<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED September 30, 1999 COMMISSION FILE NUMBER 1-11437
-------------------- ---------
LOCKHEED MARTIN CORPORATION
----------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 52-1893632
- -------------------------------- ----------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
6801 ROCKLEDGE DRIVE, BETHESDA, MD 20817
- ---------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (301) 897-6000
----------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO _______
-------------
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AS OF October 31, 1999
- ----------------------------- ----------------------------------
COMMON STOCK, $1 PAR VALUE 395,952,944
<PAGE>
LOCKHEED MARTIN CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
____________
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Unaudited Condensed Consolidated Statement of Earnings -
Three Months and Nine Months Ended September 30, 1999 and 1998.......... 3
Unaudited Condensed Consolidated Statement of Cash
Flows -
Nine Months Ended September 30, 1999 and 1998........................... 4
Unaudited Condensed Consolidated Balance Sheet -
September 30, 1999 and December 31, 1998................................ 5
Notes to Unaudited Condensed Consolidated Financial Statements............ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 16
Part II. Other Information
Item 1. Legal Proceedings................................................ 28
Item 6. Exhibits and Reports on Form 8-K................................. 29
Signatures................................................................... 33
</TABLE>
Exhibit 3 Bylaws of Lockheed Martin Corporation, as amended
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges
Exhibit 27 Financial Data Schedule
2
<PAGE>
Lockheed Martin Corporation
Unaudited Condensed Consolidated Statement of Earnings
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
-------- -------- -------- --------
(In millions, except per share data)
<S> <C> <C> <C> <C>
Net sales $6,157 $6,349 $18,548 $19,086
Cost of sales 5,669 5,653 17,442 17,135
------ ------ ------- -------
Earnings from operations 488 696 1,106 1,951
Other income and expenses, net 70 34 202 105
------ ------ ------- -------
558 730 1,308 2,056
Interest expense 200 221 583 655
------ ------ ------- -------
Earnings before income taxes and
cumulative effect of change in accounting 358 509 725 1,401
Income tax expense 141 191 281 525
------ ------ ------- -------
Earnings before cumulative effect of
change in accounting 217 318 444 876
Cumulative effect of change in accounting -- -- (355) --
------ ------ ------- -------
Net earnings $ 217 $ 318 $ 89 $ 876
======= ====== ======= =======
Earnings (loss) per common share:
- ---------------------------------------------
Basic:
Before cumulative effect of change in $ .57 $ .84 $ 1.16 $ 2.33
accounting
Cumulative effect of change in accounting -- -- (.93) --
------ ------ ------- -------
$ .57 $ .84 $ .23 $ 2.33
======= ====== ======= =======
Diluted:
Before cumulative effect of change in
accounting $ .57 $ .83 $ 1.16 $ 2.30
Cumulative effect of change in accounting -- -- (.93) --
------ ------ ------- -------
$ .57 $ .83 $ .23 $ 2.30
======= ====== ======= =======
Cash dividends declared per common share $ .22 $ .20 $ .66 $ .60
======= ====== ======= =======
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
3
<PAGE>
Lockheed Martin Corporation
Unaudited Condensed Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
-------- --------
<S> <C> <C>
(In millions)
Operating Activities
Earnings before cumulative effect of change in accounting $ 444 $ 876
Adjustments to reconcile earnings to net cash provided
by operating activities:
Depreciation and amortization 705 744
Changes in operating assets and liabilities (766) (913)
------- --------
Net cash provided by operating activities 383 707
------- --------
Investing Activities
Expenditures for property, plant and equipment (442) (477)
Consummation of COMSAT Tender Offer (1,197) --
Sale of shares in L-3 Communications 182 --
Other (108) 127
------- --------
Net cash used for investing activities (1,565) (350)
------- --------
Financing Activities
Net increase in short-term borrowings 1,881 699
Net repayments related to long-term debt (743) (651)
Issuances of common stock 17 58
Common stock dividends (258) (229)
Final settlement for redemption of preferred stock -- (51)
------- --------
Net cash provided by (used for) financing activities 897 (174)
------- --------
Net (decrease) increase in cash and cash equivalents (285) 183
Cash and cash equivalents at beginning of period 285 --
------- --------
Cash and cash equivalents at end of period $ -- $ 183
======= ========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
4
<PAGE>
Lockheed Martin Corporation
Unaudited Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------- --------
(In millions)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ -- $ 285
Receivables 4,426 4,178
Inventories 3,939 4,293
Deferred income taxes 1,035 1,109
Other current assets 729 746
------- -------
Total current assets 10,129 10,611
Property, plant and equipment 3,565 3,513
Intangible assets related to contracts and programs acquired 1,299 1,418
Cost in excess of net assets acquired 9,230 9,521
Other assets 5,335 3,681
------- -------
$29,558 $28,744
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,365 $ 1,382
Customer advances and amounts in excess of costs incurred 4,286 4,012
Salaries, benefits and payroll taxes 957 842
Income taxes 74 553
Short-term borrowings 1,223 1,043
Current maturities of long-term debt 347 886
Other current liabilities 1,482 1,549
------- -------
Total current liabilities 9,734 10,267
Long-term debt 10,463 8,957
Post-retirement benefit liabilities 1,836 1,903
Other liabilities 1,399 1,480
Stockholders' equity:
Common stock, $1 par value per share 394 393
Additional paid-in capital 187 70
Retained earnings 5,695 5,864
Accumulated other comprehensive income (loss) 9 (8)
Unearned ESOP shares (159) (182)
------- -------
Total stockholders' equity 6,126 6,137
------- -------
$29,558 $28,744
======= =======
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
5
<PAGE>
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 1999
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Lockheed Martin Corporation (Lockheed Martin or the
Corporation) has continued to follow the accounting policies set forth in the
consolidated financial statements filed with the Securities and Exchange
Commission on March 22, 1999 in its 1998 Annual Report on Form 10-K (Form 10-K).
In the opinion of management, the interim financial information provided herein
reflects all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of the results of operations for the interim periods. The
results of operations for the three months and nine months ended September 30,
1999 are not necessarily indicative of results to be expected for the full year.
Certain amounts presented for prior periods have been reclassified to conform
with the 1999 presentation.
In October 1998, the Board of Directors of the Corporation authorized a two-
for-one split of the Corporation's common stock in the form of a stock dividend.
The stock split was effected on December 31, 1998 to stockholders of record at
the close of business on December 1, 1998. In the accompanying unaudited
condensed consolidated financial statements and related notes, all references to
shares of common stock and per share amounts for prior periods have been
restated to reflect the stock split.
NOTE 2 -- TRANSACTION AGREEMENT WITH COMSAT CORPORATION
In September 1998, the Corporation and COMSAT Corporation (COMSAT) announced
that they had entered into an Agreement and Plan of Merger (the Merger
Agreement) to combine the companies in a two-phase transaction with a total
estimated value of approximately $2.7 billion at the date of the announcement
(the Merger). The Merger Agreement was approved by the respective Boards of
Directors of the Corporation and COMSAT.
In connection with the first phase of this transaction, the Corporation
completed a cash tender offer (the Tender Offer) on September 18, 1999, at which
time it accepted for payment approximately 26 million shares of COMSAT common
stock, representing approximately 49 percent of the outstanding common stock of
COMSAT, for $45.50 a share pursuant to the terms of the Merger Agreement. The
total value of this phase of the transaction was $1.2 billion, and such amount
is included in other assets in the September 30, 1999 Unaudited Condensed
Consolidated Balance Sheet. The consummation of the Tender Offer was subject
to, among other things, the approval of the Merger by the stockholders of COMSAT
and certain regulatory approvals, including approval by the Federal
Communications Commission (FCC) and antitrust clearance by the Department of
Justice (DOJ). On August 20, 1999, the stockholders of COMSAT approved the
Merger at COMSAT's annual stockholders meeting. On September 15, 1999, the FCC
issued an order allowing Lockheed Martin to effect transfer of control of a
COMSAT common carrier subsidiary into a Lockheed Martin subsidiary and to
designate such Lockheed Martin subsidiary as an "authorized common carrier"
under the 1962 Communications Satellite Act, and allowing such Lockheed Martin
subsidiary to acquire and hold up to 49 percent of COMSAT's common stock. On
September 16, 1999, the DOJ, whose analysis included consideration of both
phases of the proposed Merger, stated that it did not intend to move to enjoin
consummation of the proposed Merger. The Corporation will account for its 49
percent investment in COMSAT under the equity method of accounting from October
1, 1999.
6
<PAGE>
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
On September 17, 1999, PanAmSat Corporation filed pleadings in the United
States District Court of Appeals for the District of Columbia Circuit (the
Court) seeking a review of certain actions taken by the FCC which resulted in
the FCC's authorization to proceed with the Tender Offer. The Corporation and
COMSAT have each filed pleadings stating their intention to intervene in the
matters before the Court.
The second phase of the transaction, which will result in consummation of the
Merger, is to be accomplished by an exchange of one share of Lockheed Martin
common stock for each remaining share of COMSAT common stock. Consummation of
the Merger remains contingent upon the satisfaction of certain conditions,
including the enactment of federal legislation necessary to remove existing
restrictions on ownership of COMSAT voting stock. Legislation necessary to
remove these restrictions cleared the U.S. Senate on July 1, 1999. On November
10, 1999, the U.S. House of Representatives also passed legislation which, if
adopted into law, would remove these restrictions. There are substantial
differences between the two bills which the Corporation hopes will be resolved
in conference. As it is likely that Congress will adjourn in the near future,
there is no assurance that this will occur during this legislative session or at
all, or that any legislation that does become law would not have an adverse
effect on COMSAT's business. There are several features of the legislation that
passed the U.S. House of Representatives that, if passed into law, would likely
significantly injure COMSAT's business. Although the Corporation anticipates a
favorable outcome in conference, if Congress enacts legislation that the
Corporation determines in good faith, after consultation with COMSAT, would
reasonably be expected to have a Significant Adverse Effect on COMSAT's business
(as defined in the Merger Agreement), the Corporation would have the right to
elect not to complete the Merger.
Following the passage of legislation, the FCC must approve the Merger. The
Merger, upon consummation, will be accounted for under the purchase method of
accounting. If the Merger is not completed by September 18, 2000, under the
terms of the Merger Agreement, Lockheed Martin or COMSAT could terminate the
Merger Agreement or elect not to exercise this right, or both parties could
agree to extend this date. If the Merger is not consummated, the Corporation
will not be able to achieve all of its objectives with respect to the COMSAT
transaction and will be unable to exercise control over COMSAT.
NOTE 3 -- EARNINGS PER SHARE
Basic and diluted earnings per share are computed based on net earnings. The
weighted average number of common shares outstanding during the period was used
in the calculation of basic earnings per share, and this number of shares was
increased by the effects of dilutive stock options based on the treasury stock
method in the calculation of diluted earnings per share. As previously
disclosed, all share and per share amounts for prior periods have been restated
to reflect the Corporation's December 1998 two-for-one stock split in the form
of a stock dividend.
