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United States Filed March 9, 2000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 No.)
6801 Rockledge Drive, Bethesda, Maryland 20817-1877 (301/897-6000)
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
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Common Stock, $1 par value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes [x] No [ ]
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 or Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Approximately $7.36 billion as of January 31, 2000.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. Common Stock, $1 par value,
398,164,999 shares outstanding as of January 31, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Lockheed Martin Corporation's 1999 Annual Report to Shareholders are
incorporated by reference in Parts I and II of this Form 10-K.
Portions of Lockheed Martin Corporation's 2000 Definitive Proxy Statement are
incorporated by reference in Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
General
Lockheed Martin Corporation ("Lockheed Martin," which also may be referred
to as "we," "us," or "our") is a highly diversified global enterprise that
principally researches, designs, develops, manufactures and integrates advanced
technology systems, products and services. In March 1995, we were formed by
combining the businesses of Martin Marietta Corporation (Martin Marietta) and
Lockheed Corporation (Lockheed). We are a Maryland corporation.
Throughout this Form 10-K, we "incorporate by reference" information from
parts of other documents filed with the Securities and Exchange Commission
(SEC). The SEC allows us to disclose important information by referring to it in
this manner and you should review such information.
Our principal executive offices are located at 6801 Rockledge Drive,
Bethesda, Maryland 20817. Our telephone number is (301) 897-6000. Our home page
on the Internet is www.lockheedmartin.com. You can learn more about us by
reviewing our SEC filings on that web site. We are making our web site content
available for your information only. It should not be relied upon for investment
purposes, nor is it incorporated by reference into this Form 10-K.
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Transaction Agreement with COMSAT Corporation
In September 1998, we entered into an agreement with COMSAT Corporation
(COMSAT) to combine the business of COMSAT with the business of one of our
subsidiaries in a two-phase transaction (Merger Agreement) with an estimated
value for COMSAT's stockholders of approximately $2.7 billion as of the date of
the Merger Agreement. The Merger Agreement was approved by Lockheed Martin's and
COMSAT's Boards of Directors.
In connection with the first phase of this transaction, we completed a cash
tender offer (Tender Offer) on September 18, 1999, at which time we 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
investments in equity securities in the December 31, 1999 financial statements.
The consummation of the Tender Offer was subject to, among other things,
the approval of the second phase of the transaction (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 us to merge a COMSAT common carrier subsidiary into one
of our subsidiaries. The order also designated the subsidiary as an "authorized
carrier" under the Communications Satellite Act of 1962 (Satellite Act), thereby
allowing the subsidiary to acquire and hold up to 49 percent of COMSAT's common
stock. On
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September 16, 1999, the DOJ, whose analysis included consideration of
both phases of the proposed transaction, stated that it did not intend to move
to enjoin consummation of the proposed transaction. We account for our 49
percent investment in COMSAT under the equity method of accounting.
On September 17, 1999, PanAmSat Corporation (PanAmSat) filed pleadings in
the United States District Court of Appeals for the District of Columbia Circuit
(Court) seeking a review of the FCC order described above. Lockheed Martin and
COMSAT intervened in the matters before the Court in support of the FCC.
PanAmSat characterizes the FCC's order as arbitrary, capricious or otherwise
contrary to law on a number of grounds including allegations that the FCC has
permitted us to take de facto control of COMSAT in violation of the
Communications Act of 1934 and the Satellite Act, that the Satellite Act never
intended for a single authorized carrier to hold such a large block of COMSAT's
common stock and that the FCC erred or violated its own rules in issuing the
order. We believe that PanAmSat's appeal is without merit and we intend to
continue our support of the actions taken by the FCC.
The second phase of the transaction, which will result in consummation of a
merger of COMSAT with another of our subsidiaries, is to be accomplished by an
exchange of one share of our 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 that prohibit anyone from
owning more than 50% of COMSAT's outstanding common 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
that, if adopted into law, would remove these restrictions.
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There are substantial differences between the two bills, and significant
issues raised by the House bill in particular which, if not resolved
satisfactorily, would likely have a Significant Adverse Effect on COMSAT (as
defined in the Merger Agreement). We hope these issues will be favorably
resolved in conference. In early 2000, sponsors of the two different bills
announced a compromise agreement that, if adopted, would address many of the
issues raised by the House bill. It is now expected that legislation that
reflects the compromise agreement will be enacted before May 2000. There is no
assurance that legislation will be passed, that it will be passed in this time
frame, or that any legislation that does become law would not have an adverse
effect on COMSAT's business. If Congress enacts legislation that we determine in
good faith, after consultation with COMSAT, would reasonably be expected to have
a Significant Adverse Effect on COMSAT, we would have the right to elect not to
complete the Merger.
Before the Merger can occur, we must file Hart-Scott-Rodino notification
and report forms with the Federal Trade Commission and the DOJ regarding our
acquisition of minority interests in two businesses held by COMSAT. In addition,
following the passage of legislation, we must submit, and the FCC must approve,
an application for authorization to transfer control of COMSAT to us before the
Merger may occur. The precise nature of the FCC approval requirement will,
however, depend upon the details of any legislation enacted by Congress.
We do not know when or if Congress will adopt satellite reform legislation,
or whether any legislation that is adopted will permit the completion of the
Merger or whether the necessary governmental approvals will be obtained. If the
Merger is not completed on or before September
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18, 2000, under the terms of the Merger Agreement, COMSAT or we could terminate
the Merger Agreement, or elect not to exercise this right and extend this date.
