shall
constitute a quorum; but this section shall not affect any requirement under
statute or under the Charter of the Corporation for the vote necessary for the
adoption of any measure. In the absence of a quorum, the stockholders present in
person or by proxy, by majority vote and without further notice, may adjourn the
meeting from time to time to a date not more than 120 days after the original
record date until a quorum shall attend. At any such adjourned meeting at which
a quorum shall be present, any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 1.07. VOTES REQUIRED. Unless applicable law or the Charter of the
Corporation provides otherwise, at a meeting of stockholders, the vote of a
majority of the votes entitled to be cast at a meeting, duly called and at which
a quorum is present, shall be required to take or authorize action upon any
matter which may properly come before the meeting. Unless the Charter provides
for a greater or lesser number of votes per share or limits or denies voting
rights, each outstanding share of stock, regardless of class, shall be entitled
to one vote on each matter submitted to a vote at a meeting of stockholders; but
no share shall be entitled to any vote if any installment payable thereon is
overdue and unpaid.
Section 1.08. PROXIES. A stockholder may vote shares of the Corporation's
capital stock that are entitled to be voted and are owned of record by such
stockholder either in person or by proxy in any manner permitted by Section
2-507 of the Maryland General Corporation Law, as in effect from time to time.
No proxy shall be valid more than eleven (11) months after its date, unless
otherwise provided in the proxy.
Section 1.09. LIST OF STOCKHOLDERS. At each meeting of stockholders, a true and
complete list of all stockholders entitled to vote at such meeting, stating the
number and class of shares held by each, shall be furnished by the Secretary.
Section 1.10. INSPECTORS OF ELECTION. In advance of any meeting of stockholders,
the Board of Directors may appoint Inspectors of Election to act at such meeting
or at any adjournment or adjournments thereof. If such Inspectors are not so
appointed or fail or refuse to act, the chairman of any such meeting, upon the
demand of stockholders present in person or by proxy entitled to cast 25% of all
the votes entitled to be cast at the meeting, shall make such appointments.
If there are three (3) or more Inspectors of Election, the decision, act or
certificate of a
<PAGE>
majority shall be effective in all respects as the decision,
act or certificate of all. The Inspectors of Election shall determine the number
of shares outstanding, the voting power of each, the shares represented at the
meeting, the existence of a quorum, the authenticity, validity and effect of
proxies; shall receive votes, ballots, assents or consents, hear and determine
all challenges and questions in any way arising in connection with the vote,
count and tabulate all votes, assents and consents, and determine the result;
and do such acts as may be proper to conduct the election and the vote with
fairness to all stockholders. On request, the Inspectors shall make a report in
writing of any challenge, question or matter determined by them, and shall make
and execute a certificate of any fact found by them.
No such Inspector need be a stockholder of the Corporation.
Section 1.11. DIRECTOR NOMINATIONS AND STOCKHOLDER BUSINESS.
(a) Nominations and Stockholder Business at Annual Meetings of Stockholders.
Nominations of persons for election to the Board of Directors of the Corporation
and the proposal of business to be considered by the stockholders may be made at
an annual meeting of stockholders (i) pursuant to the Corporation's notice of
meeting, (ii) by or at the direction of the Board of Directors or (iii) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of notice provided for in this Section 1.11(a), who is entitled to vote
at the meeting and who complied with the notice procedures set forth in this
Section 1.11(a).
For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (iii) of paragraph (a) of this
Section 1.11, the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice shall
be delivered to the Secretary at the principal executive offices of the
Corporation not less than ninety (90) days nor more than one-hundred twenty
(120) days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is advanced or delayed by more than thirty (30) days from such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the one-hundred twentieth (120th) day prior to such annual
meeting and not later than the close of business on the later of the ninetieth
(90th) day prior to such annual meeting or the tenth (10th) day following the
day on which public announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (i) as to each person whom the stockholder
proposes to nominate for election or reelection as a director, (A) the name,
age, business address and residence address of such person, (B) the class and
number of shares of capital stock of the Corporation that are beneficially owned
by such person, and (C) all other information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A (or any
successor provision) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); (ii) as
to any other business that the stockholder proposes to bring before the meeting,
a brief description of the business desired to be brought before the meeting,
the reasons for conducting such business at the meeting and any material
interest in such business of such stockholder and the beneficial owner, if any,
on whose
<PAGE>
behalf the proposal is made; and (iii) as to the stockholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or proposal is
made, the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and the class and number of
shares of stock of the Corporation which are owned beneficially and of record by
such stockholder and such beneficial owner.
Notwithstanding anything in this paragraph (a) of this Section 1.11 to the
contrary, in the event that Section 2.02 of these Bylaws is amended, altered or
repealed so as to increase or decrease the maximum or minimum number of
directors and there is no public announcement of such action at least
one-hundred (100) days prior to the first anniversary of the preceding year's
annual meeting, a stockholder's notice required by this Section 1.11(a) shall
also be considered timely, but only with respect to nominees for director, if it
shall be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first made by the
Corporation.
(b) Director Nominations and Stockholder Business at Special Meetings of
Stockholders. Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting
(i) by or at the direction of the Board of Directors or (ii) provided that the
Board of Directors has determined that directors shall be elected at such
special meeting, by any stockholder of the Corporation who is a stockholder of
record at the time of giving of notice provided for in this Section 1.11, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in this Section 1.11. In the event the Corporation calls a special meeting
of stockholders for the purpose of electing one or more directors to the Board,
any such stockholder may nominate a person or persons (as the case may be) for
election to such position(s) as specified in the Corporation's notice of
meeting, if the stockholder's notice required by paragraph (a) of this Section
1.11 shall be delivered to the Secretary at the principal executive offices of
the Corporation not earlier than the one-hundred twentieth (120th) day prior to
such special meeting and not later than the close of business on the later of
the ninetieth (90th) day prior to such special meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(c) General. Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.11 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.11. The presiding officer of the meeting shall have
the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set
forth in this Section 1.11 and, if any proposed nomination or business is not in
compliance with this Section 1.11, to declare that such defective nomination or
proposal be disregarded.
For purposes of this Section 1.11, "public announcement" shall mean disclosure
in a press
<PAGE>
release reported by the Dow Jones New Service, Associated Press or comparable
news service or in a document publicly filed by the Corporation with the
Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the
Exchange Act.
Notwithstanding the foregoing provisions of this Section 1.11, a stockholder
shall also comply with all applicable requirements of state law and of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 1.11. Nothing in this Section 1.11 shall be
deemed to affect any rights of stockholders to request inclusion of proposals in
the Corporation's proxy statement pursuant to Rule 14a-8 (or any successor
provision) under the Exchange Act.
ARTICLE II: BOARD OF DIRECTORS
The business and affairs of the Corporation shall be managed under the direction
of its Board of Directors. The Board of Directors may exercise all the powers of
the Corporation, except such as are by statute or the Charter or the Bylaws
conferred upon or reserved to the stockholders.
Section 2.02. NUMBER OF DIRECTORS. The number of directors of the Corporation
shall be not less than four (4) nor more than twenty-five (25). By vote of a
majority of the Board of Directors, the number of directors may be increased or
decreased, from time to time, within the limits above specified; provided,
however, that except as set forth in the Charter of the Corporation, the tenure
of office of a director shall not be affected by any decrease in the number of
directors so made by the Board.
Section 2.03. ELECTION OF DIRECTORS. Except as set forth in the Charter of the
Corporation, the members of the Board of Directors shall be elected each year at
the annual meeting of stockholders, and each director shall hold office until
the next annual meeting of stockholders held after his or her election and until
his or her successor will have been elected and qualified. No person, other than
a person granted an exemption from this provision by the Board of Directors
shall be eligible to be elected as a director for a term which expires after the
first annual meeting of stockholders after he or she reaches the age of 70
years.