7
<PAGE>
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
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,
1999 1998 1999 1998
-------- -------- -------- --------
(In millions, except per share data)
<S> <C> <C> <C> <C>
Net earnings for basic and diluted computations:
- ------------------------------------------------
Earnings before cumulative effect of change in accounting $ 217 $ 318 $ 444 $ 876
Cumulative effect of change in accounting -- -- (355) --
------ ------ ------ ------
Net earnings $ 217 $ 318 $ 89 $ 876
====== ====== ====== ======
Average common shares outstanding:
- ----------------------------------
Average number of common shares outstanding for basic
computations 382.8 377.1 381.5 375.5
Effects of dilutive stock options based on the treasury
stock method 1.9 4.1 2.3 4.7
------ ------ ------ ------
Average number of common shares outstanding for diluted
computations 384.7 381.2 383.8 380.2
====== ====== ====== ======
Earnings (loss) per common share:
- ---------------------------------
Basic:
Before cumulative effect of change in accounting $ .57 $ .84 $ 1.16 $ 2.33
Cumulative effect of change in accounting -- -- (.93) --
------ ------ ------ ------
$ .57 $ .84 $ .23 $ 2.33
====== ====== ====== ======
Diluted:
Before cumulative effect of change in accounting $ .57 $ .83 $ 1.16 $ 2.30
Cumulative effect of change in accounting -- -- (.93) --
------ ------ ------ ------
$ .57 $ .83 $ .23 $ 2.30
====== ====== ====== ======
</TABLE>
NOTE 4 -- INVENTORIES
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------- --------
<S> <C> <C>
(In millions)
Work in process, primarily related to long-term
contracts and programs in progress $ 5,654 $ 6,198
Less customer advances and progress payments (2,141) (2,499)
------- -------
3,513 3,699
Other inventories 426 594
------- -------
$ 3,939 $ 4,293
======= =======
</TABLE>
Included in inventories at September 30, 1999 and December 31, 1998 were
amounts advanced to Russian manufacturers, Khrunichev State Research and
Production Space Center and
8
<PAGE>
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
RD AMROSS, a joint venture between Pratt & Whitney and NPO Energomash, of
approximately $855 million and $840 million, respectively, for the manufacture
of launch vehicles and related launch services.
NOTE 5 -- CONTINGENCIES
The Corporation or its subsidiaries are parties to or have property subject to
litigation and other proceedings, including matters arising under provisions
relating to the protection of the environment. In the opinion of management,
the probability is remote that the outcome of these matters will have a material
adverse effect on the Corporation's consolidated results of operations or
financial position. These matters include the following items:
Environmental matters -- The Corporation is responding to three administrative
orders issued by the California Regional Water Quality Control Board (the
Regional Board) in connection with the Corporation's former Lockheed Propulsion
Company facilities in Redlands, California. Under the orders, the Corporation
is investigating the impact and potential remediation of regional groundwater
contamination by perchlorates and chlorinated solvents. The Regional Board has
approved the Corporation's plan to maintain public water supplies with respect
to chlorinated solvents during this investigation, and the Corporation is
negotiating with local water purveyors to implement this plan, as well as to
address water supply concerns relative to perchlorate contamination. The
Corporation estimates that expenditures required to implement work currently
approved will be approximately $140 million. The Corporation is also
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 indicate that current efforts with water purveyors regarding
perchlorate issues are appropriate; however, the Corporation currently cannot
project the extent of its ultimate clean-up obligation with respect to
perchlorates, if any.
The Corporation entered into a consent decree with the U.S. Environmental
Protection Agency (EPA) in 1991 relating to certain property in Burbank,
California, which obligated the Corporation to design and construct facilities
to monitor, extract and treat groundwater, and to operate and maintain such
facilities for approximately eight years. The Corporation entered into a
follow-on consent decree in 1998 which obligates the Corporation to fund the
continued operation and maintenance of these facilities through the year 2018.
The Corporation has also been operating under a cleanup and abatement order from
the Regional Board affecting its facilities in Burbank, California. This order
requires site assessment and action to abate groundwater contamination by a
combination of groundwater and soil cleanup and treatment. The Corporation
estimates that total expenditures required over the remaining terms of the
consent decrees and the Regional Board order will be approximately $70 million.
The Corporation is involved in other proceedings and potential proceedings
relating to environmental matters, including disposal of hazardous wastes and
soil and water contamination. The extent of the Corporation's financial
exposure cannot in all cases be reasonably estimated at this time. In addition
to the amounts with respect to the Burbank and Redlands properties described
above, a liability of approximately $230 million for the other cases in which an
estimate of financial exposure can be determined has been recorded.
Under an agreement with the U.S. Government, the Burbank groundwater treatment
and soil remediation expenditures referenced above are being allocated to the
Corporation's operations as general and administrative costs and, under existing
government regulations, these and other
9
<PAGE>
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
environmental expenditures related to U.S. Government business, after deducting
any recoveries from insurance or other potentially responsible parties, are
allowable in establishing the prices of the Corporation's products and services.
As a result, a substantial portion of the expenditures are being reflected in
the Corporation's sales and cost of sales pursuant to U.S. Government agreement
or regulation. Although the Defense Contract Audit Agency has questioned certain
elements of the Corporation's practices with respect to the aforementioned
agreement, no formal action has been initiated, and it is management's opinion
that the treatment of these environmental costs is appropriate and consistent
with the terms of such agreement. On October 4, 1999, the Corporation requested
the issuance of a final decision regarding the propriety of the Corporation's
U.S. Government accounting practices for the treatment of environmental costs.
The Corporation has recorded an asset for the portion of environmental costs
that are probable of future recovery in pricing of the Corporation's products
and services for U.S. Government business. The portion that is expected to be
allocated to commercial business has been reflected in cost of sales. The
recorded amounts do not reflect the possible future recovery of portions of the
environmental costs through insurance policy coverage or from other potentially
responsible parties, which the Corporation is pursuing as required by agreement
and U.S. Government regulation. Any such recoveries, when received, would reduce
the Corporation's liability as well as the allocated amounts to be included in
the Corporation's U.S. Government sales and cost of sales.
Waste remediation contract -- In 1994, the Corporation was awarded a $180
million fixed price contract by the U.S. Department of Energy (DOE) for the
Phase II design, construction and limited test of remediation facilities, and
the Phase III full remediation of waste found in Pit 9, located on the Idaho
National Engineering and Environmental Laboratory reservation. The Corporation
incurred significant unanticipated costs and scheduling issues due to complex
technical and contractual matters which threatened the viability of the overall
Pit 9 program. Based on an investigation by management to identify and quantify
the overall effect of these matters, the Corporation submitted a request for
equitable adjustment (REA) to the DOE on March 31, 1997 that sought, among other
things, the recovery of a portion of unanticipated costs incurred by the
Corporation and the restructuring of the contract to provide for a more
equitable sharing of the risks associated with the Pit 9 project. The
Corporation has been unsuccessful in reaching any agreements with the DOE on
cost recovery or other contract restructuring matters. Starting in May 1997,
the Corporation reduced work activities at the Pit 9 site while awaiting
technical direction from the DOE.
On June 1, 1998, the DOE, through Lockheed Martin Idaho Technologies Company
(LMITCO), its management contractor, terminated the Pit 9 contract for default.
On that same date, the Corporation filed a lawsuit against the DOE in the U.S.
Court of Federal Claims in Washington, D.C., challenging and seeking to overturn
the default termination. In addition, on July 21, 1998, the Corporation
withdrew the REA previously submitted to the DOE and replaced it with a
certified REA. The certified REA is similar in substance to the REA previously
submitted, but its certification, based upon more detailed factual and
contractual analysis, raises its status to that of a formal claim. On August
11, 1998, LMITCO, at the DOE's direction, filed suit against the Corporation in
U.S. District Court in Boise, Idaho, seeking, among other things, recovery of
approximately $54 million previously paid by LMITCO to the Corporation under the
Pit 9 contract. The Corporation intends to resist this action while continuing
to pursue its certified REA. On January 26, 1999, the U.S. District Court in
Idaho granted the Corporation's motion and stayed the Idaho proceeding until
resolution of the motion to dismiss the lawsuit in the U.S. Court of Federal
Claims, or until August 2, 1999. A status conference was held in the U.S.
District Court in Idaho on August 2, 1999, following which the Court ordered
discovery to
10
<PAGE>
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
commence. In the U.S. Court of Federal Claims, on October 1, 1999, the Court
stayed the DOE's Motion to Dismiss the Corporation's lawsuit, finding that the
Court has jurisdiction. Also, the U.S. Court of Federal Claims ordered discovery
to commence and gave leave to the DOE to convert its motion to dismiss to a
motion for summary judgment if supported by discovery. The Corporation continues
to assert its position in the litigation while continuing its efforts to resolve
the dispute through non-litigation means.
NOTE 6 -- INFORMATION ON BUSINESS SEGMENTS
On September 27, 1999, Lockheed Martin announced the results of its strategic
and organizational review that began June 9, 1999. As a result of this review,
the Corporation has implemented a new organizational structure, effective
October 1, 1999, that realigns its core lines of business into four principal
business segments. All other activities of the Corporation fall within the
Corporate and Other segment. Prior period amounts have been adjusted to conform
with the new organizational realignment. Following is a brief description of the
activities of each business segment:
. Systems Integration - Includes missiles and fire controls, naval systems,
platform integration, and command, control, communications, computers and
intelligence (C4I) lines of business.
. Space Systems - Includes space launch, commercial and government satellites,
and strategic missiles lines of business.
. Aeronautical Systems - Includes tactical aircraft, airlift, and aeronautical
research and development lines of business.
. Technology Services - Includes federal services, energy programs and
aeronautical services lines of business.
. Corporate and Other - Includes commercial information technology and state
and local government services lines of business. Also includes Lockheed
Martin Global Telecommunications, Inc., a wholly-owned subsidiary of the
Corporation, which was formed effective January 1, 1999 from the combination
of investments in several existing joint ventures and certain other elements
of the Corporation. Such investments were transferred from the Systems
Integration and Space Systems segments. The prior period amounts related to
these joint ventures and elements transferred were not material to the
respective segments and, therefore, segment information in prior periods was
not restated to conform with the 1999 presentation. In addition, this segment
includes the Corporation's investment in COMSAT and in certain other joint
ventures and businesses.