If consummated, the Merger will be accounted for under the purchase method of
accounting. If the Merger is not consummated, we will not be able to achieve all
of our objectives with respect to the COMSAT transaction and will be unable to
exercise control over COMSAT.
In August 1998, we formed Lockheed Martin Global Telecommunications, Inc., a
wholly-owned subsidiary (LMGT), to focus on expanding our presence in the
global telecommunications services market. Subsequently, we transferred various
assets, including investments in several existing joint ventures from some of
our other business areas to LMGT. The transfer was effective in January 1999. A
second transfer of additional assets occurred later in 1999. If the COMSAT
transaction is consummated, we intend to combine COMSAT's operations with those
of LMGT. Whether or not the COMSAT transaction is consummated, given the
substantial investments necessary for the growth of the global
telecommunications services business, LMGT may seek strategic partners and may
also seek to access the public markets to raise capital. There can be no
assurance that LMGT will be successful in these endeavors.
Business Segments
We operate through four principal business segments:
. Systems Integration -- Includes missiles and fire control, naval
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electronics and surveillance systems, platform integration, aerospace
electronics, control systems, and command, control, communications,
computers and intelligence (C4I) lines of business;
. Space Systems -- Includes space launch, commercial and government
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satellites, and strategic
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missiles lines of business;
. Aeronautical Systems -- Includes tactical aircraft, airlift, and
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aeronautical research and development lines of business; and
. Technology Services - Includes federal technology services line of
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business.
All other operations are grouped in "Corporate and Other," which includes
LMGT (which has operational responsibility for our investment in COMSAT) and
certain other joint ventures and businesses. "Corporate and Other" also includes
three lines of businesses identified as possible candidates for strategic
alliances or divestiture.
Comparative segment revenues, profits and related financial information for
1999, 1998, and 1997 are provided in the table entitled "Selected Financial Data
by Business Segment" in "Note 17-Information on Industry Segments and Major
Customers" on pages 62-63 of our 1999 Annual Report to Shareholders.
Systems Integration
Our Systems Integration segment is comprised of multiple operating units,
engaged mainly in U.S. defense work. Systems Integration's core businesses are
missiles and fire control; naval electronics and surveillance systems;
electronics platform integration; aerospace electronics; control systems; and
command, control, communications, computers and intelligence (C4I) systems.
Major products and capabilities include anti-armor, air-to-surface and surface-
to-surface missiles; air and theater missile defense systems; electro-optical
and fire control systems; surface ship and submarine combat systems; anti-
submarine and undersea warfare systems; avionics and ground
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combat vehicle integration; command and control (C2) systems for naval, airborne
and ground applications; simulation and training systems; logistics management;
government and commercial information technology systems; intelligence,
surveillance and reconnaissance systems; air traffic control systems; postal
automation systems; land, sea and air-based radars; and electronic warfare
systems. Portions of the segment's activities involve classified programs for
the U.S. Government.
In 1999, the segment's net sales represented 42.9% of our net sales.
The Missiles and Fire Control business produces air and missile defense
systems, tactical battlefield missiles and precision guided weapons and
munitions. The Naval Electronics and Surveillance Systems business provides
products and services, including shipboard electronics integration, surface ship
and submarine combat systems, sensors and missile launching systems. The
Electronics Platform Integration business performs systems integration of
mission specific combat suites in areas including anti-submarine warfare,
electronic warfare, surveillance and reconnaissance, and postal automation. The
C4I (Command, Control, Communications, Computers and Intelligence) business
provides intelligence, reconnaissance and surveillance systems; federal
information management solutions such as automated fingerprint identification
systems; and simulation and training systems and services. The C4I business
also includes Air Traffic Management which develops and integrates advanced air
traffic control systems, including area, terminal, and tower automation, radar
and flight data processing, and system infrastructure development; and
implements advanced capabilities for communications, navigation and
surveillance/air traffic management.
In September 1999 and January 2000, we identified several operations within
the segment
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as candidates for potential divestiture. These include the:
. Aerospace Electronics business, and
. Control Systems business.
Major new business wins during 1999 included training systems for the C-130
and F-16, two of the world's most widely used military aircraft; the ground
systems portion of a major classified program; and the Tactical Tomahawk Weapon
Control System for U.S. Navy surface and undersea combatants. Enhancing our
stature as an international business partner, we were part of a multinational
team selected by the governments of the United States, Germany and Italy to
develop the Medium Extended Air Defense System (MEADS). Other significant
international programs initiated during 1999 include a frigate upgrade program
for the Royal Australian Navy; sales of radars and maritime traffic management
systems to customers in Europe, Asia and Africa; and a postal automation program
in the United Kingdom, marking further expansion of a business in a fast-growing
market to which we have transferred core skills. Examples of our ability to
effectively transfer skills to an adjacent market with growth potential include
our selection in 1999 by General Motors Corporation to provide information
management services for three of the auto manufacturer's organizations and an
order from New York City Transit for 125 Hybrid Electric Vehicles.
During 1999, Systems Integration companies also received follow-on orders
for established programs including the U.S. Navy's AEGIS weapon control system;
the Army Tactical Missile System (ATACMS); the Multiple Launch Rocket System
(MLRS); the Low Altitude Navigation and Targeting Infrared System for Night
(LANTIRN) system, used aboard U.S. and international aircraft; and the Navy's
SH-60R multi-mission helicopters.