Section 2.04. CHAIRMAN OF THE BOARD. The Board of Directors shall designate from
its membership a Chairman of the Board, who shall preside at all meetings of the
stockholders and of the Board of Directors. He may sign with the Secretary or an
Assistance Secretary certificates of stock of the Corporation, and he shall
perform such other duties as may be prescribed by the Board of Directors.
Section 2.05. VICE CHAIRMEN. The Board of Directors shall designate from its
membership no more than two Vice Chairmen of the Board, who shall perform such
functions and duties as requested by the Chairman of the Board.
Section 2.06. REMOVAL. Any director or the Board of Directors may be removed
from office as a director at any time, but only for cause, by the affirmative
vote at a duly called meeting of stockholders of at least 80% of the votes which
all holders of the then outstanding shares of capital stock of the Corporation
would be entitled to cast at an annual election of directors, voting together as
a single class.
<PAGE>
Section 2.07. VACANCIES. Vacancies in the Board of Directors, except for
vacancies resulting from an increase in the number of directors, shall be filled
only by a majority vote of the remaining directors then in office, though less
than a quorum, except that vacancies resulting from removal from office by a
vote of the stockholders may be filled by the stockholders at the same meeting
at which such removal occurs. Vacancies resulting from an increase in the number
of directors shall be filled only by a majority vote of the Board of Directors.
Any director elected to fill a vacancy shall hold office until the next annual
meeting of stockholders and until his or her successor will have been elected
and qualified.
Section 2.08. REGULAR MEETINGS. After each meeting of stockholders at which a
Board of Directors, or any class thereof, shall have been elected, the Board of
Directors shall meet as soon as practicable for the purpose of organization and
the transaction of other business, at such time and place within or without the
State of Maryland as may be designated by the Board of Directors. Other regular
meetings of the Board of Directors shall be held on such dates and at such
places within or without the State of Maryland as may be designated from time to
time by the Board of Directors.
Section 2.09. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called at any time, at any place, and for any purpose by the Chairman of the
Board, the Chief Executive Officer, the Chairman of the Executive Committee, any
three (3) directors, or by any officer of the Corporation upon the request of a
majority of the Board.
Section 2.10. NOTICE OF MEETINGS. Notice of the place, day, and hour of every
regular and special meeting of the Board of Directors shall be given to each
director twenty-four (24) hours (or more) before the meeting, by telephoning the
notice to such director, or by delivering the notice to him or her personally,
or by sending the notice to him or her by telegraph, or by facsimile, or by
leaving the notice at his or her residence or usual place of business, or, in
the alternative, by mailing such notice three (3) days (or more) before the
meeting, postage prepaid, and addressed to him or her at his or her last known
post office address, according to the records of the Corporation. If mailed,
such notice shall be deemed to be given when deposited in the United States
mail, properly addressed, with postage thereon prepaid. If notice be given by
telegram or by facsimile, such notice shall be deemed to be given when the
telegram is delivered to the telegraph company or when the facsimile is
transmitted. If the notice be given by telephone or by personal delivery, such
notice shall be deemed to be given at the time of the communication or delivery.
Unless required by these Bylaws or by resolution of the Board of Directors, no
notice of any meeting of the Board of Directors need state the business to be
transacted thereat. No notice of any meeting of the Board of Directors need be
given to any director who attends or to any director who, in a writing executed
and filed with the records of the meeting either before or after the holding
thereof, waives such notice. Any meeting of the Board of Directors, regular or
special, may adjourn from time to time to reconvene at the same or some other
place, and no further notice need be given of any such adjourned meeting.
Section 2.11. PRESENCE AT MEETING. Members of the Board, or of any committee
thereof, may participate in a meeting by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other at the same time. Participation in this manner
shall constitute presence in person at the meeting.
<PAGE>
Section 2.12. PRESIDING OFFICER AND SECRETARY AT MEETINGS. Each meeting of the
Board of Directors shall be presided over by the Chairman of the Board of
Directors or in his or her absence by the Chief Executive Officer or if neither
is present by such member of the Board of Directors as shall be chosen by the
meeting. The Secretary, or in his or her absence an Assistant Secretary, shall
act as secretary of the meeting, or if no such officer is present, a secretary
of the meeting shall be designated by the person presiding over the meeting.
Section 2.13. QUORUM. At all meetings of the Board of Directors, a majority of
the Board of Directors shall constitute a quorum for the transaction of
business. Except in cases in which it is by statute, by the Charter, or by the
Bylaws otherwise provided, the vote of a majority of such quorum at a duly
constituted meeting shall be sufficient to pass any measure. In the absence of a
quorum, the directors present by majority vote and without notice other than by
announcement may adjourn the meeting from time to time until a quorum shall be
present. At any such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting as
originally notified.
Section 2.14. COMPENSATION. Directors shall not receive any stated salary for
their services as Directors but, by resolution of the Board of Directors, annual
retainers, fees and expenses of attendance, if any, may be provided to Directors
for attendance at each annual, regular or special meeting of the Board of
Directors or of any committee thereof; but nothing contained herein shall be
construed to preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 2.15. VOTING OF SHARES BY CERTAIN HOLDERS. Notwithstanding any other
provision of the Charter of the Corporation or these Bylaws, Title 3, Subtitle 7
of the Corporations and Associations Article of the Annotated Code of Maryland
(or any successor statute) shall not apply to any acquisition by General
Electric Company of shares of stock of the Corporation.
ARTICLE III: COMMITTEES
Section 3.01. EXECUTIVE COMMITTEE. The Board of Directors, by resolution adopted
by a majority of the Board of Directors, may provide for an Executive Committee
of two (2) or more directors. If provision be made for an Executive Committee,
the members thereof shall be elected by the Board of Directors to serve at the
pleasure of the Board of Directors. During the intervals between the meetings of
the Board of Directors, the Executive Committee shall possess and may exercise
such powers in the management of the business and affairs of the Corporation as
may be authorized by the Board of Directors, subject to applicable law. All
action by the Executive Committee shall be reported to the Board of Directors at
its meeting next succeeding such action, and shall be subject to revision and
alteration by the Board of Directors. Vacancies in the Executive Committee shall
be filled by the Board of Directors.
Section 3.02. FINANCE COMMITTEE. The Board of Directors by resolution adopted by
a majority of the Board of Directors may provide for a Finance Committee of
three (3) or more directors. If provision is made for a Finance Committee, the
members of the Finance Committee shall be elected by the Board of Directors to
serve at the pleasure of the Board of Directors. The Board of Directors shall
designate from among the membership of the Finance Committee a chairman. During
the intervals between the meetings of the Board of Directors, the Finance
<PAGE>
Committee shall, except when such powers are by statute or the Charter or the
Bylaws either reserved to the full Board of Directors or delegated to another
committee of the Board of Directors, possess and may exercise all of the powers
of the Board of Directors in the management of the financial affairs of the
Corporation, including but not limited to establishing bank lines of credit or
other short-term borrowing arrangements and investing excess working capital
funds on a short-term basis. The Finance Committee will review the financial
condition of the Corporation, the financial impact of all benefit plans and all
proposed changes to the capital structure of the Corporation, including the
incurrence of long-term indebtedness and the issuance of additional equity
securities, and will make suitable recommendations to the Board of Directors. It
will likewise review on an annual basis the proposed capital expenditure and
contributions budgets of the Corporation and make recommendations to the Board
of Directors for their adoption. It will monitor the financial impact of all
trusteed benefit plans sponsored by the Corporation and of any amendments or
modifications thereto and will monitor the performance of the assets and
administration of the Corporation's trusteed benefit plans. All action by the
Finance Committee shall be reported to the Board of Directors at its meeting
next succeeding such action and shall be subject to revision and alteration by
the Board of Directors. Vacancies in the Finance Committee shall be filled by
the Board of Directors.