11
<PAGE>
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(In millions)
Selected Financial Data by Business Segment
Net sales
- ---------
Systems Integration $2,708 $2,511 $ 7,980 $ 7,702
Space Systems 1,400 1,614 4,345 5,332
Aeronautical Systems 1,214 1,500 3,980 3,974
Technology Services 584 469 1,569 1,408
Corporate and Other 251 255 674 670
------ ------ ------- -------
$6,157 $6,349 $18,548 $19,086
====== ====== ======= =======
Operating profit (loss)
- -----------------------
Systems Integration $ 296 $ 273 $ 712 $ 723
Space Systems 101 256 268 750
Aeronautical Systems 105 164 151 471
Technology Services 29 39 97 102
Corporate and Other 27 (2) 80 10
------ ------ ------- -------
$ 558 $ 730 $ 1,308 $ 2,056
====== ====== ======= =======
Intersegment revenue(a)
- -----------------------
Systems Integration $ 163 $ 161 $ 499 $ 508
Space Systems 22 9 62 35
Aeronautical Systems 25 15 68 43
Technology Services 100 133 401 354
Corporate and Other 8 16 38 45
------ ------ ------- -------
$ 318 $ 334 $ 1,068 $ 985
====== ====== ======= =======
</TABLE>
(a) Intercompany transactions between segments are eliminated in consolidation,
and excluded from the net sales and operating profit (loss) amounts
presented above.
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------- --------
(In millions)
<S> <C> <C>
Assets
- ------
Systems Integration $ 13,320 $ 13,435
Space Systems 4,773 5,228
Aeronautical Systems 3,261 3,593
Technology Services 1,501 1,421
Corporate and Other 6,703 5,067
-------- --------
$ 29,558 $ 28,744
========= ========
</TABLE>
NOTE 7 -- OTHER
In June 1999, the Corporation recorded negative adjustments in the
Aeronautical Systems segment totaling approximately $210 million which resulted
from changes in estimates on the C-130J airlift aircraft program due to cost
growth and a reduction in production rates, based on a current evaluation of the
program's performance. These adjustments, net of state income tax
12
<PAGE>
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
benefits, reduced earnings before income taxes and cumulative effect of change
in accounting by $197 million, and decreased net earnings by $128 million, or
$.33 per diluted share. Also in June 1999, the Corporation recorded negative
adjustments in the Space Systems segment totaling approximately $90 million
related to the Titan IV program which included the effects of changes in
estimates for award and incentive fees resulting from the Titan IV launch
failure on April 30, 1999, as well as a more conservative assessment of future
program performance. These adjustments, net of state income tax benefits,
reduced earnings before income taxes and cumulative effect of change in
accounting by $84 million, and decreased net earnings by $54 million, or $.14
per diluted share.
In February 1999, the Corporation sold 4.5 million of its shares in L-3
Communications Holdings, Inc. (L-3) as part of a secondary public offering by L-
3. This transaction resulted in a reduction in the Corporation's ownership to
approximately seven percent and the recognition of a pretax gain of $114 million
which is reflected in other income and expenses for the nine months ended
September 30, 1999. The gain increased net earnings by $74 million, or $.19 per
diluted share. After the transaction was consummated, the Corporation began
accounting for its remaining investment in L-3 as an available-for-sale
investment, as defined in Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
Accordingly, as of September 30, 1999, the investment in L-3 has been adjusted
to reflect its current market value, and an unrealized gain of $30 million,
which is net of income taxes, was included in stockholders' equity as a
component of accumulated other comprehensive income.
The components of comprehensive income for the three months and nine months
ended September 30, 1999 consisted of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1999
-------- --------
(In millions)
<S> <C> <C>
Net earnings $ 217 $ 89
Other comprehensive (loss) income:
Net foreign currency translation (9) (13)
adjustments
Net unrealized (loss) gain (15) 30
----- -----
(24) 17
----- -----
Comprehensive income $ 193 $ 106
===== =====
</TABLE>
Comprehensive income was $318 million for the three months ended September 30,
1998 and $876 million for the nine months ended September 30, 1998, equal to net
earnings for the respective periods, as the components of other comprehensive
income were not material, individually or in the aggregate, in those periods.
In the fourth quarter of 1998, the Corporation recorded a nonrecurring and
unusual pretax charge, net of state income tax benefits, of $233 million related
to actions surrounding the decision to fund a timely non-bankruptcy shutdown of
the business of CalComp Technology, Inc. (CalComp), a majority-owned subsidiary.
As of September 30, 1999, CalComp had, among other actions, consummated sales of
substantially all of its assets, terminated substantially all of its
13
<PAGE>
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
work force, and initiated the corporate dissolution process under the applicable
state statutes. The financial impacts of these actions were within the
parameters established by the Corporation's plans and estimates. Management
expects that the shutdown process, other than the resolution of matters in
dispute or litigation, will be substantially completed by the end of 1999 and
believes that the remaining amount recorded is adequate to complete the plan.
Commercial paper borrowings of approximately $3.2 billion were outstanding at
September 30, 1999. Of this amount, $2.0 billion has been classified as long-
term debt in the Corporation's Unaudited Condensed Consolidated Balance Sheet
based on management's ability and intention to maintain this level of debt
outstanding for at least one year. Commercial paper borrowings are supported by
a short-term revolving credit facility in the amount of $1.0 billion which
expires on May 28, 2000, and a long-term revolving credit facility in the amount
of $3.5 billion which expires on December 20, 2001. On November 3 and November
9, 1999, the Corporation borrowed $1.0 billion under the short-term revolving
credit facility and $385 million under the long-term revolving credit facility,
respectively. The Corporation will borrow an additional $1.0 billion under its
long-term revolving credit facility on November 15, 1999, and may borrow
additional amounts after that date. The proceeds from the above borrowings have
been or will be used to repay maturing commercial paper.
The Corporation's total interest payments were $490 million and $550 million
for the nine months ended September 30, 1999 and 1998, respectively.
The Corporation's federal and foreign income tax payments, net of refunds
received, were $497 million and $155 million for the nine months ended September
30, 1999 and 1998, respectively.
New accounting pronouncements adopted -- Effective January 1, 1999, the
Corporation adopted the American Institute of Certified Public Accountants'
(AICPA) Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-
Up Activities." SOP No. 98-5 provides authoritative guidance on accounting and
financial reporting related to costs of start-up activities. This SOP requires
that, at the effective date of adoption, costs of start-up activities previously
capitalized be expensed and reported as a cumulative effect of a change in
accounting principle, and further requires that such costs subsequent to
adoption be expensed as incurred. The adoption of SOP No. 98-5 resulted in the
recognition of a cumulative effect adjustment which reduced net earnings for the
nine months ended September 30, 1999 by $355 million, or $.93 per diluted share.
The cumulative effect adjustment was recorded net of income tax benefits of $227
million, and was primarily composed of approximately $560 million of costs which
were included in inventories as of December 31, 1998.
Effective January 1, 1999, the Corporation adopted the AICPA's SOP No. 97-3,
"Accounting by Insurance and Other Enterprises for Insurance Related
Assessments." SOP No. 97-3 provides authoritative guidance on the recognition,
measurement and disclosure of liabilities for guaranty-fund and certain other
insurance-related assessments, as well as certain related assets. The impact of
the adoption of this SOP was not material to the Corporation's consolidated
results of operations, cash flows or financial position.
Also, effective January 1, 1999, the Corporation adopted the AICPA's SOP No.
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This SOP, which requires the capitalization of certain costs
incurred in connection with developing or obtaining software for internal use
after the date of adoption, will affect the timing of future cash
14
<PAGE>
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
flows under contracts with the U.S. Government. However, the impact of the
adoption of SOP No. 98-1 was not material to the Corporation's consolidated
results of operations, cash flows or financial position.
New accounting pronouncements to be adopted -- In June 1998, the Financial
Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 provides
authoritative guidance on accounting and financial reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
The Statement requires the recognition of all derivatives as either assets or
liabilities in the consolidated balance sheet, and the periodic measurement of
those instruments at fair value. The classification of gains and losses
resulting from changes in the fair values of derivatives is dependent on the
intended use of the derivative and its resulting designation, as further defined
in the Statement. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133," which deferred the required date of adoption of SFAS
No. 133 for one year, to fiscal years beginning after June 15, 2000; however,
early adoption is allowed, and initial application must be as of the beginning
of a fiscal quarter. Additionally, SFAS No. 133 cannot be applied retroactively
to prior periods. At adoption, existing hedging relationships must be
designated anew and documented pursuant to the provisions of the Statement. The
Corporation is continuing its process of analyzing and assessing the impact that
the adoption of SFAS No. 133 is expected to have on its consolidated results of
operations, cash flows and financial position, but has not yet reached any
conclusions.
NOTE 8 -- SUBSEQUENT EVENTS
In October 1999, the Corporation exited its commercial 3-D graphics business
through a series of transactions. The combined effects of these transactions
are expected to result in a pretax gain ranging from $40 million to $50 million,
which will be recognized in the fourth quarter.
Also in October 1999, the Corporation sold its remaining interest in L-3
Communications Holdings, Inc. This transaction is expected to result in a
pretax gain of approximately $35 million to $45 million, which will be
recognized in the fourth quarter.
15
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations
TRANSACTION AGREEMENT WITH COMSAT CORPORATION
In September 1998, the Corporation and COMSAT Corporation (COMSAT) announced
that they had entered into an agreement (the Merger Agreement) to combine the
companies in a two-phase transaction (the Merger). In connection with the first
phase of this transaction, the Corporation completed a cash tender offer (the
Tender Offer) on September 18, 1999, after satisfaction of all conditions to its
closing. As a result, the Corporation now owns approximately 49 percent of the
outstanding common stock of COMSAT and will account for its investment under the
equity method of accounting from October 1, 1999. The total value of this first
phase of the transaction was $1.2 billion, and such amount is included in other
assets in the September 30, 1999 Unaudited Condensed Consolidated Balance Sheet.
On September 17, 1999, PanAmSat Corporation filed pleadings in the United
States District Court of Appeals for the District of Columbia Circuit (the
Court) seeking a review of certain actions taken by the FCC which resulted in
the FCC's authorization to proceed with the Tender Offer. The Corporation and
COMSAT have each filed pleadings stating their intention to intervene in the
matters before the Court.
The second phase of the transaction, which will result in consummation of the
Merger, is to be accomplished by an exchange of one share of Lockheed Martin
common stock for each remaining share of COMSAT common stock. Consummation of
the Merger remains contingent upon the satisfaction of certain conditions,
including the enactment of federal legislation necessary to remove existing
restrictions on the ownership of COMSAT voting stock. Legislation necessary to
remove these restrictions cleared the U.S. Senate on July 1, 1999. On November
10, 1999, the U.S. House of Representatives also passed legislation which, if
adopted into law, would remove these restrictions. There are substantial
differences between the two bills which the Corporation hopes will be resolved
in conference. As it is likely that Congress will adjourn in the near future,
there is no assurance that this will occur during this legislative session or at
all, or that any legislation that does become law would not have an adverse
effect on COMSAT's business. There are several features of the legislation that
passed the U.S. House of Representatives that, if passed into law, would likely
significantly injure COMSAT's business. Although the Corporation anticpiates a
favorable outcome in conference, if Congress enacts legislation that the
Corporation determines in good faith, after consultation with COMSAT, would
reasonably be expected to have a Significant Adverse Effect on COMSAT's business
(as defined in the Merger Agreement), the Corporation would have the right to
elect not to complete the Merger.