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In support of the United States' air and missile defense initiatives, we
demonstrated the feasibility of hit-to-kill technology during 1999 with two
successful test flights of the Theater High Altitude Area Defense (THAAD)
system. In addition, we had two intercepts of target warheads by the Patriot
Advanced Capability-3 (PAC-3) Missile. Other significant program milestones
during 1999 included the first powered flight of the Joint Air-to-Surface
Standoff Missile (JASSM), under development by the U.S. Air Force, the U.S. Navy
and international customers; completion of the Display System Replacement
program for the U.S. Federal Aviation Administration; and delivery of the
Integrated Automated Fingerprint Identification System to the Federal Bureau of
Investigation. In addition, Systems Integration businesses continued to
document their software development capabilities via independent assessments
under the Carnegie Mellon Software Engineering Institute (SEI) Capability
Maturity Model (CMM). At December 31, 1999, four Systems Integration businesses
were assessed at Level 5, the highest rating possible. This earned us more
Level 5 assessments than any other company and four out of only 12 earned by the
more than 1,200 companies assessed through 1999.
The segment is heavily dependent on both military and civilian agencies as
a customer. In 1999, U.S. Government customers accounted for over three-
quarters of the segment's total net sales.
Space Systems
In January 2000, we announced that the Space Systems segment was
consolidated into one operating unit named the Lockheed Martin Space Systems
Company, with headquarters in
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Denver, Colorado. Reporting to the Space Systems Company are operations in
Sunnyvale, California, Denver, Colorado and New Orleans, Louisiana as well as
operating units such as Special Programs, International Launch Services (ILS)
and Commercial Space Systems. The segment conducts most of its business through
its Denver Operations, Sunnyvale Operations and Michoud Operations units. A
substantial portion of the segment's activities involves classified programs for
the U.S. Government.
In 1999, the segment's total net sales represented 22.8% of our net sales.
The segment's Denver Operations unit designs, develops, manufactures and
integrates advanced technology systems for space and defense. Principal
products include the Titan and Atlas family of launch vehicles. Through our
joint venture with two Russian aerospace companies, (which joint venture is
consolidated in our financial statements), we also provide Proton rocket launch
vehicle services. In July 1999, we signed a memorandum of agreement with our
Russian partner, Khrunichev State Research and Production Space Center, that
granted us and our subsidiary, ILS, exclusive rights to market the new Russian-
built Angara launch vehicle that is currently in development. During 1999,
there was an industry-wide slowdown of new launch orders and delays in launches
due to several launch failures, including failures involving our Titan IV and
Proton launch vehicles as well as failures of third party launch vehicles.
The segment's Sunnyvale Operations unit designs, develops, manufactures and
integrates strategic missiles and spacecraft for communications, Earth
observation, scientific and navigation missions for military and civilian
government agencies and commercial customers. Principal products include the
Trident II submarine-launched fleet ballistic missile, the A2100 commercial
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communications satellite and the MILSTAR defense communications satellites. The
unit also plays a role in the National Aeronautics & Space Administration's
(NASA) International Space Station program and markets and sells communications
spacecraft to commercial telecommunications customers, including some customers
in which we have an ownership interest.
The segment's Michoud Operations unit manufactures the Super Lightweight
Tank, the latest iteration of the Space Shuttle External Tank for NASA. This
unit also designs, develops and manufactures, for us and commercial customers,
large aluminum and composite structures (including fuel tanks for space
vehicles), cryogenic propellant feed systems and thermal protection systems for
cryogenic structures. Currently, Michoud is developing the X-33 liquid oxygen
tanks and main propellant feed system.
Space Imaging LLC (of which we and Raytheon Company together own more than
half) is a supplier of satellite images, satellite imaging access, and related
products and services. Space Imaging launched the world's first one-meter
resolution, commercial imaging satellite, called the IKONOS satellite, in
September 1999. The spacecraft and the Athena launch vehicle used to launch the
IKONOS satellite were built by the segment's Sunnyvale and Denver Operation
units.
United Space Alliance, LLC, which we jointly own with The Boeing Company,
is responsible for the day-to-day operation and management of the Space Shuttle
fleet for NASA. It also performs the modification, testing and checkout
operations required to prepare space shuttles for launch.
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The segment is heavily dependent on both military and civilian agencies of
the U.S. Government as customers. In 1999, U.S. Government customers accounted
for over four-fifths of the segment's net sales.
Aeronautical Systems
In January 2000, we announced that the Aeronautical Systems segment was
consolidated into one operating unit named the Lockheed Martin Aeronautics
Company, with headquarters in Fort Worth, Texas. The new company announced its
management team in March 2000. The company will include operations in Fort
Worth, Texas (Tactical Aircraft Systems); Marietta, Georgia (Aeronautical
Systems); Palmdale, California (Skunk Works); and plants in Clarksburg, West
Virginia; Johnstown, Pennsylvania; Meridian, Mississippi; and Pinellas, Florida.
The segment includes tactical aircraft, airlift, and aeronautical research and
development lines of business. Portions of the segment's activities involve
classified programs for the U.S. Government, particularly at Skunk Works.
In 1999, the segment's net sales represented 21.5% of our total net sales.
The segment is involved in numerous large defense programs including:
. F-22 air-superiority fighter - has significantly improved capabilities
over current U.S. Air Force aircraft;
. F-16 multi-role fighter - presently the world's premier, low-cost multi-role
fighter;
. Joint Strike Fighter - currently in the concept demonstration phase
potentially leading to the next generation, multi-role fighter and has the
potential to be the largest tactical aircraft program in the U.S., and
perhaps the world;
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. C-130J transport - latest generation of C-130 Hercules tactical transport
aircraft; and
. X-33 reusable launch vehicle - a subscale demonstrator flight vehicle which
eventually may lead to development of a commercial reusable launch vehicle
program.