Section 3.03. AUDIT AND ETHICS COMMITTEE. The Board of Directors by resolution
adopted by a majority of the Board of Directors shall provide for an Audit and
Ethics Committee of three or more directors who are not officers or employees of
the Corporation, and who otherwise independent of management and free from any
relationship that, in the opinion of the Board of Directors, would interfere
with the exercise of the independent judgment of each member as a Committee
member. The members of the Audit and Ethics Committee shall be elected by the
Board of Directors to serve at the pleasure of the Board of Directors. The Board
of Directors shall designate from among the membership of the Audit and Ethics
Committee a chairman. The Audit and Ethics Committee shall, except when such
powers are by statute or the Charter or the Bylaws either reserved to the full
Board of Directors or delegated to another committee of the Board of Directors,
possess and may exercise the powers of the Board of Directors relating to all
accounting and auditing matters of this Corporation. The Audit and Ethics
Committee shall recommend to the Board of Directors the selection of and monitor
the independence of the independent public accountants for this Corporation and
prior to the end of the Corporation's fiscal year shall review the scope and
timing of the work to be performed and the compensation to be paid to the
accountants selected by the Board; review with the Corporation's management and
the independent public accountants the financial accounting and reporting
principles appropriate for the Corporation, the policies and procedures
concerning audits, accounting and financial controls, and any recommendations to
improve existing practices, and the qualifications and work of the Corporation's
internal auditing staff; review with the Corporation's independent public
accountants the results of their audit and their report including any changes in
accounting principles and any significant amendments; and shall meet with the
Corporation's internal audit department representative to review the plan and
scope of work of the internal auditing staff. The Committee shall hold quarterly
meetings, and shall separately meet in executive session, with the Corporation's
independent public accountants and internal audit department representative to
review and resolve all matters of concern presented to the Committee. The
Committee shall monitor compliance with the Code of Ethics and Standards of
Conduct and shall review and resolve all matters of concern presented to it by
the Corporate Ethics Committee or the Corporate Ethics Office. The Committee
shall review and monitor the
<PAGE>
adequacy of the Corporation's policies and procedures, as well as the
organizational structure, for ensuring compliance with environmental, health and
safety laws and regulations; review, at least annually, the Corporation's record
of compliance with any environmental, health and safety laws and regulations and
the policies and procedures relating thereto; review with the Corporation's
management significant environmental, health and safety litigation and
regulatory proceedings in which the Corporation is or may become involved; and
review the accounting and financial reporting issues, including the adequacy of
disclosure, for all environmental matters. The Committee shall have the power to
investigate any matter falling within its jurisdiction, and it shall also
perform such other functions and exercise such other powers as may be delegated
to it from time to time by the Board of Directors. All action by the Audit and
Ethics Committee shall be reported to the Board of Directors at its meeting next
succeeding such action and shall be subject to revision and alteration by the
Board of Directors. Vacancies in the Audit and Ethics Committee shall be filled
by the Board of Directors.
Section 3.04(a). COMPENSATION COMMITTEE. The Board of Directors by resolution
adopted by a majority of the Board of Directors may provide for a Compensation
Committee of three (3) or more directors who are not officers or employees of
the Corporation. If provision is made for a Compensation Committee, the members
of the Compensation Committee shall be elected by the Board of Directors to
serve at the pleasure of the Board of Directors. The Board of Directors shall
designate from among the membership of the Compensation Committee a chairman.
The Compensation Committee shall recommend to the Board of Directors the
compensation to be paid for services of senior elected officers of the
Corporation as established by resolution of the Board of Directors from time to
time. The Compensation Committee shall have the power to fix the compensation of
all other elected officers and to approve the benefits provided by any bonus,
supplemental and special compensation plans including pension, insurance, and
health plans, but excluding performance-based executive compensation plans, and
such powers as are by statue or the Charter or the Bylaws reserved to the full
Board of Directors. The Compensation Committee shall also perform such other
functions and exercise such other functions and exercise such other powers as
may be delegated to it from time to time by the Board of Directors. All action
by the Compensation Committee shall be reported to the Board of Directors at its
meeting next succeeding such action and shall be subject to revision and
alteration by the Board of Directors. Vacancies in the Compensation Committee
shall be filled by the Board of Directors.
Section 3.04. STOCK OPTION SUBCOMMITTEE. The Board of Directors by resolution
adopted by a majority of the Board of Directors may provide for a Stock Option
Subcommittee of three (3) or more directors of the Compensation Committee who
meet the qualifications of an independent director under Section 162(m) of the
Internal Revenue Code. If provision is made for a Stock Option Subcommittee, the
members of the Stock Option Subcommittee shall be elected by the Board of
Directors to serve at the pleasure of the Board of Directors. The Board of
Directors shall designate from among the membership of the Stock Option
Subcommittee a chairman. The Stock Option Subcommittee shall serve as the Stock
Option Subcommittee of the Board and shall administer any performance-based
executive compensation plan and approve awards granted thereunder. The Stock
Option Subcommittee shall also perform such other functions and exercise such
other powers as may be delegated to it from time to time by the Board of
Directors. All action by the Stock Option Subcommittee shall be reported to the
Board of Directors at its meeting next succeeding such action and shall be
subject to revision and
<PAGE>
alteration by the Board of Directors. Vacancies in the Stock Option Subcommittee
shall be filled by the Board of Directors.
Section 3.05. NOMINATING COMMITTEE. The Board of Directors by resolution adopted
by a majority of the Board of Directors may provide for a Nominating Committee
of three (3) or more Directors who are not officers or employees of the
Corporation. If provision is made for a Nominating Committee, the members of the
Nominating Committee shall be elected by the Board of Directors to serve at the
pleasure of the Board of Directors. The Board of Directors shall designate from
among the membership of the Nominating Committee a committee chairman. The
Nominating Committee shall make recommendations to the Board of Directors
concerning the fees and compensation for directors, the composition of the Board
including its size and the qualifications for membership, and the Nominating
Committee shall recommend to the Board of Directors nominees for election to
fill any vacancy occurring in the Board and to fill new positions created by an
increase in the authorized number of directors of the Corporation. Annually the
Nominating Committee shall recommend to the Board of Directors a slate of
directors to serve as management's nominees for election by the stockholders at
the annual meeting. Vacancies in the Nominating Committee shall be filled by the
Board of Directors.
Section 3.06. OTHER COMMITTEES. The Board of Directors may by resolution provide
for such other standing or special committees, composed of two (2) or more
directors, and discontinue the same at its pleasure. Each such committee shall
have such powers and perform such duties, not inconsistent with law, as may be
assigned to it by the Board of Directors.
Section 3.07. MEETINGS OF COMMITTEES. Each committee of the Board of Directors
shall fix its own rules of procedure, consistent with the provisions of any
rules or resolutions of the Board of Directors governing such committee, and
shall meet as provided by such rules or by resolution of the Board of Directors,
and it shall also meet at the call of its chairman or any two (2) members of
such committee. Unless otherwise provided by such rules or by such resolution,
the provisions of the article of these Bylaws entitled the "Board of Directors"
relating to the place of holding and notice required of meetings of the Board of
Directors shall govern committees of the Board of Directors. A majority of each
committee shall constitute a quorum thereof; provided, however, that in the
absence of any member of such committee, the members thereof present at any
meeting, whether or not they constitute a quorum, may appoint a member of the
Board of Directors to act in the place of such absent member. Except in cases in
which it is otherwise provided by the rules of such committee or by resolution
of the Board of Directors, the vote of a majority of such quorum at a duly
constituted meeting shall be sufficient to pass any measure.