Following the passage of legislation, the FCC must approve the Merger. The
Merger, upon consummation, will be accounted for under the purchase method of
accounting. If the Merger is not completed by September 18, 2000, under the
terms of the Merger Agreement, Lockheed Martin or COMSAT could terminate the
Merger Agreement or elect not to exercise this right, or both parties could
agree to extend this date. If the Merger is not consummated, the Corporation
will not be able to achieve all of its objectives with respect to the COMSAT
transaction and will be unable to exercise control over COMSAT.
STRATEGIC AND ORGANIZATIONAL REVIEW
On September 27, 1999, Lockheed Martin announced the results of the strategic
and organizational review that began June 9, 1999. As a result of this review,
the Corporation announced plans to realign its businesses effective October 1,
1999 (as more fully described in Note 6, "Information on Business Segments"),
and to evaluate the repositioning of certain businesses to maximize their value
and growth potential and the divestiture of certain non-core business units.
The Corporation intends to evaluate alternatives relative to maximizing the
value of three business units that serve the commercial information technology
and state and local government services markets. These units have been
identified by management as having high growth
16
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
potential, but are distinct from the Corporation's core business segments. As
each of these businesses will require additional capital and expertise to fully
maximize their value, the Corporation may seek support through strategic
partnerships or joint ventures, or by accessing public equity markets, although
the outcome of those efforts cannot be predicted.
The Corporation also intends to evaluate the divestiture, subject to
appropriate valuation, negotiation and approval, of certain business units in
the aerospace electronics, control systems and environmental management lines of
business. Based on preliminary data, and assuming that the potential
divestiture transactions are approved by the Board and ultimately consummated in
the future, management estimates that the potential one-time effects, if
combined, could result in a decrease in the Corporation's net earnings of
approximately $1 billion, primarily non-cash. However, the potential proceeds
from these transactions, if consummated, could also generate in excess of $1
billion in cash, after transaction costs and associated tax payments, that will
be used to repay debt. Financial effects that may result, if any, would be
recorded when the transactions are consummated or when losses can be estimated.
Management cannot predict the timing of the potential divestitures, the amount
of proceeds that may be realized or whether any or all of the potential
transactions will take place.
On an ongoing basis, the Corporation will continue to explore the sale of
various investment holdings and excess real estate, review its businesses to
identify ways to improve organizational effectiveness and performance, and
clarify and focus on its core business strategy.
GLOBAL TELECOMMUNICATIONS SUBSIDIARY
Effective January 1, 1999, investments in several existing joint ventures and
certain elements of the Corporation were combined with Lockheed Martin Global
Telecommunications, Inc. (Global Telecommunications), a wholly-owned subsidiary
of the Corporation focused on capturing a greater portion of the worldwide
telecommunications services market. The Corporation intends to combine the
operations of Global Telecommunications and COMSAT upon consummation of the
Merger. Given the substantial investment necessary for the growth of the global
telecommunications services business, support from strategic partners for Global
Telecommunications may be sought and public debt or equity markets may be
accessed to raise capital, although the Corporation cannot predict the outcome
of these efforts.
RESULTS OF OPERATIONS
The Corporation's operating cycle is long-term and involves various types of
production contracts and varying production delivery schedules. Accordingly,
results of a particular quarter, or quarter-to-quarter comparisons of recorded
sales and profits, may not be indicative of future operating results. The
following comparative analysis should be viewed in this context. In the
following discussion, all references to shares of common stock and per share
amounts for prior periods have been restated to reflect the stock split which
was effected on December 31, 1998.
Consolidated net sales for the third quarter of 1999 were $6.2 billion, a
three percent decrease from the $6.3 billion recorded for the comparable period
in 1998. Decreases in net sales in the Space Systems and Aeronautical Systems
segments more than offset increases in the Systems Integration and Technology
Services segments. Consolidated net sales for the nine months ended September
30, 1999 were $18.5 billion, a three percent decrease from the $19.1 billion
reported for the same period in 1998. A decrease in net sales in the Space
Systems segment more than
17
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
offset increases in the remaining significant business segments. The
Corporation's operating profit (earnings before interest and taxes) for the
third quarter of 1999 was $558 million versus $730 million for the comparable
1998 period. This variance resulted from decreases in operating profit in the
Space Systems and Aeronautical Systems segments. The Corporation's operating
profit for the nine months ended September 30, 1999 was $1.3 billion, a 36
percent decrease from the $2.1 billion reported for the comparable 1998 period.
As discussed more fully below, during the second quarter of 1999, the
Corporation recorded negative adjustments resulting from changes in estimates on
the C-130J and Titan IV programs.
The Corporation recorded net earnings for the third quarter of 1999 of $217
million, or $.57 per diluted share, as compared to reported third quarter 1998
net earnings of $318 million, or $.83 per diluted share. The Corporation's net
earnings for the nine months ended September 30, 1999 were $89 million, or $.23
per diluted share, as compared to reported net earnings of $876 million, or
$2.30 per diluted share, for the nine months ended September 30, 1998. Third
quarter 1999 net earnings included a pretax gain of $34 million associated with
the sale of the Corporation's interest in Airport Group International as well as
a $24 million pretax gain associated with the sale of certain surplus real
estate. The combination of these two items contributed $35 million to net
earnings, or $.09 per diluted share. No gains or losses related to transactions
of a similar nature were included in the comparable 1998 period. In addition to
the third quarter 1999 items noted above, pretax earnings for the first nine
months of 1999 further included a $20 million write-down of the Corporation's
investment in Iridium LLC and a pretax gain of $114 million resulting from the
sale of 4.5 million shares of stock in L-3 Communications Holdings, Inc. (L-3)
in a secondary offering of L-3's common stock. The combination of these four
items increased net earnings for the first nine months of 1999 by $97 million,
or $.25 per diluted share. Also, the Corporation adopted Statement of Position
No. 98-5, "Reporting on the Costs of Start-Up Activities," effective January 1,
1999, which resulted in the recognition of a cumulative effect adjustment which
reduced net earnings for the nine months ended September 30, 1999 by $355
million, or $.93 per diluted share. Pretax earnings for the first nine months
of 1998 included a gain of $18 million related to an initial public offering of
L-3's common stock in May 1998. This item contributed $12 million to net
earnings, or $.03 per diluted share.
The Corporation's backlog of undelivered orders was approximately $44.2
billion at September 30, 1999, versus $45.3 billion reported at December 31,
1998. The Corporation received orders for approximately $17.4 billion in new
and follow-on business during the first nine months of 1999 which were more than
offset by sales recorded during the period. Significant new orders received
during 1999 principally related to various aircraft modification and
maintenance, postal systems, technology services and surface ship systems
activities.
On September 27, 1999, the Corporation announced the results of the strategic
and organizational review that began in June 1999. As a result of this review,
the Corporation has implemented a new organizational structure, effective
October 1, 1999, that realigns its core lines of business into four principal
business segments. The following discussion of the results of operations of the
Corporation's business segments reflects the new organizational structure based
on information contained in "Note 6 -- Information on Business Segments" of the
Notes to Unaudited Condensed Consolidated Financial Statements included in this
Form 10-Q, including the financial data in the tables under the headings "Net
sales" and "Operating profit (loss )".
The Space Systems and Aeronautical Systems segments generally include programs
that are substantially larger in terms of sales and operating results than those
included in the other
18
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
segments. Accordingly, due to the significant number of smaller programs in the
Systems Integration and Technology Services segments, the impacts of performance
by individual programs typically are not as material to these segments' results
of operations.
Net sales of the Systems Integration segment for the quarter and nine months
ended September 30, 1999 increased by eight percent and four percent,
respectively, from the comparable 1998 periods. During the third quarter of
1999, the segment experienced sales volume increases of approximately $55
million from missiles and fire control activities, $45 million from tactical
training systems, nearly $40 million from surface ship systems and $30 million
from increased electronics systems activities in the United Kingdom. For the
first nine months of 1999 as compared to 1998, the increase in net sales was
attributable to nearly $100 million from surface ship systems, $90 million from
postal program activities and $90 million from the segment's United Kingdom
electronics systems activities. These year-to-date increases were partially
offset by reduced volume on a number of the segment's maturing production
programs. Operating profit for the quarter ended September 30, 1999 increased
by eight percent from the amount reported for the comparable 1998 period as a
result of the sales increases in missile and fire control activities and from
United Kingdom electronics systems activities discussed above. In addition,
during the third quarter of 1999, the U.S. Government announced its decision to
advance the Theater High Altitude Area Defense (THAAD) missile program to the
engineering and manufacturing development phase as a result of a second
consecutive successful intercept. Consequently, the Corporation reversed a $20
million provision set aside in the first quarter of 1999 for potential failures
on future flight tests. This offset the effect of the absence in the third
quarter of 1999 of a favorable arbitration settlement the segment experienced
during the third quarter of 1998. The increase in third quarter 1999 operating
profit over the comparable period of 1998 reduced the decrease in operating
profit for the nine months ended September 30, 1999 to two percent as compared
to the nine months ended September 30, 1998.
Net sales of the Space Systems segment decreased by 13 percent and 19 percent
for the quarter and nine months ended September 30, 1999, respectively, as
compared to the same 1998 periods. A majority of the third quarter 1999 decrease
resulted from volume decreases in classified activities. The segment also
experienced a reduction of approximately $40 million in commercial and civil
satellite activities and volume decreases in military satellite programs of
approximately $25 million. These decreases were somewhat offset by the
successful launch of an Atlas launch vehicle during the third quarter of 1999.
Nearly half of the year-to-date decrease in net sales resulted from volume
decreases in classified activities. The segment was also negatively impacted by
reductions in commercial and civil satellite activities of approximately $175
million and by reduced volume of military satellite programs of approximately
$100 million. The segment completed one less Atlas launch in 1999 as compared to
1998. In addition, during the second quarter of 1999, the segment recorded
negative adjustments related to the Titan IV program which included the effects
of changes in estimates for award and incentive fees resulting from the Titan IV
launch failure on April 30, 1999, as well as a more conservative assessment of
future program performance. These adjustments reduced net sales by approximately
$90 million. These decreases were somewhat offset by a $130 million increase in
sales resulting from a greater number of Proton launches in 1999 versus the
comparable 1998 period. Operating profit decreased by 61 percent and 64 percent
for the quarter and nine months ended September 30, 1999, respectively, as
compared to the same 1998 periods. Third quarter 1999 operating profit as
compared to the same 1998 quarter decreased by $20 million related to commercial
satellite performance. Also, during the third quarter of 1999, the segment
experienced a launch vehicle contract cancellation, resulting in a charge of
approximately $30 million. In addition, operating profit for the third quarter
was adversely affected by the decline in classified sales volume discussed above
and the expensing of start-up costs relating to launch vehicle investments.