We are the team leader for the F-22 air-superiority fighter aircraft
program. The F-22 is the latest generation of fighter aircraft and continues to
proceed through its engineering and manufacturing development phase, meeting or
exceeding all key performance parameters. In 1999, the F-22 met the test
criteria set by the Department of Defense (DoD) resulting in full contract award
for the second lot of Production Representative Test Vehicles (6 aircraft) and
long lead procurement authorization for Production Lot 1 (10 aircraft). In 2000,
the F-22 must complete stringent DoD test criteria prior to full contract award
for Production Lot 1 (10 aircraft) and long lead award for Lot 2 (16 aircraft).
During 1999, the F-22 program received significant Congressional focus as a
potential target for reduction or extension of its funding so that its funds
could be used to pay for other programs. Although the F-22 program remains a
high priority for the DOD and the armed services, it is likely that the program
will continue to have Congressional focus during 2000.
We are the prime contractor on the F-16 "Fighting Falcon" tactical fighter
aircraft and continue to provide upgrades for the U.S. Air Force and our
international customers. To date, over four thousand of these aircraft have
been sold. During 1999, Israel selected us for more than 50 F-16s (with an
option to order 60 more aircraft) and Greece also selected us for more than 50
F-16s. The Israel contract was signed in January 2000 and we expect the Greece
contract to be signed in the near future. In 1998, the United Arab Emirates
(UAE) selected our new "Block 60" F-16 as it's advanced fighter aircraft, and
extensive contract negotiations continued
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throughout 1999. In March 2000, we signed a multi-billion dollar contract and we
now have to go through the U.S. Government review process including license
approval, interagency review, and Congressional notification and approval.
For the next generation Joint Strike Fighter, various branches of the U.S.
military and other countries' militaries are working together on a set of
requirements that should allow a near-common design for this aircraft. In 1999,
we completed various design reviews of our Joint Strike Fighter. We also
continued to fabricate two concept demonstration aircraft. In 2000, we
anticipate that flight tests of the concept demonstration aircraft will be made.
We are one of the two remaining competitors for the program down-select award,
which currently is planned to be made in 2001.
The C-130J is an advanced technology tactical transport aircraft offering
improved performance and reliability and reduced operating and support cost over
prior C-130 models. The "J" model incorporates state-of-the-art cockpits and
avionics, a more powerful and efficient propulsion system and numerous
manufacturing innovations into a proven, mission-tested airframe. In 1999, we
delivered 30 C-130J aircraft. In the second quarter of 1999, we recognized cost
growth on the C-130J program that resulted in reduced expectations about the
profitability for the program.
Since 1996, we have been working with NASA to develop the X-33, a subscale
technology demonstrator of a reusable launch vehicle. In 1998, we completed the
final design review of the X-33. After a failure of a composite liquid hydrogen
(LH2) tank in November 1999, we adjusted our plan to allow for the manufacture
of a metallic LH2 tank so that the
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expected rollout of the X-33 flight vehicle is early 2002, with an expected
first flight in mid-2002. We will then decide whether to proceed with the
development of a full-scale, commercial reusable launch vehicle program.
We also are involved in other programs such as the joint Japan/U.S.
production of the F-2 aircraft and provide sustaining engineering, modifications
and upgrades for existing aircraft, including the U-2 reconnaissance aircraft,
and earlier model C-130s. In 1999, under our Total Systems Performance
Responsibility (TSPR) contract with the U.S. Air Force, a new logistics support
system for the F-117A was created that includes the role of sustainment,
integration, modification, depot support and system upgrades.
The segment is dependent on the U.S. military, NASA and international
governments as customers. In 1999, U.S. Government customers accounted for over
half of the segment's net sales.
Technology Services
The Technology Services segment provides a wide array of management,
engineering, scientific, logistic, and information services to government
agencies. Principal customers include the DoD, Department of Energy (DoE), NASA,
Federal Aviation Administration, and other agencies of the federal government.
The segment provides its services through eight operating units. Three of these
are engaged in work for the DoE that is performed under contracts where we
receive a fee for performing management services and are reimbursed for the cost
of operations (known as "Government Owned Contractor Operated"). Only the fee is
recorded in our net sales.
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In 1999, the segment's net sales of $2.3 billion (not including
intercompany sales) represented 8.9% of our total net sales. In addition, the
segment had $0.6 billion of intercompany revenue from value-added services to
other components of Lockheed Martin. Also, the segment's energy units had an
additional $4.0 billion in Government Owned Contractor Operated activity not
reported as sales. Including these amounts, the segment's total equivalent sales
were $6.9 billion in 1999.
Space Operations provides engineering, science, information services at
eight NASA centers, and other government and commercial locations across the
country. Core competencies include mission operations, flight hardware and
payload development and integration, satellite operations, propulsion testing,
engineering and technical support for life sciences, and software design and
development. In 1999, Space Operations phased in the $3.4 billion Consolidated
Space Operations Contract, a major initiative that is expected to save NASA
billions of dollars through productivity improvements in the agency's space
operations.
Aircraft and Logistics Centers provides aircraft maintenance and
modification services and contractor logistics support for defense and
commercial customers around the world. Its core competencies include
government-privatization projects in the U.S. and overseas, depot-level and
field maintenance services, aircraft avionics upgrades, engineering support,
engine maintenance and overhaul services, customer site support, and logistic
services. The unit operates and manages international aircraft depots and
manufacturing facilities in Saudi Arabia and Argentina and is responsible for
managing a joint venture in China for aircraft maintenance engineering. In
1999, it established a government-privatization partnership with Tinker Air
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Force Base that won a $2.6 billion contract to operate the Kelly Aviation
Center.