ARTICLE IV: OFFICERS
Section 4.01. EXECUTIVE OFFICERS -- ELECTION AND TERM OF OFFICE. The Executive
Officers of the Corporation shall be a Chairman of the Board, who shall also be
the Chief Executive Officer, a President, such number of Vice Presidents as the
Board of Directors may determine, a Secretary and a Treasurer. The Chairman and
Chief Executive Officer and the President shall be chosen from among the
Directors. The Executive Officers shall be elected annually by the Board of
Directors at its first meeting following each annual meeting of stockholders and
each such officer shall hold office until the corresponding meeting of the Board
of Directors in the next year and until his or her successor shall have been
duly chosen and
<PAGE>
qualified or until his or her death or until he or she shall have resigned, or
shall have been removed from office in the manner provided in this Article IV.
Any vacancy in any of the above offices may be filled for the unexpired portion
of the term by the Board of Directors at any regular or special meeting.
Section 4.02. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be the
Chief Executive Officer of the Corporation and shall preside at all meetings of
the stockholders and of the Board of Directors. He shall serve as a member of
the Executive Committee and, in the absence of the Chairman of the Executive
Committee, preside at all meetings of the Executive Committee. Subject to the
authority of the Board of Directors, he shall have general charge and
supervision of the business and affairs of the Corporation. He shall have the
authority to sign and execute in the name of the Corporation all deeds,
mortgages, bonds, contracts or other instruments. He shall have the authority to
vote stock in other corporations, and he shall perform such other duties of
management as may be prescribed by resolution or as otherwise may be assigned to
him by the Board of Directors. He shall have the authority to delegate such
authorization and power as vested in him by these Bylaws to some other officer
or employee or agent of the Corporation as he shall deem appropriate.
Section 4.03. PRESIDENT. The President shall be the Chief Operating Officer of
the Corporation. He or she shall have general charge and supervision of the
operations of the Corporation and shall have such other powers and duties of
management as from time to time may be assigned to him or her by the Board of
Directors or the Chief Executive Officer.
Section 4.04. VICE PRESIDENTS. The Corporation shall have one (1) or more Vice
Presidents, including Executive and Senior Vice Presidents as appropriate, as
elected from time to time by the Board of Directors. The Vice Presidents shall
perform such duties as from time to time may be assigned to them by the
President.
Section 4.05. SECRETARY. The Secretary shall attend all meetings of the
stockholders and of the Board of Directors and record all votes and minutes or
proceedings, in books provided for that purpose; shall see that all notices of
such meetings are duly given in accordance with the provisions of the Bylaws of
the Corporation, or as required by law; may sign certificates of stock of the
Corporation with the Chairman of the Board; shall be custodian of the corporate
seal; shall see that the corporate seal is affixed to all documents, the
execution of which, on behalf of the Corporation, under its seal, is duly
authorized, and when so affixed may attest the same; and in general, shall
perform all duties incident to the office of a secretary of a corporation, and
such other duties as from time to time may be assigned to the Secretary by the
Chairman of the Board.
Section 4.06. TREASURER. The Treasurer shall have charge of and be responsible
for all funds, securities, receipts and disbursements of the Corporation, and
shall deposit, or cause to be deposited, in the name of the Corporation, all
monies or other valuable effects in such banks, trust companies, or other
depositories as shall, from time to time, be selected by the Board of Directors;
and in general, shall render such reports and perform such other duties incident
to the office of a treasurer of a corporation, and such other duties as from
time to time may be assigned to him or her by the President.
Section 4.07. SUBORDINATE OFFICERS. The subordinate officers shall consist of
such assistant officers and agents as may be deemed desirable and as may be
appointed by the Chief
<PAGE>
Executive Officer or the President. Each such subordinate officer shall hold
office for such period, have such authority and perform such duties as the Chief
Executive Officer or the President may prescribe.
Section 4.08. OTHER OFFICERS AND AGENTS. Board of Directors may create such
other offices and appoint or provide for the appointment of such other officers
and agents, attorneys-in-fact and employees as it shall deem necessary, who
shall bear such titles, have such authority, receive such compensation, and
provide such security for faithful service and hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board of Directors.
Section 4.09. WHEN DUTIES OF AN OFFICER MAY BE DELEGATED. In the case of the
absence or disability of an officer of the Corporation or for any other reason
that may seem sufficient to the Board of Directors, the Board of Directors, or
any officer designated by it, may, for the time being, delegate such officer's
duties and powers to any other person.
Section 4.10. OFFICERS HOLDING TWO OR MORE OFFICES. Any two (2) of the above
mentioned offices, except those of a Vice President, may be held by the same
person, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity, if such instrument be required by law, by the Charter or
by these Bylaws, to be executed, acknowledged or verified by any two (2) or more
officers.
Section 4.11. COMPENSATION. The Board of Directors shall have power to fix the
compensation of all officers and employees of the Corporation.
Section 4.12. RESIGNATIONS. Any officer may resign at any time by giving written
notice to the Board of Directors or to the Chief Executive Officer or the
Secretary of the Corporation. Any such resignation shall take effect
simultaneously with or at any time subsequent to its delivery as shall be
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 4.13. REMOVAL. Any officer of the Corporation may be removed, with or
without cause, by the Board of Directors, if such removal is determined in the
judgment of the Board of Directors to be in the best interests of the
Corporation, and any officer of the Corporation duly appointed by another
officer may be removed, with or without cause, by such officer.
ARTICLE V: STOCK
Section 5.01. CERTIFICATES. Each stockholder shall be entitled to a certificate
or certificates which shall represent and certify the number and kind of shares
of stock owned by him or her in the Corporation. Such certificates shall be
signed by the Chairman of the Board and countersigned by the Secretary or an
Assistant Secretary, and sealed with the seal of the Corporation or a facsimile
of such seal. Stock certificates shall be in such form, not inconsistent with
law or with the Charter, as shall be approved by the Board of Directors. When
certificates for stock of any class are countersigned by a transfer agent, other
than the Corporation or its employee, or by a registrar, other than the
Corporation or its employee, any other signature on such certificates may be a
facsimile. In case any officer of the Corporation who has signed any certificate
ceases to be an officer of the Corporation, whether because of death,
resignation or otherwise, before such certificate is issued, the certificate may
nevertheless be issued and
<PAGE>
delivered by the Corporation as if the officer had not ceased to be such officer
as of the date of its issue.
Section 5.02. TRANSFER OF SHARES. Shares of stock shall be transferable only on
the books of the Corporation only by the holder thereof, in person or by duly
authorized attorney, upon the surrender of the certificate representing the
shares to be transferred, properly endorsed. The Board of Directors shall have
power and authority to make such other rules and regulations concerning the
issue, transfer and registration of certificates of stock as it may deem
expedient.
Section 5.03. TRANSFER AGENTS AND REGISTRARS. The Corporation may have one (1)
or more transfer agents and one (1) or more registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a transfer agent, if
the Corporation has a transfer agent, or until registered by a registrar, if the
Corporation has a registrar. The duties of transfer agent and registrar may be
combined.