These decreases were
19
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
partially offset by a $24 million gain resulting from the sale of certain
surplus property and the restoration in the third quarter of approximately $20
million of losses previously recorded on a military satellite contract.
Operating profit was also favorably impacted by the third quarter Atlas launch
mentioned previously. During the third quarter of 1998, the segment recorded an
adjustment of $120 million, net of state income taxes, which resulted from a
significant improvement in the Atlas II launch vehicle program related to the
retirement of program and technical risk based upon an evaluation of the
program's historical performance. The year-to-date decrease resulted from the
impact of the Titan IV adjustments of $90 million and the third quarter 1998
favorable Atlas adjustment of $120 million discussed above. In addition,
operating profit was adversely impacted by approximately $30 million related to
the cancellation of the launch vehicle contract discussed above, a decrease of
approximately $30 million from reduced fleet ballistic missile activities, and a
$20 million write-down of the Corporation's investment in Iridium LLC. Volume
decreases in classified activities and the expensing of start-up costs
associated with launch vehicle investments accounted for more than half of the
remaining variance.
Net sales of the Aeronautical Systems segment for the quarter ended September
30, 1999 decreased by 19 percent as compared to the same 1998 period. Net sales
for the nine months ended September 30, 1999 were consistent with the reported
1998 amount. The quarter-to-quarter decrease reflects a $240 million decrease
in overall sales relating to the F-16 product area and a $50 million decrease in
overall net sales associated with the C-130J transport aircraft. For the nine-
month period in 1999 compared to the same 1998 period, sales increases from the
C-130J program of nearly $550 million offset decreases in the F-16 product area.
Operating profit decreased by 36 percent and 68 percent in the third quarter and
nine months ended September 30, 1999, respectively, as compared to the same
periods in 1998. A majority of the quarter-to-quarter decrease in operating
profit is consistent with the decrease in net sales discussed above, with the
remainder resulting from reduced C-130J margins as compared to the prior year.
The year-to-date decrease principally reflects negative adjustments recorded
during the second quarter of 1999 that resulted from changes in estimates in the
C-130J program due to cost growth and a reduction in production rates, based on
a current evaluation of the program's performance. These adjustments reduced
operating profit by $210 million. The remaining decrease resulted from reduced
F-16 sales volume.
Net sales of the Technology Services segment for the quarter and nine months
ended September 30, 1999 increased by 25 percent and 11 percent, respectively,
from the comparable 1998 periods. The increases for both the quarter and nine-
month periods related principally to recorded net sales of approximately $85
million and $190 million, respectively, related to the operations under the
Consolidated Space Operations Contract, which was awarded in September 1998.
Operating profit for the quarter and nine months ended September 30, 1999
decreased by $10 million and $5 million, respectively, from the comparable 1998
periods. The third quarter 1999 decrease resulted from the timing of award fees
on certain energy related contracts as well as from the absence of earnings from
a contract to manage two uranium enrichment facilities which expired during the
second quarter of 1999. The year-to-date decrease principally resulted from the
timing of award fees discussed earlier, offset by improved performance in the
segment's aircraft maintenance and modification lines of business.
Net sales of the Corporate and Other segment for the quarter and nine months
ended September 30, 1999 were consistent with the comparable 1998 amounts.
Increases in sales volume of approximately $30 million for the third quarter and
$85 million for the year-to-date period resulting from information technology
programs and state and municipal services contracts were offset by the absence
in 1999 of sales recorded by the segment's CalComp subsidiary in the
20
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
third quarter and nine-month period of 1998 of $35 million and $115 million,
respectively. CalComp has not operated during 1999, consistent with the
Corporation's actions in the fourth quarter of 1998 surrounding the decision to
fund a timely non-bankruptcy shutdown of CalComp's business. The segment's
operating profit for the quarter ended September 30, 1999 included a $34 million
pretax gain resulting from the sale of the Corporation's investment in Airport
Group International, which develops and operates airport terminals. This gain,
combined with the absence in 1999 of losses from the segment's commercial
products businesses during 1998, more than offset operating losses of $27
million incurred by Global Telecommunications during the third quarter of 1999.
Operating profit for the nine months ended September 30, 1999 increased
significantly compared to the same period in 1998. Included in operating profit
for the nine-month period of 1999 was a $114 million pretax gain from the sale
of L-3 common stock discussed above. The segment's $34 million gain on the sale
of the investment in Airport Group International and the absence in 1999 of
losses incurred by the CalComp subsidiary in 1998 were offset by operating
losses of $74 million incurred by Global Telecommunications. As discussed in
"Note 7 -- Other" of the Notes to Unaudited Condensed Consolidated Financial
Statements, CalComp is continuing its timely non-bankruptcy shutdown and
management expects that the shutdown process, other than the resolution of
matters in dispute or litigation, will be substantially completed by the end of
1999. In addition, the segment incurred increased costs related to start-up
activities on certain municipal services contracts and a write-off of inventory
related to a terminated information technology outsourcing program.
LIQUIDITY AND CAPITAL RESOURCES
The decrease in cash provided by operating activities between the first nine
months of 1999 and the same period in 1998 is consistent with the corresponding
decrease in earnings before cumulative effect of change in accounting principle
for the same periods. Net cash used for investing activities during the first
nine months of 1999 was $1.6 billion, compared to $350 million used during the
first nine months of 1998. The 1999 amount includes the payment of approximately
$1.2 billion for the acquisition of 49 percent of COMSAT discussed above, offset
by the receipt of $182 million of proceeds from the sale of L-3 common stock.
Net cash provided by financing activities was $897 million during the first nine
months of 1999 versus $174 million used for financing activities in the
comparable 1998 period. The variance between periods was primarily due to a $1.1
billion increase in the Corporation's total debt during the first nine months of
1999 to initially finance the consummation of the COMSAT Tender Offer.
Commercial paper borrowings of approximately $3.2 billion were outstanding at
September 30, 1999. Of this amount, $2.0 billion has been classified as long-
term debt in the Corporation's Unaudited Condensed Consolidated Balance Sheet
based on management's ability and intention to maintain this level of debt
outstanding for at least one year. Commercial paper borrowings are supported by
a short-term revolving credit facility in the amount of $1.0 billion which
expires on May 28, 2000, and a long-term revolving credit facility in the amount
of $3.5 billion which expires on December 20, 2001. On November 3 and November
9, 1999, the Corporation borrowed $1.0 billion under the short-term revolving
credit facility and $385 million under the long-term revolving credit facility,
respectively. The Corporation will borrow an additional $1.0 billion under its
long-term revolving credit facility on November 15, 1999, and may borrow
additional amounts after that date. The proceeds from the above borrowings have
been or will be used to repay maturing commercial paper.
21
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Total debt, including short-term borrowings, amounted to approximately 66
percent of total capitalization at September 30, 1999, a slight increase from 64
percent reported at December 31, 1998. During the first nine months of 1999,
total stockholders' equity decreased by $11 million due to the payment of $258
million in dividends, offset principally by reported year-to-date net earnings
of $89 million and employee stock option and ESOP activity of $140 million.
The Corporation ultimately expects to finance a portion of the COMSAT Tender
Offer through its disposition of various investment holdings; however, the
Tender Offer was initially financed through the issuance of debt obligations, as
market conditions and limitations on the Corporation's ability to dispose of
such investments did not allow disposition prior to completion of the Tender
Offer.
In January 1999, the Corporation filed a shelf registration with the
Securities and Exchange Commission to provide for the issuance of up to $2.5
billion in debt securities. The registration statement was declared effective in
the first quarter of 1999. On November 5, 1999, the Corporation announced its
intention to issue approximately $2.0 billion of intermediate and long-term debt
securities under this shelf registration. The proceeds from the offering will be
used for general corporate purposes, including the repayment of commercial
paper. On November 10, 1999, the Corporation entered into agreements with third
parties to hedge against interest rate fluctuations relating to a portion of
this proposed debt offering, and expects to close such agreements on the date on
which the interest rates and other terms related to the debt securities are set.
The Corporation actively seeks to finance its business in a manner that
preserves financial flexibility while minimizing borrowing costs to the extent
practicable. The Corporation's management continually reviews the changing
financial, market and economic conditions to manage the types, amounts and
maturities of the Corporation's indebtedness. Periodically, the Corporation may
refinance existing indebtedness, vary its mix of variable rate and fixed rate
debt, or seek alternative financing sources for its cash and operational needs.
Cash and cash equivalents including temporary investments, internally
generated cash flow from operations and other available financing resources are
expected to be sufficient to meet anticipated operating, capital expenditure and
debt service requirements and discretionary investment needs during the next
twelve months. Consistent with the Corporation's desire to generate cash to
invest in its core businesses and reduce debt, management anticipates that,
subject to prevailing financial, market and economic conditions, the Corporation
may continue to divest certain non-core businesses, passive equity investments
and surplus properties.
YEAR 2000 ISSUES
Like most companies, Lockheed Martin is affected by Year 2000 issues.
Accordingly, all of the Corporation's business units are actively involved in
its Year 2000 Compliance Program (the Program). The Program has been designed
to minimize risk to the Corporation's business units and its customers using a
standard six-phase industry approach. The six phases include: Awareness,
Assessment, Renovation, Validation, Implementation and Post-Implementation. In
the Awareness phase, the problem is defined, risks and magnitude of repairs are
communicated, and executive level support and sponsorship is obtained. During
the Assessment phase, an inventory of assets that could be impacted by Year 2000
compliance issues is prepared which includes internal information technology
(IT) systems (e.g. hardware, program applications, data
22
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
centers), external IT systems (e.g. customer products and deliverables,
interfaces with third parties) and non-IT systems (e.g. facilities, non-IT
equipment).
In the Renovation phase, a plan for remediation is developed for each system
or product based on its critical nature and risk. Renovation is considered
complete when these plans have been implemented and the actual conversion of the
hardware, firmware or software has occurred. Renovation of customer products
and deliverables, where requested and funded by the customer, is also a part of
this phase. The Validation phase involves testing of all renovated systems to
ensure that they will operate correctly across and during the Year 2000. During
the Implementation phase, renovated and validated systems are placed into live
production environments. The Post-Implementation phase occurs in the Year 2000.
This phase will entail monitoring of systems to ensure Year 2000 compliance and
implementing business continuity and contingency plans as considered necessary.
The Program was designed to achieve the Corporation's overall goal of Year
2000 readiness in advance of the century change. The Corporation views Year
2000 awareness as a continuous phase of the Program that has resulted in
distribution of news letters, development of internal and external web sites and
an internal Year 2000 Awareness Week. During 1998, the Assessment phase was
completed. As of September 30, 1999, the Renovation, Validation and
Implementation phases were completed with few exceptions that include planned
new and contingency implementations. The remainder of 1999 will be used to
address late availability of vendor or government furnished equipment, monitor
the status of Year 2000 compliance of vendors and customers (related to both
products and readiness), and complete planned replacement of systems and
business continuity plans.