Systems Support and Training Services provides a wide range of professional
and technical support services. Services for the DoD include operation,
maintenance, logistics, and engineering services for weapons systems and
training ranges; instructor services and flight-simulator engineering support
for aircrew training; and assembly, installation, integration, upgrade, and
repair services for a variety of computer, communications, command and control,
radar, target, and surveillance systems. Support for the FAA's National Airspace
System includes logistic and engineering services. The unit also performs
environmental research and analysis for the Environmental Protection Agency
(EPA). In 1999, it began work on the billion-dollar Rapid Response program,
under which we provide support to ensure that critical defense systems maintain
full functionality.
Technical Operations performs a complete set of space and space-related
services for DoD, classified, and other federal agencies and commercial
customers. These services include requirement analysis, architecture trade
studies, systems integration, operation and maintenance, sustainment, system
enhancement, and life-cycle support. They are performed in the functional areas
of space launches, space missions, and information analysis. In 1999, Technical
Operations supported well over half of the U.S. government's satellites,
including those associated with several national systems critical to the
nation's security.
Information Support Services provides a full spectrum of information
technology support to federal, state, and local government agencies. Principal
customers include the Social Security Administration, Patent and Trademark
Office, EPA, and the Departments of Defense, Energy,
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Justice, and Health and Human Services. Specific types of information technology
support include software design, development, and maintenance, e-commerce,
telecommunications, supercomputing, network management, data center operations,
seat management, information technology outsourcing, and information security.
Among its current programs, Information Support Services is developing the
system architecture for the Health Care Financing Administration.
Knolls Atomic Power Laboratory designs nuclear reactors for the U.S. Navy.
It also supports the existing fleet of nuclear powered ships and trains the Navy
personnel who operate those ships.
Sandia National Laboratories supports the stewardship of the U.S. nuclear
weapon stockpile, developing sophisticated research and technology in the areas
of engineering sciences, materials, and processes; pulsed power;
microelectronics and photonics; and computational and information sciences.
Energy Programs manages and operates facilities supporting the nuclear energy
defense programs of both the United States and the United Kingdom. At the DoE's
Y-12 plant in Oak Ridge, Tennessee, Energy Programs supports the remanufacture
of weapon components for the U.S. nuclear stockpile, the stewardship of
materials associated with the stockpile, and the modernization of the complex.
In 1999, Energy Programs formed a joint venture with two British firms that was
awarded a $3.5 billion contract to manage the Atomic Weapons Establishment for
the United Kingdom Ministry of Defense. In connection with our September 1999
announcement to focus more on core businesses, Energy Programs divested a
subsidiary that held an
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environmental management prime contract at the DoE's Hanford facility in 1999.
The segment also has two other businesses identified as candidates for
divestiture.
The segment is heavily dependent on both military and civilian agencies as
a customer. In 1999, U.S. Government customers accounted for nine-tenths of the
segment's total net sales.
Corporate and Other
The Corporate and Other segment includes LMGT (which has operational
responsibility for our 49% investment in COMSAT) and certain other joint
ventures and businesses, including Lockheed Martin IMS Corporation, Enterprise
Information Systems, and Integrated Business Solutions. In 1999, the segment's
net sales represented 3.9% of our total net sales.
COMSAT is a publicly traded entity and discloses its financial information
separately from us. If the COMSAT Merger is consummated, we intend to combine
COMSAT's operations with those of LMGT. The following briefly summarizes the
latest developments in LMGT's most significant projects:
ASTROLINK International LLC provides a worldwide, digital Ka-band
geosynchronus satellite system focusing on the high-growth area of broadband
data services, carrying traffic for Internet, intranet, extranet, multimedia and
corporate data networks. In April 1999, LMGT committed to a total investment of
$420 million in ASTROLINK for an approximate 45% ownership interest. Concurrent
with LMGT's investment commitment, TRW Inc. and Telespazio
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SpA. (a wholly owned subsidiary of Telecom Italia) each committed to invest $250
million in ASTROLINK. In December 1999, Liberty Media Corporation committed to
invest $425 million, which diluted our ownership interest to approximately 31%.
We have a 33% equity investment in ACeS International Limited which plans
to deliver voice, fascimile and Internet services through hand-held mobile and
fixed terminals in the Asia-Pacific region. The ground infrastructure for
providing ACeS service to customers has been completed. A Garuda 1 satellite was
launched in February 2000 and is being moved into geosynchronus orbit.
Commercial operations are expected to begin in the third quarter of 2000.
We have a 50% investment in Americom Asia-Pacific, LLC, a joint venture
with GE American Communications, Inc. that is scheduled to launch a satellite in
the fourth quarter of 2000 to serve broadcasters in the Asia-Pacific region. As
of December 31, 1999, the sole asset of the joint venture is the GE-1A
satellite, currently in the final stages of construction by Lockheed Martin
Commercial Space Systems.
Lockheed Martin Intersputnik, Ltd is a strategic venture principally owned
by us with the Moscow-based Intersputnik International Organization of Space
Communications as our minority partner. It deployed its first satellite in the
fourth quarter of 1999 and commercial operations are expected to begin in the
first quarter of 2000.
The segment also includes three businesses that have been identified by
management as having high growth potential, but are distinct from our core
business segments. These units will require additional capital and expertise to
fully maximize their value, and we may seek support
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through strategic partnerships or joint ventures, by accessing public equity
markets, or by divestiture. The outcome of those efforts cannot be predicted.
These units are:
. Lockheed Martin IMS - serves state and local government services markets;
. Enterprise Information Systems - provides internal information technology
services; and
. Integrated Business Solutions - provides commercial information technology
outsourcing services.