Section 5.04. STOCK LEDGERS. Original or duplicate stock ledgers, containing the
names and addresses of the stockholders of the Corporation and the number of
shares of each class held by them respectively, shall be kept at an office or
agency of the Corporation in such city or town as may be designated by the Board
of Directors. If no other place is so designated such original or duplicate
stock ledgers shall be kept at an office or agency of the Corporation in New
York, New York or Bethesda, Maryland.
Section 5.05. RECORD DATES. The Board of Directors is hereby empowered to fix,
in advance, a date as the record date for the purpose of determining
stockholders entitled to notice of, or to vote at, any meeting of stockholders,
or stockholders entitled to receive payment of any dividend or the allotment of
any rights, or in order to make a determination of stockholders for any other
proper purpose. Such date in any case shall be not more than ninety (90) days
and, in case of a meeting of stockholders, not less than thirty (30) days, prior
to the date on which the particular action, requiring such determination of
stockholders, is to be taken. If a record date is not set and the transfer books
are not closed, the record date for the purpose of making any proper
determination with respect to stockholders shall be fixed in accordance with
applicable law.
Section 5.06. NEW CERTIFICATES. In case any certificate of stock is lost,
stolen, mutilated or destroyed, the Board of Directors may authorize the issue
of a new certificate in place thereof upon such terms and conditions as it may
deem advisable; or the Board of Directors may delegate such power to any officer
or officers or agents of the Corporation; but the Board of Directors or such
officer or officers, in their discretion, may refuse to issue such new
certificate save upon the order of some court having jurisdiction in the
premises.
ARTICLE VI: INDEMNIFICATION
Section 6.01. INDEMNIFICATION OF DIRECTORS, OFFICERS, AND EMPLOYEES. The
Corporation shall indemnify and hold harmless to the fullest extent permitted
by, and under, applicable law as it presently exists and as is further set forth
in Section 6.02 below or as may hereafter be amended any person who is or was a
director, officer or employee of the Corporation or who is or was serving at the
request of the Corporation as a director, officer or
<PAGE>
employee of another corporation or entity (including service with employee
benefit plans), who by reason of this status or service in that capacity was,
is, or is threatened to be made a party or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative, or investigative.
Such indemnification shall be against all liability and loss suffered and
expenses (including, but not limited to, attorneys' fees, judgments, fines,
penalties, and amounts paid in settlement) actually and reasonably incurred by
the individual in connection with such proceeding; provided, however, that the
Corporation shall not be required to indemnify a person in connection with an
action, suit or proceeding initiated by such person unless the action, suit or
proceeding was authorized by the Board of Directors of the Corporation.
Section 6.02. STANDARD. Maryland General Corporation Law Section 2-418, on
August 29, 1994, provided generally that a corporation may indemnify any
individual made a party to a proceeding by reason of service on behalf of the
corporation unless it is established that:
(I) The act or omission of the individual was material to the matter giving rise
to the proceeding; and
(1) Was committed in bad faith; or
(2) Was the result of active and deliberate dishonesty; or
(ii) The individual actually received an improper personal benefit in money,
property, or services; or
(iii) In the case of any criminal proceeding, the individual had reasonable
cause to believe that the act or omission was unlawful.
Section 6.03. ADVANCE PAYMENT OF EXPENSES. The Corporation shall pay or
reimburse reasonable expenses in advance of a final disposition of the
proceeding and without requiring a preliminary determination of the ultimate
entitlement to indemnification provided that the individual first provides the
Corporation with: (a) a written affirmation of the individual's good faith
belief that the individual meets the standard of conduct necessary for
indemnification under the laws of the State of Maryland; and (b) a written
undertaking by or on behalf of the individual to repay the amount advanced if it
shall ultimately be determined that the applicable standard of conduct has not
been met.
Section 6.04. GENERAL. The Board of Directors, by resolution, may authorize the
management of the Corporation to act for and on behalf of the Corporation in all
matters relating to indemnification within any such limits as may be specified
from time to time by the Board of Directors, all consistent with applicable law.
The rights conferred on any person by this Article VI shall not be exclusive of
any other rights which such person may have or hereafter acquire under any
statute, provision of the Charter of the Corporation, these Bylaws, agreement,
vote of the stockholders or disinterested directors or otherwise.
Repeal or modification of this Article VI or the relevant law shall not affect
adversely any rights or obligations then existing with respect to any facts then
or theretofore existing or any action, suit or proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such facts.
<PAGE>
ARTICLE VII: SUNDRY PROVISIONS
Section 7.01. SEAL. The corporate seal of the Corporation shall bear the name of
the Corporation and the words "Incorporated 1994 Maryland" and "Corporate Seal."
Section 7.02. VOTING OF STOCK IN OTHER CORPORATIONS. Any shares of stock in
other corporations or associations, which may from time to time be held by the
Corporation, may be represented and voted at any of the stockholders' meetings
thereof by the Chairman or President of the Corporation or by proxy or proxies
appointed by the Chairman or President of the Corporation. The Board of
Directors or Chairman, however, may by resolution or delegation appoint some
other person or persons to vote such shares, in which case such person or
persons shall be entitled to vote such shares upon the production of a certified
copy of such resolution or delegation.
Section 7.03. AMENDMENTS. The Board of Directors shall have the exclusive power,
at any regular or special meeting thereof, to make and adopt new Bylaws, or to
amend, alter, or repeal any Bylaws of the Corporation, provided such revisions
are not inconsistent with the Charter or statute.
3.0 CERTIFICATE AS TO BYLAWS
I, ___________________________________, Vice President and Secretary of LOCKHEED
MARTIN CORPORATION hereby certify that the foregoing is a true, correct and
complete copy of the Bylaws of LOCKHEED MARTIN CORPORATION and that such Bylaws
are in full force and effect as of the date of this certificate.
WITNESS my hand and the seal of LOCKHEED MARTIN CORPORATION, this
______________ day of ________________________, 19____.
Vice President and Secretary
CORPORATE SEAL
4.0 AMENDMENTS
April 27, 1995. Section 3.02 revised, amending the Finance Committee Charter to
include review of financial condition of the Corporation.
April 27, 1995. Section 3.03 revised, amending the Audit & Ethics Committee
Charter to include compliance with health and safety laws and regulations.
<PAGE>
September 28, 1995. Section 3.02 revised, amending the Finance Committee Charter
to clarify the Committee's responsibilities relative to the Corporation's
trusteed benefit plans.
January 1, 1996. Section 2.04 revised, amending Article II, Board of Directors,
and Article IV, Officers, relating to the responsibilities of the Chairman of
the Board and the President.
January 7, 1996. Section 2.02 revised, amending Article II, Number of Directors,
increasing the total number of directors from 24 to 25.
April 25, 1996 Section 2.03 revised, amended by striking "on or before March 15,
1996."
April 25, 1996 Section 2.05 revised, adding new Section "Vice Chairmen" and
renumbering the succeeding sections accordingly.
January 23, 1997 Sections 4.01, 4.02 and 4.03 revised, aligning officers and
management responsibility. Section 1.02 revised, amending requirements for
calling Special Meetings.
September 25, 1997 Article I, II, III and IV amended to clarify responsibilities
of the Chief Executive Officer.
October 23, 1997 Section 3.02 amended to delete reference to Benefit Plan
Committee.
January 22, 1998 Section 1.08 amended to authorize proxy voting by any form of
electronic transmission as permitted by Maryland General Corporation Law.
June 26, 1998 Sections 3.01, 4.01 and 4.02 amended to clarify responsibilities
of the Chairman of the Board and Chief Executive Officer.
July 23, 1998 Section 1.11 amended to change the period of time a stockholder
can introduce a proposal.