Business continuity planning is required to ensure a smooth transition into
the Year 2000. The purpose is to identify and mitigate risks that may disrupt
the Corporation's operations or its ability to meet commitments. Business
continuity teams have been identified, and command centers, call-out procedures
and emergency procedures are being established. Each business unit has
identified and is focusing business continuity planning on its critical first
quarter Year 2000 operations. Lockheed Martin has developed guidelines for when
contingency plans are required and a standard template for use in documenting
such plans. For example, contingency plans have been developed for any work
that is scheduled to be completed after June 1999, and for new system
implementations where schedule or technical issues are assessed to be
significantly at risk, in which case renovation of legacy systems has been or
will be performed. Lockheed Martin has established a moratorium period
regarding any changes to its systems and environments from November 30, 1999
through January 15, 2000, the purpose of which is to manage these compliant
systems and environments and to mitigate risk associated with major changes or
implementations prior to the Year 2000. Additionally, while management believes
that most of the Corporation's non-IT systems will function without substantial
compliance problems, preparation for events that are generally outside the
direct control of the Corporation (e.g. loss of power or telecommunications
capabilities) have been included as part of business continuity planning. The
Corporation's plans include coordination with existing emergency or crisis
management teams within our facilities to ensure that appropriate scenarios are
utilized in training and drills during 1999.
Management currently estimates that total costs of the Program will be less
than $80 million, approximately $70 million of which had been expended through
September 30, 1999. These costs have not been material to the Corporation's
consolidated results of operations, cash flows or
23
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
financial position for any prior period and, based on information available at
this time, are not expected to be material in any future period. The remaining
costs are expected to be directed primarily toward business continuity planning
activities. These estimates include internal costs as well as costs for outside
consulting services, but do not include estimated costs for system replacements
which were not accelerated due to Year 2000 issues. No significant IT projects
have been deferred due to Year 2000 efforts. The costs incurred for the Program
are allowable in establishing prices for the Corporation's products and services
under contracts with the U.S. Government. Therefore, a substantial portion of
these costs are being reflected in the Corporation's sales and cost of sales.
The costs to implement and the time frame contemplated by the Program are
based on management's estimates, which were derived utilizing numerous
assumptions related to future events, including each vendor's ability to modify
proprietary software, the ability of other third parties (including domestic and
foreign customers and suppliers) to successfully address their Year 2000 issues,
unanticipated issues identified in executing the Program, and other similar
uncertainties. While the Corporation expects to resolve all Year 2000 risks
without a material adverse impact to its consolidated results of operations,
cash flows or financial position, there can be no guarantee that the objectives
of the Program will be achieved. To mitigate this risk, the Corporation has
formal measurement and reporting processes in place. For example, internal
auditors meet weekly with Program personnel to review the current status of the
Program and related issues, and Program reviews are conducted monthly with each
of the Corporation's segments and quarterly at the business unit level. In
addition, updates are presented periodically to executive management, the Board
of Directors and the Audit and Ethics Committee. The Corporation has obtained
additional assurance through the use of internal independent test environments,
third party verification of randomly selected renovated and validated
applications, and internal audits designed to ensure Year 2000 readiness.
Program assessments have been conducted by customers and the Defense Contract
Audit Agency throughout the Program. With respect to third parties, the
Corporation is aware that a number of its domestic and foreign suppliers and
customers have just recently begun to aggressively address their Year 2000
issues and, therefore, believes there is risk associated with their achieving
timely Year 2000 compliance. To mitigate this risk, formal communication with
all of the Corporation's key suppliers and customers (including banks and U.S.
Government customers) has been initiated as part of the Program. In response to
this communication, the Corporation has received differing levels of information
from these third parties to assist in the assessment of their Year 2000
readiness; however, in most cases, the Corporation is unable to verify the
accuracy of their responses. Based on information available at this time,
management believes that Program activities to date are consistent with the
Program's design.
The Corporation is aware that a "reasonably likely worst case" scenario of
Year 2000 risks could include isolated interruption of deliveries from critical
domestic and foreign suppliers, the inability of critical domestic and foreign
customers to conduct business due to disruption of their operations, product
liability issues, isolated performance problems with manufacturing or
administrative systems, and late availability of embedded vendor products for
which responsibility for Year 2000 compliance rests with the respective vendor.
The consequences of these issues may include increases in manufacturing and
general and administrative expenses until the issues are resolved, lost
revenues, lower or delayed cash receipts, and product liability. The
Corporation cannot currently quantify the potential effect of these issues on
its consolidated results of operations, cash flows or financial position, should
some or a combination of these events come to pass. However, based on
information available at this time, management believes
24
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
that activities of the Program designed to mitigate these types of issues are
consistent with the Program's design.
OTHER MATTERS
As more fully described in Note 5 of the Notes to Unaudited Condensed
Consolidated Financial Statements, the Corporation is continuing to pursue
recovery of a significant portion of the unanticipated costs incurred in
connection with the $180 million fixed price contract with the U.S. Department
of Energy (DOE) for the remediation of waste found in Pit 9. The Corporation has
been unsuccessful to date in reaching any agreements with the DOE on cost
recovery or other contract restructuring matters. In 1998, the management
contractor for the project, a wholly-owned subsidiary of the Corporation, at the
DOE's direction, terminated the Pit 9 contract for default. At the same time,
the Corporation filed a lawsuit seeking to overturn the default termination.
Subsequently, the Corporation took actions to raise the status of its request
for equitable adjustment to a formal claim. Also in 1998, the management
contractor, again at the DOE's direction, filed suit against the Corporation
seeking recovery of approximately $54 million previously paid to the Corporation
under the Pit 9 contract. In January 1999, the U.S. District Court in Idaho
granted the Corporation's motion and stayed the Idaho proceeding until
resolution of the motion to dismiss the lawsuit in the U.S. Court of Federal
Claims, or until August 2, 1999. A status conference was held in the U.S.
District Court in Idaho on August 2, 1999, following which the Court ordered
discovery to commence. In the U.S. Court of Federal Claims, on October 1, 1999,
the Court stayed the DOE's Motion to Dismiss the Corporation's lawsuit, finding
that the Court has jurisdiction. Also, the U.S. Court of Federal Claims ordered
discovery to commence and gave leave to the DOE to convert its motion to dismiss
to a motion for summary judgment if supported by discovery. The Corporation
continues to assert its position in the litigation while continuing its efforts
to resolve the dispute through non-litigation means.
As more fully described in Management's Discussion and Analysis in Lockheed
Martin's 1998 Annual Report on Form 10-K (Form 10-K), the Corporation is
involved in two joint ventures with Russian government-owned space firms. The
operations of these joint ventures include marketing Proton launch services,
which are subject to a U.S. Government-imposed quota on the number of Russian
launches of satellites into certain orbits. The majority of customer advances
received for Proton launch vehicle services is forwarded to Khrunichev State
Research and Production Space Center, a launch vehicle manufacturer in Russia.
Significant portions of these advances would be required to be refunded to
customers if launch services were not provided within the contracted time frame.
Through September 30, 1999, launch services provided through these joint
ventures have been in accordance with contract terms.
At September 30, 1999, approximately $685 million related to launches not yet
provided was included in customer advances and amounts in excess of costs
incurred (no portion of this amount is related to launches in excess of the
quota), and approximately $800 million of payments to the Russian manufacturer
for launches not yet provided was included in inventories (approximately $220
million of this amount is related to launches in excess of the quota). The
amount above related to launches in excess of the quota was determined taking
into account the quota increase from 16 to 20 launches approved by the U.S.
Government in July 1999, and was determined without regard to the quota's
current expiration date of December 31, 2000. Based on management's current
estimates as to the number and timing of Proton launches during the remaining
period of the quota, planned Proton launches that would be subject to the quota
are not expected to exceed the quota's current limitations. There can be no
assurance, however, that the
25
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
number, timing or types of anticipated launches will not change, or that the
quota will not be renewed or its expiration date extended. Such changes could
impair the Corporation's ability to achieve certain of its business objectives
related to launch services, satellite manufacture and telecommunications market
penetration. Management is continuing to work toward eliminating any U.S.
Government limitation on the number of Russian launches.
Also as more fully described in Management's Discussion and Analysis in its
Form 10-K, the Corporation is involved in agreements with RD AMROSS, a Russian
manufacturer of booster engines, for the development and purchase, subject to
certain conditions, of up to 101 RD-180 booster engines for use in two models of
the Corporation's launch vehicles. Terms of the agreements call for payments to
be made to RD AMROSS upon the achievement of certain milestones in the
development and manufacturing processes. Included in inventories at September
30, 1999 and December 31, 1998 were payments made under these agreements of
approximately $55 million and $100 million, respectively.
In July 1999, the House of Representatives approved a defense budget that
omitted funding for initial production of the F-22 fighter aircraft. In October
1999, Congress approved a defense budget that restored funding for the
development of the same number of F-22 aircraft as originally planned. Since
the funding approved is for the development of the aircraft and not for initial
production, Congress will still need to determine whether to approve funding for
initial production at a future date.
FORWARD LOOKING STATEMENTS
This Form 10-Q contains statements which, to the extent that they are not
recitations of historical fact, constitute "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act"). The words "estimate," "anticipate," "project," "intend,"
"expect," and similar expressions are intended to identify forward looking
statements. All forward looking statements involve risks and uncertainties,
including, without limitation, statements and assumptions with respect to future
revenues, program performance and cash flows, the outcome of contingencies
including litigation and environmental remediation, and anticipated costs of
capital investments and planned dispositions. The Corporation is necessarily
subject to various risks and uncertainties and, therefore, actual outcomes are
dependent upon many factors, including, without limitation, our successful
performance of internal plans; the outcome of legislation to permit completion
of the COMSAT transaction; the successful resolution of our Year 2000 issues;
government customers' budgetary constraints; customer changes in short-range and
long-range plans; domestic and international competition in the defense, space
and commercial areas; product performance; continued development and acceptance
of new products; timing of product delivery and launches, including timing
issues resulting from Proton launches being placed on hold pending completion of
reviews related to recent launch failures; performance issues with key suppliers
and subcontractors; government import and export policies; termination of
government contracts; the outcome of political and legal processes, including
uncertainty regarding the full funding of the F-22 program; the outcome of
contingencies including completion of acquisitions and divestitures, litigation
and environmental remediation; legal, financial, and governmental risks related
to international transactions and global needs for military and commercial
aircraft and electronic systems and support; as well as other economic,
political and technological risks and uncertainties. Readers are cautioned not
to place undue reliance on these forward looking statements which speak only as
of the date of this Form 10-Q. The Corporation does not undertake any obligation
to publicly
26
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
release any revisions to these forward looking statements to reflect events,
circumstances or changes in expectations after the date of this Form 10-Q, or to
reflect the occurrence of unanticipated events. The forward looking statements
in this document are intended to be subject to the safe harbor protection
provided by Sections 27A of the Securities Act and 21E of the Exchange Act.