We also run research laboratories, own real estate and conduct other
miscellaneous activities. We have approximately a 13.5% fully diluted interest
(in the form of convertible preferred stock) in Loral Space & Communications
Ltd. In February 2000, Lockheed Martin and Loral Space each filed certain
notices under the Hart-Scott-Rodino Antitrust Improvement Act (HSR Act) with the
FTC and the DOJ to convert 45.9 million shares of Loral Space convertible
preferred stock to an equal number of shares of Loral Space common stock. We
will be able to convert the convertible preferred stock following the expiration
of the HSR Act waiting period on March 5, 2000, unless such period is extended
by a request from the FTC for additional information. Also in February 2000,
Lockheed Martin and Loral Space entered into an agreement that would facilitate
our ability to divest our interest in Loral Space, but in no case earlier than
mid-May 2000.
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Patents
We own numerous patents and patent applications, some of which, together
with licenses under patents owned by others, are utilized in our operations.
Although these patents and licenses are, in the aggregate, important to the
operation of our business, no existing patent, license or other similar
intellectual property right is of such importance that its loss or termination
would, in the opinion of management, materially affect our business.
Raw Materials and Seasonality
Although certain aspects of our business require relatively scarce raw
materials, we have not experienced difficulty in our ability to obtain raw
materials and other supplies needed in our manufacturing processes, nor do we
expect this to be an issue in the future. No material portion of our business
is considered to be seasonal.
Competition and Risk
We compete with numerous other contractors on the basis of price, as well as
technical and managerial capability. Our ability to successfully compete for and
retain such business is highly dependent on technical excellence, management
proficiency, strategic alliances, cost-effective performance and the ability to
recruit and retain key personnel.
During the past year, competition in some markets has intensified. For
example, the Space Systems segment has experienced increased competition,
particularly in its launch vehicles and commercial satellite businesses.
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Consolidation of the U.S. and global defense and space industries has
intensified competition. Consolidation among U.S. defense, space and aerospace
companies has resulted in a reduction of the number of principal prime
contractors for the DOD and NASA. As a result of this consolidation, we
frequently partner on various programs with our major suppliers, some of which
are, from time to time, our competitors on other programs. We are required to
generate working capital and invest in fixed assets to maintain and expand our
government business. Winning the competition for a contract is often the
determinant of whether a competitor is able to remain in that line of business.
U.S. Government programs are also subject to uncertain future funding
levels, which can result in the extension or termination of programs. Our
business is also highly sensitive to changes in national and international
priorities and U.S. Government budgets. For most of the last decade, we have
been adversely impacted by U.S. Government budgetary and policy constraints that
led to fewer available contracts. The Clinton administration has requested
increased budgets for the U.S. military in the Year 2000. There can be no
assurance, however, that these announced plans will result in increased hardware
or services procurements or increased research and development spending, or that
we would win any contracts funded by any budgetary increases.
In 1999, approximately 70% of our net sales were made to the U.S.
Government, either as a prime contractor or as a subcontractor; approximately
20% of our net sales were made to other types of government entities; and
approximately 10% of our net sales were made to commercial customers (mainly
launch services, satellites and information technology services). Accordingly, a
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substantial portion of our sales are subject to inherent risks, including
uncertainty of economic conditions, changes in government policies and
requirements that may reflect rapidly changing military and political
developments and the availability of funds. Other characteristics of the
industry are complexity of designs, the difficulty of forecasting costs and
schedules when bidding on developmental and highly sophisticated technical work,
and the rapidity with which product lines become obsolete due to technological
advances and other factors characteristic of the industry. Certain risks
inherent in the current aerospace and defense business environment are discussed
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 21 through page 37 of our 1999 Annual Report to
Shareholders.
At December 31, 1999, our backlog was approximately split evenly between
cost reimbursement and fixed-price-type contracts. Cost-reimbursement-type
contracts generally have lower profit margins than fixed-price-type contracts.
Production contracts are mainly fixed-price-type contracts and developmental
contracts are nearly all cost reimbursement contracts. Earnings may vary
materially depending on the types of long-term government contracts undertaken,
the costs incurred in their performance, the achievement of other performance
objectives and the stage of performance at which the right to receive fees,
particularly under incentive and award fee contracts, is finally determined.
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Our international business (mainly foreign military sales to various
governments in Europe, Asia and Middle East) tends to have more risk than our
domestic business due to the greater potential for changes in foreign economic
and political environments. Our business is also highly sensitive to changes in
foreign national priorities and government budgets. International transactions
frequently involve increased financial and legal risks arising from stringent
contractual terms and conditions and the widely differing legal systems and
customs in foreign countries.
Government Contracts and Regulations
Our businesses are heavily regulated in most of our markets. We deal with
numerous U.S. Government agencies and entities, including all of the branches of
the U.S. military and NASA. Similar government authorities exist in our
international markets.
The U.S. Government, and other governments, may terminate any of our
government contracts and, in general, subcontracts, at their convenience as well
as for default based on performance. If any of our government contracts were to
be terminated for convenience, we generally would be entitled to receive payment
for work completed and allowable termination or cancellation costs.
Upon termination for convenience of a fixed-price type contract, we
normally are entitled, to the extent of available funding, to receive the
purchase price for delivered items, reimbursement for allowable costs for work-
in-process and an allowance for profit on the contract or adjustment for loss if
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completion of performance would have resulted in a loss. Upon termination for
convenience of a cost-reimbursement type contract, we normally are entitled, to
the extent of available funding, to reimbursement of allowable costs plus a
portion of the fee. The amount of the fee recovered, if any, is related to the
portion of the work accomplished prior to termination and is determined by
negotiation.