<PAGE>
EXHIBIT 10(g)
[LOCKHEED MARTIN CORPORATION STATIONERY]
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING
SECURITIES THAT HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933
[[insert date] ]
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
Re: Lockheed Martin Corporation 1995 Omnibus Performance Award
Plan: Long-Term Incentive Performance Award ([insert date]
--------------------------------------
Performance Period)
--------------------
Dear __________________________________:
On behalf of the Stock Option Subcommittee (the "Subcommittee") of the
Board of Directors of Lockheed Martin Corporation, I am pleased to announce that
you have been granted a Long-Term Incentive Performance Award under the
Corporation's 1995 Omnibus Performance Award Plan (the "Plan"). The purpose of
this letter is to serve as the Award Agreement under such Plan and to set forth
your Target Award as well as the terms and conditions to the payment of your
Target Award. Additional terms and conditions are set forth in the Plan and in
the Prospectus relating to the Plan of which the Plan document and this Award
Agreement are a part. You should retain the Prospectus and the attached copy of
the Plan in your records.
PLEASE NOTE THAT, FOR THIS AWARD TO BE EFFECTIVE, YOU MUST PROMPTLY
SIGN AND RETURN A COPY OF THIS AWARD AGREEMENT.
The following points explain in summary fashion how the Award granted
to you under this Award Agreement shall be calculated and paid. These summary
points are subject to the terms and conditions of this Award Agreement and to
the Plan.
. You have been granted a Target Award in the amount of
$_____________. Your actual Award may be larger or smaller than
your Target Award (from $0 to $________________), depending on
the Corporation's performance as measured by
<PAGE>
its relative ranking of Total Stockholder Return to Total
Stockholder Return of the companies that comprise the Standard &
Poor's 500 Index.
. You must (as a general rule) remain employed by the Corporation
through [insert date] to receive a payment of any portion of your
actual Award.
. If you remain so employed through [insert date], you shall be
fully vested in 50% of your Award. The amount payable at this
time depends upon the Corporation's performance relative to the
performance of other corporations which comprise the Standard &
Poor's 500 Index. You may elect to receive this portion of your
Award in cash, or you may make an irrevocable election to defer
the payment of this portion of your Award to a later date (in
accordance with rules set by the Subcommittee).
. You must (as a general rule) remain employed by the Corporation
until [insert date] to receive a payment of the remaining 50% of
your Award. During the period between [insert date] and [insert
date] , your Award shall be treated as if it had been invested in
the Corporation's common stock.
. On [insert date] , you will become eligible to receive the
remaining 50% portion of your Award (as adjusted to track the
performance of the Corporation's common stock) in cash, or you
may make an irrevocable election to defer the payment of this
portion of your Award to a later date (in accordance with rules
set by the Subcommittee).
The remainder of this letter sets forth your actual Award Agreement.
Any terms used in this letter which have a special meaning either
shall be defined in this letter for your convenience, or capitalized terms which
are not defined in this letter are defined in the Plan. The term "Target Award"
as used in this Award Agreement refers only to the Target Award awarded to you
under this Award Agreement and the term "Award" refers only to the Long Term
Incentive Performance Award set forth in this Award Agreement. References to
the "Corporation" include Lockheed Martin Corporation and its subsidiaries.
Section 1. Target Award. Your Target Award for your Performance
------------
Period under this Award Agreement shall be [$xxx,xxx.xx].
Section 2. Performance Period. Your Performance Period under this
------------------
Award Agreement shall start on [insert date] and shall end on [insert date].
-2-
<PAGE>
Section 3. Peer Performance Group.
----------------------
3.1. General; the Peer Performance Group. The percentage of your
-----------------------------------
Target Award which you shall be eligible to receive shall depend, in part, on
the Corporation's relative ranking of its Total Stockholder Return (as defined
in the Plan) for your Performance Period to the Total Stockholder Return for
such Period for the corporations which comprise the Standard & Poor's 500 Index.
The Corporation shall be included as a member of the Peer Performance Group.
The Corporation's Total Stockholder Return will be based on the performance of
its common stock, par value $1.00. The Total Stockholder Return of each
corporation that is taken into account in computing the Peer Performance Group
Total Stockholder Return will be based on the equity security of the relevant
corporation that is used in computing the Standard & Poor's 500 Index.
3.2. Total Stockholder Return. The Subcommittee after the end of
------------------------
your Performance Period shall compute the Total Stockholder Return for the
Corporation for such Period and shall compute and rank the Total Stockholder
Return for each corporation in the Peer Performance Group. Each corporation's
Total Stockholder Return shall be ranked among the Total Stockholder Return for
each other corporation in the Peer Performance Group on a percentile basis.
Each such Total Shareholder Return shall be computed from data available to the
public, and the ranking shall be made using generally accepted analytical
procedures. The Total Stockholder Return for the Corporation and for each
corporation in the Peer Performance Group shall be rounded to the nearest
hundredth of a percent based on the standard convention for rounding.
3.3. Percentage Level of Target Award.
--------------------------------
(a) General. At the end of your Performance Period, the Subcommittee
-------
shall multiply your Target Award by the Percentage Level of Target
Award as determined under Section 3.3(b). The result of such
multiplication shall be referred to in this Award Agreement as your
"Potential Award".
(b) Percentage Level of Target Award. Your Percentage Level of
--------------------------------
Target Award shall (subject to Section 3.3(c)) be determined under
this Section 3.3(b) based on the percentile ranking of the Corporation
in the Peer Performance Group based on the Corporation's Total
Stockholder Return for your Performance Period under the following
chart--
-3-
<PAGE>
<TABLE>
<CAPTION>
Band Percentile Ranking Percentage Level
---- ------------------ -----------------
Of Target Award
-----------------
<S> <C> <C>
One 85th or higher 200%
Two 75th 150%
Three 60th 100%
Four 50th 70%
Five 40th 25%
Six Below 40th 0%
</TABLE>
(c) Percentage Level of Target Award Interpolation. If the
-----------------------------------------------
Corporation's Total Stockholder Return puts the Corporation over the
listed Percentile Ranking for the applicable Band (other than Band One
or Band Six) in Section 3.3(b), your Percentage Level of Target Award
under Section 3.3(b) shall be calculated in the following steps--
(1) the Subcommittee as the first step shall determine the amount by
which the Corporation's Percentile Ranking exceeds the listed
Percentile Ranking in the applicable Band (rounded to the nearest
whole number based on the standard convention for rounding to the
nearest whole number),
(2) the Subcommittee as step (2) shall divide the number from step
(1) by ten (10) or, if the Band is Band Three, by fifteen (15) and
the resulting quotient shall be expressed as a percentage (rounded
to the nearest whole number based on the standard convention for
rounding to the nearest whole number), which percentage shall be
referred to as the "Applicable Percentage",
(3) the Subcommittee as step (3) shall multiply the Applicable
Percentage by fifty (50), if the applicable Band is Band Two or Band
Three, or by thirty (30), if the applicable Band is Band Four, or by
forty-five (45), if the applicable band is Band Five,
(4) the Subcommittee as step (4) shall round the number from step
(3) to the nearest whole number based on the standard convention for
rounding to the nearest whole number, and
(5) the Subcommittee as step (5) shall determine your actual
Percentage Level of Target Award by adding the number from step (4)
as so rounded to the Percentage Level specified in the applicable
Band under Section 3.3(b).
-4-
<PAGE>
Section 4. Potential Award.
---------------
4.1. Employment Requirement.
----------------------
(a) General Rule. In order to be eligible to receive payment of any
------------
portion your Potential Award as determined under Section 3.3(a), you
must remain actively employed by the Corporation through the last day
of the Performance Period. If your employment as an Employee
terminates for any reason whatsoever during your Performance Period,
you shall forfeit your right to receive all or any part of your
Potential Award.