For a discussion identifying some important factors that could cause actual
results to vary materially from those anticipated in the forward looking
statements, see the Corporation's Securities and Exchange Commission filings
including, but not limited to, the discussion of "Competition and Risk" and the
discussion of "Government Contracts and Regulations" on pages 19 through 21 and
pages 21 through 23, respectively, of the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1998 (Form 10-K); "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 15 through 25 of the 1998 Annual Report, and "Note 1 -- Summary of
Significant Accounting Policies," "Note 2 -- Transaction Agreement with COMSAT
Corporation" and "Note 16 -- Commitments and Contingencies" of the Notes to
Consolidated Financial Statements on pages 32 through 34, page 34, and pages 42
through 43, respectively, of the Audited Consolidated Financial Statements
included in the 1998 Annual Report and incorporated by reference into the Form
10-K; and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 16 through 27 of this Form 10-Q, and "Note 2 --
Transaction Agreement with COMSAT Corporation," "Note 5 - Contingencies," "Note
7 - Other," and "Note 8 - Subsequent Events" of the Notes to Unaudited Condensed
Consolidated Financial Statements on pages 6 through 7, pages 9 through 11,
pages 12 through 15, and page 15, respectively, of the Unaudited Condensed
Consolidated Financial Statements included in this Form 10-Q.
27
<PAGE>
Lockheed Martin Corporation
Part II - Other Information
Item 1. Legal Proceedings
The Corporation is a party to or has property subject to litigation and other
proceedings, including matters arising under provisions relating to the
protection of the environment, both as specifically described below, in the
Corporation's Annual Report on Form 10-K and in its first and second quarter
1999 Quarterly Reports on Form 10-Q, or arising in the ordinary course of
business. In the opinion of management, the probability is remote that the
outcome of any such litigation or other proceedings will have a material adverse
effect on the Corporation's results of operations or financial position.
The Corporation is primarily engaged in providing products and services under
contracts with the U.S. Government and, to a lesser degree, under direct foreign
sales contracts, some of which are funded by the U.S. Government. These
contracts are subject to extensive legal and regulatory requirements and, from
time to time, agencies of the U.S. Government investigate whether the
Corporation's operations are being conducted in accordance with these
requirements. U.S. Government investigations of the Corporation, whether
relating to these contracts or conducted for other reasons, could result in
administrative, civil or criminal liabilities, including repayments, fines or
penalties being imposed upon the Corporation, or could lead to suspension or
debarment from future U.S. Government contracting. U.S. Government
investigations often take years to complete and many result in no adverse action
against the Corporation. For the U.S. Government investigations noted below, it
is too early for the Corporation to determine whether adverse decisions relating
to these investigations could ultimately have a material adverse effect on its
results of operations or financial condition.
The following describes developments of previously reported matters that have
occurred since filing of the Corporation's 1998 Annual Report on Form 10-K and
its first and second quarter 1999 Quarterly Reports on Form 10-Q. See the
"Legal Proceedings" section of those Reports for a description of previously
reported matters. There have not been any new matters in the third quarter of
1999.
In 1994, the Corporation was awarded a $180 million fixed price contract by
the U.S. Department of Energy (DOE) for the Phase II design, construction and
limited test of remediation facilities, and the Phase III full remediation of
waste found in Pit 9, located on the Idaho National Engineering and
Environmental Laboratory reservation. The Corporation incurred significant
unanticipated costs and scheduling issues due to complex technical and
contractual matters which threatened the viability of the overall Pit 9 program.
Based on an investigation by management to identify and quantify the overall
effect of these matters, the Corporation submitted a request for equitable
adjustment (REA) to the DOE on March 31, 1997 that sought, among other things,
the recovery of a portion of unanticipated costs incurred by the Corporation and
the restructuring of the contract to provide for a more equitable sharing of the
risks associated with the Pit 9 project. The Corporation has been unsuccessful
in reaching any agreements with the DOE on cost recovery or other contract
restructuring matters. Starting in May 1997, the Corporation reduced work
activities at the Pit 9 site while awaiting technical direction from the DOE.
On June 1, 1998, the DOE, through Lockheed Martin Idaho Technologies Company
(LMITCO), its management contractor, terminated the Pit 9 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. In addition, on July 21, 1998, the Corporation
withdrew the REA previously submitted to the DOE and replaced it with a
certified REA. The certified REA is similar in substance to the REA previously
submitted, but its certification, based upon more detailed factual and
contractual analysis, raises
28
<PAGE>
Lockheed Martin Corporation
Part II - Other Information (continued)
its status to that of a formal claim. On August 11, 1998, LMITCO, at the DOE's
direction, filed suit against the Corporation in U.S. District Court in Boise,
Idaho, seeking, among other things, recovery of approximately $54 million
previously paid by LMITCO to the Corporation under the Pit 9 contract. The
Corporation intends to resist this action while continuing to pursue its
certified REA. On January 26, 1999, the U.S. District Court in Idaho granted the
Corporation's motion and stayed the Idaho proceeding until resolution of the
motion to dismiss the lawsuit in the U.S. Court of Federal Claims, or until
August 2, 1999. A status conference was held in the U.S. District Court in Idaho
on August 2, 1999, following which the Court ordered discovery to commence. In
the U.S. Court of Federal Claims, on October 1, 1999, the Court stayed the DOE's
Motion to Dismiss the Corporation's lawsuit, finding that the Court has
jurisdiction. Also, the U.S. Court of Federal Claims ordered discovery to
commence and gave leave to the DOE to convert its motion to dismiss to a motion
for summary judgment if supported by discovery. The Corporation continues to
assert its position in the litigation while continuing its efforts to resolve
the dispute through non-litigation means.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1. Exhibit 3. Bylaws of Lockheed Martin Corporation, as amended.
In October 1999, the Board of Directors amended several provisions of
the Corporation's Bylaws. Among other amendments, the Board revised the
Bylaws relating to advance notice requirements for stockholders desiring
to bring nominations or other business before a stockholders' meeting.
This does not impact the process or timing for stockholder proposals
submitted for inclusion in the Corporation's proxy statement under Rule
14a-8 of the Securities Exchange Act of 1934. The Bylaws, as amended,
require that stockholders must deliver written notice of nominations or
new business proposals to the Secretary of the Corporation at its
principal executive office, 6801 Rockledge Drive, Bethesda, Maryland
20817, not less than 90 days nor more than 120 days prior to the
anniversary date of the mailing of the notice of the preceding year's
annual meeting. The former requirement was not less than 90 days nor
more than 120 days prior to the anniversary date of the preceding year's
annual meeting. Since the notice of the 1999 Annual Meeting of
Stockholders of the Corporation was mailed on March 19, 1999, to be
properly brought before the 2000 Meeting, written notice of nominations
or other business to be introduced by a stockholder of the Corporation
must be received by the Corporate Secretary between the dates of
November 24, 1999 and December 24, 1999, inclusive.
In addition, the Bylaws were amended to state, consistent with the
Corporation's Charter, that the minimum number of directors would not be
less than twelve, and to provide that the Corporation has opted out of
the Maryland Control Share Acquisition Act.
2. Exhibit 12. Lockheed Martin Corporation Computation of Ratio of Earnings
to Fixed Charges for the nine months ended September 30, 1999.
3. Exhibit 27. Financial Data Schedule for the nine months ended September
30, 1999.
(b) Reports on Form 8-K filed in the third quarter of 1999.
1. Current report on Form 8-K filed on July 22, 1999.
29
<PAGE>
Lockheed Martin Corporation
Part II - Other Information (continued)
Item 5. Other Events
The Corporation filed information contained in its press release dated
July 20, 1999 concerning its results of operations for the quarter
ended June 30, 1999.
Item 7. Financial Statements and Exhibits
Lockheed Martin Corporation Press Release dated July 20, 1999.
2. Current report on Form 8-K filed on September 7, 1999.
Item 5. Other Events
The Corporation filed information regarding the status of compliance
with a request for additional information issued by the Antitrust
Division of the Department of Justice in the Hart-Scott Rodino Act
antitrust review process as to the Corporation's simultaneous
ownership of shares of Loral Space & Communications Ltd. and shares of
COMSAT Corporation (COMSAT) following consummation of the tender offer
for COMSAT shares.
3. Current report on Form 8-K filed on September 16, 1999.
Item 5. Other Events
The Corporation filed information contained in its press release dated
September 15, 1999 which reported on the status of its pending tender
offer and merger related to COMSAT, particularly one of the conditions
to the tender offer regarding the Federal Communications Commission.
Item 7. Financial Statements and Exhibits
Lockheed Martin Corporation Press Release dated September 15, 1999.
4. Current report on Form 8-K filed on September 16, 1999.
Item 5. Other Events
The Corporation filed information contained in its press release dated
September 16, 1999 which reported on the status of its pending tender
offer and merger related to COMSAT, particularly one of the conditions
to the tender offer regarding the Department of Justice.
Item 7. Financial Statements and Exhibits
Lockheed Martin Corporation Press Release dated September 16, 1999.
5. Current report on Form 8-K filed on September 20, 1999.
Item 5. Other Events
30
<PAGE>
Lockheed Martin Corporation
Part II - Other Information (continued)
The Corporation filed information contained in its press release dated
September 18, 1999 which reported on the completion of the
Corporation's tender offer for up to 49% of COMSAT.
Item 7. Financial Statements and Exhibits
Lockheed Martin Corporation Press Release dated September 18, 1999.
(c) Reports on Form 8-K filed subsequent to the third quarter of 1999.
1. Current report on Form 8-K filed on October 4, 1999.
Item 5. Other Events
The Corporation filed information contained in its September 27, 1999
announcement of the results of the strategic and organizational review
that began June 9, 1999. As a result of this review, the Corporation
announced plans to realign its businesses, flatten its management
structure, reduce corporate staff, evaluate the divestiture of non-
core operations, and enhance financial management processes. The new
organizational structure took effect October 1, 1999.
2. Current report on Form 8-K filed on October 27, 1999.
Item 5. Other Events
The Corporation filed information in relation to its September 27,
1999 announcement of the results of the strategic and organizational
review that began June 9, 1999. As a result of this review, the
Corporation implemented a new organizational structure, effective
October 1, 1999, that realigns its core lines of business into four
principal business segments. The information filed includes a brief
description of the activities of each business segment and unaudited
selected financial data by business segment for certain periods which
reflect the organizational realignment.
3. Current report on Form 8-K filed on October 29, 1999 (as amended by a Form
8-K/A filed on November 2, 1999).