U.S. Government contracts also are conditioned upon the continuing
availability of Congressional appropriations. Long-term government contracts
and related orders are subject to cancellation if appropriations for subsequent
performance periods become unavailable. Congress usually appropriates funds on
a fiscal-year basis even though contract performance may extend over many years.
Consequently, at the outset of a program, the contract is usually partially
funded and Congress annually determines if additional funds are appropriated to
the contract.
A portion of our business is classified by the government and cannot be
specifically described. The operating results of these classified programs are
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included in our consolidated financial statements. The business risks associated
with classified programs do not differ materially from those of our other
government programs and products.
Backlog
At December 31, 1999, our total negotiated backlog was $45.9 billion
compared with $45.3 billion at the end of 1998. The total negotiated backlog of
the sectors at December 31, 1999, was as follows: Systems Integration - $15.2
billion, Space Systems - $14.8 billion, Aeronautical Systems - $9.0 billion,
Technology Services - $4.4 billion, and Corporate and Other - $2.5 billion. Of
our total 1999 year-end backlog, approximately $28.2 billion, or 61.4%, is not
expected to be filled within one year. At December 31, 1999, our backlog was
approximately split evenly between cost reimbursement and fixed-price-type
contracts.
These amounts include both unfilled firm orders for our products for which
funding has been both authorized and appropriated by the customer (Congress in
the case of U.S. Government agencies) and firm orders for which funding has not
been appropriated.
Environmental Regulation
Our operations are subject to and affected by a variety of federal, state
and local environmental protection laws and regulations. We are involved in
environmental responses at some of our facilities and former facilities, and at
third-party sites not owned by us where we have been designated a "Potentially
Responsible Party" (PRP) by the EPA or by a state agency.
At these third-party sites, the EPA or a state agency has identified the
site as requiring remedial action under the federal "Superfund" or other related
federal or state laws governing the remediation of hazardous materials.
Generally, PRPs that are ultimately determined to be "responsible parties" are
strictly liable for site clean-ups and usually agree among themselves to share,
on an allocated basis, in the costs and expenses for investigation and
remediation of the hazardous materials. Under existing environmental laws,
however, responsible parties are jointly and severally liable and, therefore, we
are potentially liable to government environmental agencies for the full cost of
funding such remediation. In the unlikely event that we were required to fund
the entire cost of such remediation, the statutory framework provides that we
may pursue rights of contribution from the other PRPs.
At third-party sites, we continue to pursue a course of action designed to
minimize and mitigate our potential liability through assessing the legal basis
for our involvement, including an analysis of such factors as (i) the amount and
nature of materials disposed of by us, (ii) the allocation process, if any, used
to assign costs to all involved parties, and (iii) the scope of the response
action that is or may reasonably be required. We also continue to pursue active
participation in steering committees, consent orders and other appropriate and
available avenues. Management believes that this approach should minimize our
proportionate share of liability at third-party sites where other PRPs share
liability.
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In addition, we manage various government-owned facilities on behalf of the
government. At such facilities, environmental compliance and remediation costs
have historically been the responsibility of the government and we relied (and
continue to rely with respect to past practices) upon government funding to pay
such costs. While the government remains responsible for capital and operating
costs associated with environmental compliance, responsibility for fines and
penalties associated with environmental noncompliance, in certain instances, is
being shifted from the government to the contractor with fines and penalties no
longer constituting allowable costs under the contracts pursuant to which such
facilities are managed.
Description of Certain Environmental Matters
--------------------------------------------
We are responding to three administrative orders issued by the California
Regional Water Quality Control Board (Regional Board) in connection with our
former Lockheed Propulsion Company facilities in Redlands, California. Under the
orders, we are investigating the impact and potential remediation of regional
groundwater contamination by perchlorates and chlorinated solvents. The
Regional Board has approved our plan to maintain public water supplies with
respect to chlorinated solvents during this investigation, and we continue to
negotiate with local water purveyors to implement this plan, as well as to
address water supply concerns relative to perchlorate contamination. We
estimate that expenditures required to implement work currently approved will be
approximately $140 million. We also are 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 percholate issues are appropriate;
however, we currently cannot project the
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extent of our ultimate clean-up obligation with respect to perchlorates, if any.
We entered into a consent decree with the EPA in 1991 relating to certain
property in Burbank, California, which obligated us to design and construct
facilities to monitor, extract and treat groundwater, and to operate and
maintain such facilities for approximately eight years. We entered into a
follow-on consent decree in 1998 which obligates us to fund the continued
operation and maintenance of these facilities through the year 2018, although
responsibility for actual operation of the facilities is to be assumed by the
City of Burbank in late 2000. We have also been operating under a cleanup and
abatement order from the Regional Board affecting our facilities and former
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. As a result of our operations in Burbank, we are
also one of several parties who are under administrative orders from the EPA to
design, build, and operate a groundwater treatment system in Glendale,
California as part of the same San Fernando Valley Superfund site that includes
Burbank. Like the Burbank treatment plant, the city of Glendale is expected to
ultimately assume operational responsibility for the Glendale treatment plant.
We estimate that total expenditures required over the remaining terms of the EPA
and Regional Board consent decrees and administrative orders for Burbank and
Glendale will be approximately $100 million. Under an agreement reached with the
U.S. Government and filed with the U.S. District Court in January 2000, an
amount equal to approximately 50% of these future expenditures will be
reimbursed by the U.S. Government as a responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act.