(b) Exceptions. Notwithstanding Section 4.1(a), if the Subcommittee
----------
determines
(1) that your employment as an Employee terminated as a result of
your death, "Divestiture", "Disability" or "Retirement" or
(2) that the Corporation terminated your employment involuntarily as
a result of a layoff,
you shall forfeit a fraction of your Potential Award. The numerator
of such fraction shall equal the number of days remaining in your
Performance Period after the date that the Subcommittee determines
that your employment as an Employee terminated, and the denominator
shall equal the total number of days in your Performance Period. The
Subcommittee shall have complete and absolute discretion to make the
determinations called for under this Section 4.1(b), and all such
determinations shall be binding on you and on any person who claims
all or any part of your Potential Award on your behalf as well as on
the Corporation.
(c) Special Definitions. For purposes of this Award Agreement
-------------------
(1) Your employment as an Employee shall be treated as terminating
because of a Disability if you are eligible for a benefit under the
Corporation's long term disability plan in which you participate;
(2) Your employment as an Employee shall be treated as terminating
as a result of Divestiture if the Corporation divests all or
substantially all of a business operation of the Corporation and
such divestiture results in the termination of your employment with
the Corporation and a transfer of such employment to the other party
in the divestiture. A divestiture shall mean a transaction which
results in the transfer of control of the business operation to any
person, corporation, association, partnership, joint venture or
other
-5-
<PAGE>
business entity of which less than 50% of the voting stock or other
equity interests are owned or controlled by the Corporation; and
(3) Your employment as an Employee shall be treated as terminating
because of Retirement if (a) you participate in a retirement plan
maintained by the Corporation, and your employment terminates on or
after the date on which you satisfy the plan's age and service
requirements for receiving an early retirement benefit under the
plan or (b) if you do not participate in a retirement plan
maintained by the Corporation, your employment terminates after you
reach age 55 and have completed five years of service.
4.2. Payment Rules.
-------------
(a) General Rule. If you are eligible to receive your Potential Award
------------
under Section 4.1(a), your Potential Award shall be divided into two
equal parts, one of which shall be fully vested and, at your election,
shall be either paid in cash to you or deferred in accordance with
Section 4.2(e). The other portion of your Potential Award shall
remain subject to forfeiture and shall be governed under the
provisions of Section 4.2(c).
(b) Current Part. You shall have the right to receive 50% of your
------------
Potential Award currently in cash as soon as practicable after the
date as of which the Subcommittee certifies in writing (for purposes
of Section 162(m) of the Code) that your Target Award has become a
Potential Award for your Performance Period.
(c) Deferred, Forfeitable Part.
--------------------------
(1) Deferral and Forfeiture. If you are eligible to receive your
-----------------------
Potential Award under Section 4.1(a), the payment of the remaining
50% of your Potential Award shall be deferred until after [insert
date]. You shall forfeit your right to the payment of that part of
your Potential Award if your employment as an active Employee
terminates for any reason on or before [insert date].
(2) Phantom Stock Account. The Subcommittee shall establish a
---------------------
bookkeeping account (a "Phantom Stock Account") on your behalf under
this Section 4.2(c)(2) and shall credit such account with a number
of units equal to the number of whole shares (and any fractional
share) of the Corporation's common stock which could have been
purchased by the part of your Potential Award described in Section
4.2(c)(1) at the closing price for a share of the Corporation's
common stock as reported on the New York Stock Exchange for the last
trading day of the Performance Period, subject to the Subcommittee's
certification in writing (for purposes of Section 162(m) of the
Code) that your
-6-
<PAGE>
Target Award has become a Potential Award for your Performance
Period. Thereafter the Subcommittee shall make such credits or
debits to the units previously credited to such account as the
Subcommittee deems appropriate in light of any transaction described
in Section 7(a) of the Plan (such as a stock split or stock
dividend) or any dividends paid on the Corporation's common stock,
which dividends shall increase the number of units credited to such
account as if such dividends had been reinvested in the
Corporation's common stock at the closing price of a share of the
Corporation's common stock as reported on The New York Stock
Exchange for the last trading day of the quarter in which such
dividend is declared by the Board of Directors.
(3) Payment. Unless you forfeit your right to the remaining 50% of
-------
your Potential Award described in this Section 4.2(c), you shall
have the right to receive the payment of the value of your Phantom
Stock Account as determined as of [insert date] or to defer payment
in accordance with Section 4.2(e). The amount payable under this
Section 4.2(c) shall be determined by multiplying the number of
units representing shares of phantom stock credited to your account
under Section 4.2(c)(2) by the closing price for a share of the
Corporation's common stock as reported on the New York Stock
Exchange for [insert date] or, if it is not a trading day, on the
last trading day before [insert date], and rounding such product to
the nearest whole number based on the standard convention of
rounding to the nearest whole number.
(4) Special Payment Rule For Certain Terminated Employees.
-----------------------------------------------------
Notwithstanding Section 4.2(c)(1), if your employment terminates
after the close of your Performance Period but prior to [insert
date] and the Subcommittee determines that your employment
terminated under circumstances which would have made you eligible to
receive at least a part of your Potential Award under Section
4.1(b), then the remaining 50% portion of your Potential Award
described in this Section 4.2(c) shall be paid to you or, in the
event of your death, to your designated beneficiary, in cash as soon
as practicable following your termination. The amount payable under
this Section 4.2(c)(4) shall be determined by multiplying the number
of units representing shares of phantom stock credited to your
account under Section 4.2(c)(2) on the date your termination becomes
effective by the closing price for a share of the Corporation's
common stock as reported on the New York Stock Exchange for the date
on which your termination becomes effective, or if it is not a
trading day, on the last trading day before that date, and rounding
such product to the nearest whole number based on the standard
convention of rounding to the nearest whole number. In the event of
your death and you do not have a properly completed beneficiary
designation form on file with the Office of the Corporate Secretary,
your payment will be made to your estate.
-7-
<PAGE>
(5) No Shareholder Rights. Units credited to your Phantom Stock
-------------------------
Account are bookkeeping entries only and do not entitle you to any
shares of the Corporation's common stock or to any voting or other
rights associated with shares of such stock.
(d) Special Rule. If you terminate employment during the Performance
------------
Period but are eligible to receive a portion of your Potential Award
as a result of an exception under Section 4.1(b), payment of such
portion of your Potential Award shall be in full satisfaction of all
rights you have under this Award Agreement; in such circumstances, you
will not be eligible for a payment under Section 4.2(c) and no other
amounts will be payable on your behalf. The portion of your Potential
Award to which you have a right to receive under Section 4.1(b) shall
be paid to you or, in the event of your death, to your designated
beneficiary for the Award, in cash as soon as practicable after the
date as of which the Subcommittee certifies in writing (for purposes
of Section 162(m) of the Code) that your Target Award has become a
Potential Award for your Performance Period. In the event of your
death and you do not have a properly completed beneficiary designation
form on file with the Office of the Corporate Secretary, your payment
will be made to your estate.
(e) Further Deferral. You will be given an opportunity to elect to
----------------
defer any amounts payable under Sections 4.2(b) and 4.2(d) of this
Award Agreement and to further defer any amounts payable under
Sections 4.2(c))3) and 4.2(c)(4). Such election shall be irrevocable,
shall made in accordance with the terms of the Lockheed Martin
Corporation Deferred Management Incentive Compensation Plan and shall
be subject to such additional terms and conditions as are set by the
Subcommittee. A deferral election form and the terms and conditions
for any deferral shall be furnished to you in due course.