Item 5. Other Events
The Corporation filed information contained in three press releases,
each dated October 29, 1999. The Corporation filed information
contained in its first press release concerning its results of
operations for the quarter ended September 30, 1999 and financial
outlook for the year 2000. The Corporation also filed information
contained in its second press release which announced the retirement
of Peter B. Teets, the Corporation's President and COO, from the
Corporation and his position on the Board of Directors. Effective
immediately, Chairman and CEO Vance Coffman will also assume COO
duties. The Corporation also filed information contained in its third
press release which announced the retirement of James A. "Micky"
Blackwell, the Executive Vice President of the
31
<PAGE>
Lockheed Martin Corporation
Part II - Other Information (continued)
Corporation's Aeronautical Systems business area. Dain M. Hancock was
announced as his successor.
Item 7. Financial Statements and Exhibits
Three Lockheed Martin Corporation Press Releases, each dated October
29, 1999.
32
<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 12, 1999 by: /s/Todd J. Kallman
----------------------- --------------------------------
Todd J. Kallman
Vice President and Controller
(Chief Accounting Officer)
33
<PAGE>
Exhibit 3
L O C K H E E D M A R T I N C O R P O R A T I O N
B Y- L A W S
Adopted August 26, 1994
(Amended February 6, 1995)
(Amended April 27, 1995)
(Amended September 28, 1995)
(Amended January 1, 1996)
(Amended January 7, 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)
(Amended April 22, 1999)
(Amended October 28, 1999)
<PAGE>
TABLE OF CONTENTS
BYLAWS
OF
LOCKHEED MARTIN CORPORATION
<TABLE>
<CAPTION>
ARTICLE I
STOCKHOLDERS
<S> <C> <C>
Section 1.01. Annual Meetings................................ 1
Section 1.02. Special Meetings............................... 1
Section 1.03. Place of Meetings.............................. 1
Section 1.04. Notice of Meetings............................. 1
Section 1.05. Conduct of Meetings............................ 2
Section 1.06. Quorum......................................... 2
Section 1.07. Votes Required................................. 2
Section 1.08. Proxies........................................ 2
Section 1.09. List of Stockholders........................... 2
Section 1.10. Inspectors of Election......................... 2
Section 1.11. Director Nominations and Stockholder Business.. 3
</TABLE>
ARTICLE II
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
<S> <C> <C>
Section 2.01. Powers......................................... 5
Section 2.02. Number of Directors............................ 5
Section 2.03. Election of Directors.......................... 5
Section 2.04. Chairman of the Board.......................... 5
Section 2.05. Removal........................................ 6
Section 2.06. Vacancies...................................... 6
Section 2.07. Regular Meetings............................... 6
Section 2.08. Special Meetings............................... 6
Section 2.09. Notice of Meetings............................. 6
Section 2.10. Presence at Meeting............................ 7
Section 2.11. Presiding Officer and Secretary at Meetings.... 7
Section 2.12. Quorum......................................... 7
Section 2.13. Compensation................................... 7
Section 2.14. Voting of Shares by Certain Holders............ 7
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(Continued)
ARTICLE III
COMMITTEES
<TABLE>
<CAPTION>
<S> <C> <C>
Section 3.01. Executive Committee................................ 7
Section 3.02. Finance Committee.................................. 8
Section 3.03. Audit & Ethics Committee........................... 8
Section 3.04(a) Management Development and Compensation Committee.. 9
Section 3.04(b) Stock Option Subcommittee.......................... 10
Section 3.05. Nominating Committee............................... 10
Section 3.06. Other Committees................................... 10
Section 3.07. Meetings of Committees............................. 11
</TABLE>
ARTICLE IV
OFFICERS
<TABLE>
<CAPTION>
<S> <C> <C>
Section 4.01. Executive Officers -- Election and Term of Office.. 11
Section 4.02 Chairman of the Board.............................. 11
Section 4.03. President.......................................... 12
Section 4.04. Vice Presidents.................................... 12
Section 4.05. Secretary.......................................... 12
Section 4.06. Treasurer.......................................... 12
Section 4.07. Subordinate Officers............................... 12
Section 4.08. Other Officers and Agents.......................... 12
Section 4.09. When Duties of an Officer May Be Delegated......... 12
Section 4.10. Officers Holding Two or More Offices............... 13
Section 4.11. Compensation....................................... 13
Section 4.12. Resignations....................................... 13
Section 4.13. Removal............................................ 13
</TABLE>
ARTICLE V
STOCK
<TABLE>
<CAPTION>
<S> <C> <C>
Section 5.01. Certificates....................................... 13
Section 5.02. Transfer of Shares................................. 13
Section 5.03. Transfer Agents and Registrars..................... 14
Section 5.04. Stock Ledgers...................................... 14
Section 5.05. Record Dates....................................... 14
Section 5.06. New Certificates................................... 14
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
(Continued)
ARTICLE VI
INDEMNIFICATION
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<CAPTION>
<S> <C> <C>
Section 6.01. Indemnification of Directors, Officers, and Employees. 14
Section 6.02. Standard.............................................. 15
Section 6.03. Advance Payment of Expenses........................... 15
Section 6.04. General............................................... 15
</TABLE>
ARTICLE VII
SUNDRY PROVISIONS
<TABLE>
<CAPTION>
<S> <C> <C>
Section 7.01. Seal.................................................. 16
Section 7.02. Voting of Stock in other Corporations................. 16
Section 7.03. Amendments............................................ 16
</TABLE>
iii
<PAGE>
BYLAWS
OF
LOCKHEED MARTIN CORPORATION
(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 at 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, Chief Executive Officer, 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
<PAGE>
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
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
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<PAGE>
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 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 date of mailing of the notice
for the preceding year's annual meeting; provided, however, that in the event
that the date of mailing of the notice for the annual meeting is advanced or
delayed by more than thirty (30) days from the anniversary date of mailing of
the notice for the preceding year's annual meeting, notice by the stockholder to
be timely must be so delivered not earlier than the one-hundred twentieth
(120th) day prior to the date of mailing of the notice for such annual meeting
and not later than the close of business on the later of the ninetieth (90th)
day prior to the date of mailing of the notice for such annual meeting or the
tenth (10th) day following the day on which public announcement of the date of
mailing of the notice for 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 in an election
contest, 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
-3-
<PAGE>
"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 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 (including any anticipated benefit
to the stockholder therefrom) and of each beneficial owner, if any, on whose
behalf the proposal is made; and (iii) as to the stockholder giving the notice
and each beneficial owner, if any, on whose behalf the nomination or proposal is
made, (x) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (y) 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 any new positions
created by such increase, 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 (i) pursuant to the Corporation's notice of meeting,
(ii) by or at the direction of the Board of Directors or (iii) 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 and Article II, Section 2.04 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 chairman 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 or proposed, as
the case may be, in
-4-
<PAGE>
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, (a) the "date of mailing of the notice"
shall mean the date of the proxy statement for the solicitation of proxies for
election of directors and (b) "public announcement" shall mean disclosure (i) in
a press release reported by the Dow Jones New Service, Associated Press or
comparable news service or (ii) 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,
nor the right of the Corporation to omit a proposal from, in the Corporation's
proxy statement pursuant to Rule 14a-8 (or any successor provision) under the
Exchange Act.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. POWERS. 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 twelve (12) 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 Assistant Secretary certificates
-5-
<PAGE>
of stock of the Corporation, and he shall perform such other duties as may be
prescribed by the Board of Directors.
Section 2.05. 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.
Section 2.06. 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 2.07. 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 2.08. 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 2.09. 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
-6-
<PAGE>
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 2.10. 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.
Section 2.11. 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 2.12. 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 2.13. 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 2.14. 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 any
person of shares of stock of the Corporation. This section may be repealed, in
whole or in part, at any time, whether before or after an acquisition of control
shares and, upon such repeal, may, to the extent provided by any successor
bylaw, apply to any prior or subsequent control share acquisition.
ARTICLE III
COMMITTEES
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<PAGE>
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 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
-8-
<PAGE>
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 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). MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE. The
Board of Directors by resolution adopted by a majority of the Board of Directors
may provide for a Management Development and Compensation Committee of three (3)
or more directors who are not officers or employees of the Corporation. If
provision is made for a Management Development and Compensation Committee, the
members of the Management and Development 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 Management Development and Compensation Committee a chairman. The
Management Development and Compensation Committee shall consider proposed
candidates for senior officer positions and their development plans and
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 Management Development and
Compensation Committee shall appraise the performance of management and have the
power to fix the compensation of all other elected officers and to approve the
benefits provided by any bonus,
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<PAGE>
supplemental, and special compensation plans, including pension, insurance, and
health plans, but excluding performance-based executive compensation plans, and
such powers as are by statute or the Charter or the Bylaws reserved to the full
Board of Directors. The Management Development and Compensation Committee 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
Management Development and 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 Management
Development and Compensation Committee shall be filled by the Board of
Directors.
Section 3.04(b). 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 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.
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<PAGE>
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 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.
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<PAGE>
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 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. The 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.
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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.
ARTICLE VII
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<PAGE>
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.
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<PAGE>
Exhibit 12
Lockheed Martin Corporation
Computation of Ratio of Earnings to Fixed Charges
For the Nine Months Ended September 30, 1999
(In millions, except ratio)
<TABLE>
<CAPTION>
Earnings
<S> <C>
Earnings from continuing operations before income taxes $ 725
Interest expense 583
Amortization of debt premium and discount, net (4)
Portion of rents representative of an interest factor 55
Losses and undistributed earnings of 50% and less than 50%
owned companies, net 26
------
Adjusted earnings from continuing operations before income taxes $1,385
======
Fixed Charges
Interest expense $ 583
Amortization of debt premium and discount, net (4)
Portion of rents representative of an interest factor 55
Capitalized interest 10
------
Total fixed charges $ 644
======
Ratio of Earnings to Fixed Charges 2.2
======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the unaudited
condensed consolidated balance sheet and unaudited condensed consolidated
statement of earnings and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 4,426
<ALLOWANCES> 0
<INVENTORY> 3,939
<CURRENT-ASSETS> 10,129
<PP&E> 8,833
<DEPRECIATION> 5,268
<TOTAL-ASSETS> 29,558
<CURRENT-LIABILITIES> 9,734
<BONDS> 10,463
0
0
<COMMON> 394
<OTHER-SE> 5,732
<TOTAL-LIABILITY-AND-EQUITY> 29,558
<SALES> 18,548
<TOTAL-REVENUES> 18,548
<CGS> 17,442
<TOTAL-COSTS> 17,442
<OTHER-EXPENSES> 202
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 583
<INCOME-PRETAX> 725
<INCOME-TAX> 281
<INCOME-CONTINUING> 444
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (355)
<NET-INCOME> 89
<EPS-BASIC> .23
<EPS-DILUTED> .23
</TABLE>