4.3. Cutback. Any payment called for under Section 4.2(b) will be
-------
reduced to the extent that such payment together with payments attributable to
any other Cash-Based Awards that are granted during 1999 as Performance Based
Awards exceeds $3,000,000 and, further, any credit of phantom shares called for
under Section 4.2(c)(2) shall be reduced to the extent that the number of
phantom shares credited to you together with the number of shares of Stock and
Share Units in respect of Share-Based Awards that are granted to you during 1999
as Performance Based Awards exceeds 500,000. To the extent that any payment
called for under Section 4.2(b) would exceed the $3,000,000 limit and therefore
must be reduced, the amount in excess of $3,000,000, shall be deferred and
credited as phantom shares under Section 4.2(c) unless such crediting would
result in the crediting of phantom shares that would otherwise be prohibited by
this Section 4.3. To the extent that any crediting called for under Section
4.2(b) would exceed the 500,000 limit and therefore must be reduced, the units
in excess of 500,000, shall not be credited and shall instead be paid in cash
under Section 4.2(b) unless such payment would result in a payment that would
otherwise be prohibited by this Section 4.3.
-8-
<PAGE>
4.4. Withholding. Any payment made in respect of your Award will be
-----------
subject to income tax withholding at the minimum rate prescribed by law. You
may owe taxes in addition to the amount withheld and may request tax be withheld
at a greater rate.
Section 5. No Assignment; General Creditor Status. You shall have no
--------------------------------------
right to assign any interest you might have in all or any part of the Target
Award or Potential Award which has been granted to you under this Award
Agreement and any attempt to do so shall be null and void and shall have no
force or effect whatsoever. Furthermore, all payments called for under this
Award Agreement to you shall be made in cash from the Corporation's general
assets, and your right to payment from the Corporation's general assets shall be
the same as the right of a general and unsecured creditor of the Corporation.
Section 6. Plan. This Award Agreement shall be subject to all of the
----
terms and conditions set forth in the Plan.
Section 7. Change in Control.
--------------------
7.1. Change in Control During Performance Period. If during your
--------------------------------------------
Performance Period, a Change in Control (as defined in Section 7(c) of the Plan)
occurs, your Performance Period will terminate. Notwithstanding any deferral
election or term of this Award Agreement to the contrary, a pro rata portion of
your Award will be paid to you within 15 days of the Change in Control. The
prorated portion will be the sum of (i) the result obtained by first
multiplying your Target Award by the Peer Performance Group Percentage Level
calculated under Section 3.3(b), but determined as of the last day of the year
immediately preceding the Change in Control, and then further multiplying that
product by a fraction, the numerator of which is the number of whole calendar
years of your Performance Period that were completed prior to the Change in
Control and the denominator of which is [insert years in Performance Period};
and (ii) the product of your Target Award and a fraction, the numerator of which
is the number of days preceding the Change in Control that occur in the calendar
year in which the Change in Control occurs and the denominator of which is
[insert number of days in Performance Period].
7.2. Change in Control After Performance Period. If a Change in
-------------------------------------------
Control occurs after the end of your Performance Period but before [insert
date], notwithstanding any deferral election or term of this Award Agreement to
the contrary, the remaining 50% of your Potential Award described in Section
4.2(c) will be paid to you within 15 days of the Change in Control. The amount
payable shall be determined by multiplying the number of units representing
shares of phantom stock credited to your account under Section 4.2(c)(2) by the
closing price for a share of the Corporation's common stock as reported on the
New York Stock Exchange for the date on which the Change in Control occurs, or
if it is not a trading day, on the last trading day before that date, and
rounding such product to the nearest whole number based on the standard
convention of rounding to the nearest whole number.
-9-
<PAGE>
7.3. Special Rule. Notwithstanding Section 7.1 or Section 7.2, if a
-------------
payment in accordance with those provisions would result in a nonexempt short-
swing transaction under Section 16(b) of the Securities Exchange Act of 1934,
then the date of distribution to you shall be delayed until the earliest date
upon which the distribution either would not result in a nonexempt short-swing
transaction or would otherwise not result in liability under Section 16(b) of
the Securities Exchange Act of 1934.
Section 8. Amendment and Termination. As provided in Section 9 of
-------------------------
the Plan, the Board of Directors may at any time amend, suspend or discontinue
the Plan and the Subcommittee may at any time amend this Award Agreement.
Notwithstanding the foregoing, no such action by the Board of Directors or the
Subcommittee shall affect this Award Agreement or the Award made hereunder in
any manner adverse to you without your written consent.
Section 9. No Right to an Award. Your status as an Employee shall
--------------------
not be construed as a commitment that any one or more awards shall be made under
the Plan to you or to Employees generally. Your status as a Participant shall
not entitle you to any additional award.
Section 10. No Assurance of Employment. Nothing contained in the
--------------------------
Plan or in this Award Agreement shall confer upon you any right to continue in
the employ or other service of the Corporation or constitute any contract (of
employment or otherwise) or limit in any way the right of the Corporation to
change your compensation or other benefits or to terminate your employment with
or without cause.
Section 11. Conflict. In the event of a conflict between this Award
--------
Agreement and the Plan, the Plan document shall control.
-10-
<PAGE>
Section 12. Execution. You must execute one copy of this Award
---------
Agreement and return it to the Office of the Vice President and Corporate
Secretary (Mail Point 207) as soon as possible as a condition to the Award
becoming effective. Your execution of this Award Agreement constitutes your
consent to an acceptance of any action taken under the Plan consistent with its
terms with respect to your Award. If you execute and return this Award
Agreement promptly, your Award shall be effective as of January 1, 1999. A pre-
addressed envelope has been enclosed for your convenience to return with a copy
of this Award Agreement, as acknowledged by you below.
Sincerely,
Enclosures
ACKNOWLEDGEMENT:
_______________________________________ _____________
Signature Date
_________________________
Print or type name
-11-
<PAGE>
EXHIBIT 12
LOCKHEED MARTIN CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(In millions, except ratio)
<TABLE>
<S> <C>
EARNINGS
Earnings from continuing operations before income taxes $1,401
Interest expense 655
Amortization of debt premium and discount, net (3)
Portion of rents representative of an interest factor 39
Losses and undistributed earnings of less than 50%
owned companies, net (12)
------
Adjusted earnings from continuing operations before income taxes $2,080
======
FIXED CHARGES
Interest expense $ 655
Amortization of debt premium and discount, net (3)
Portion of rents representative of an interest factor 39
Capitalized interest 7
------
Total fixed charges $ 698
======
RATIO OF EARNINGS TO FIXED CHARGES 3.0X
======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated balance sheet and consolidated statement of earnings and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 183
<SECURITIES> 0
<RECEIVABLES> 5,127
<ALLOWANCES> 0
<INVENTORY> 4,340
<CURRENT-ASSETS> 11,614
<PP&E> 8,804
<DEPRECIATION> 5,196
<TOTAL-ASSETS> 29,762
<CURRENT-LIABILITIES> 10,122
<BONDS> 10,183
0
0
<COMMON> 195
<OTHER-SE> 5,813
<TOTAL-LIABILITY-AND-EQUITY> 29,762
<SALES> 19,086
<TOTAL-REVENUES> 19,086
<CGS> 17,135
<TOTAL-COSTS> 17,135
<OTHER-EXPENSES> 105
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 655
<INCOME-PRETAX> 1,401
<INCOME-TAX> 525
<INCOME-CONTINUING> 876
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 876
<EPS-PRIMARY> 4.67
<EPS-DILUTED> 4.61
</TABLE>