We are involved in other proceedings and potential proceedings relating to
environmental
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matters, including disposal of hazardous wastes and soil and water
contamination. The extent of our financial exposure cannot in all cases be
reasonably estimated at this time. In addition to the amounts with respect to
the Redlands, Burbank and Glendale properties described above, a liability of
approximately $200 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 in 1990, the Burbank
groundwater treatment and soil remediation expenditures referenced above are
being allocated to our operations as general and administrative costs and, under
existing government regulations, these and other environmental expenditures
related to U.S. Government business, after deducting any recoveries from
insurance or other potentially responsible parties, are allowable in
establishing the prices of our products and services. As a result, a
substantial portion of the expenditures is being reflected in our sales and cost
of sales pursuant to U.S. Government agreement or regulation. Although the
Defense Contract Audit Agency has questioned certain elements of our practices
with respect to the aforementioned agreement, 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, we filed a certified claim with
the Defense Corporate Executive (DCE) and requested from the DCE the issuance of
a final decision regarding the propriety of our U.S. Government accounting
practices for the treatment of environmental costs. A final decision is
expected to be issued by March 31, 2000. We have recorded an asset for the
portion of environmental costs that are probable of future recovery in pricing
of our 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
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other PRPs, which we are pursuing as required by agreement and U.S. Government
regulation. Any such recoveries, when received, would reduce allocated amounts
to be included in our U.S. Government sales and cost of sales. For additional
details, see "Note 16 -- Commitments and Contingencies" of the "Notes to
Consolidated Financial Statements" on page 59 through page 61 and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Environmental Matters" on page 36 through page 37 of the 1999 Annual Report to
Shareholders.
Research and Development
We conduct research and development activities under customer contract
funding and with Independent Research and Development (IR&D) funds. IR&D efforts
consist of projects involving basic research, applied research, development, and
systems and other concept formulation studies. In 1999, we spent approximately
$1.1 billion of IR&D and bid and proposal funds, a substantial portion of which
was included in general and administrative costs allocable to U.S. Government
contracts.
During 1999, we did not undertake the development of a new product or line
of business requiring the investment of a material amount of our total assets,
other than increasing investments in the development or improvement of launch
vehicles. Effective January 1999, we transferred certain businesses to LMGT.
See "Research and development and similar costs" in "Note 1-- Summary of
Significant Accounting Policies" of the "Notes to Consolidated Financial
Statements" on page 46 of the 1999 Annual Report to Shareholders.
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Employees
At December 31, 1999, we had approximately 147,000 employees, the majority
of whom were located in the United States. We have a continuing need for
numerous skilled and professional personnel to meet contract schedules and
obtain new and ongoing orders for our products. Approximately one-fifth of our
employees is covered by over a hundred separate collective bargaining agreements
with various international and local unions. Management considers employee
relations generally to be good.
Forward-Looking Statements - Safe Harbor Provisions
This report contains, is based on or incorporates by reference statements
which constitute "forward-looking statements" within the meaning of the
Securities Act of 1933 and the Securities Exchange Act of 1934. The words
"believe," "estimate," "anticipate," "project," "intend," "expect" and similar
expressions are intended to identify forward-looking statements.
All forward-looking statements involve risks, uncertainties and factors,
including 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. These risks, uncertainties and factors include: the
ability to achieve or quantify savings for our customers or ourselves as a
result of our reorganization efforts, including the recently announced business
area streamlining and staff reductions, or in our global cost-cutting program;
our ability to grow earnings and
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generate cash flow in accordance with our beliefs; difficulties during space
launches; the ability to obtain or the timing of obtaining future government
awards; the availability of government funding and customer requirements;
economic conditions, competitive environment, international business and
political conditions, timing of awards and contracts; timing and customer
acceptance of product delivery and launches; the outcome of contingencies,
including completion of any acquisitions and divestitures, litigation and
environmental remediation, program performance, and our ability to consummate
the COMSAT transaction. These are only some of the numerous factors which may
affect the forward-looking statements in this Annual Report on Form 10-K.
Readers are cautioned not to place undue reliance on these forward-looking
statements that speak only as of the date of this Annual Report on Form 10-K.
We do not undertake any obligation to publicly release any revisions to forward-
looking statements to reflect events or circumstances or changes in expectations
after the date of this Annual Report on Form 10-K or to reflect the occurrence
of unanticipated events. The forward-looking statements in (or incorporated by
reference in) this document are intended to be subject to the safe harbor
protection provided by the federal securities laws.
For a discussion identifying some important factors that could cause actual
results to vary materially from those anticipated in the forward-looking
statements, see our SEC filings, including but not limited to, the discussion of
"Competition and Risk" and "Government Contracts and Regulations" of this Annual
Report on Form 10-K, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on page 21 through page 37 of the 1999
Annual Report to Shareholders, "Note 1 - Summary of Significant Accounting
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Policies," "Note 2 - Transaction Agreement with Comsat Corporation," and "Note
16 - Commitments and Contingencies" of the Notes to Consolidated Financial
Statements on page 44 through page 48, and page 59 through page 61,
respectively, of the Audited Financial Statements included in the 1999 Annual
Report to Shareholders.
ITEM 2. PROPERTIES
At December 31, 1999, we operated in 442 offices, facilities, manufacturing
plants, warehouses, service centers and laboratories throughout the United
States and internationally. Of these, we owned floor space at 62 locations
aggregating approximately 41.0 million square feet and we leased space at 380
locations aggregating approximately 24.5 million square feet. At December 31,
1999, we managed and/or occupied various major government-owned facilities.
The U.S. Government also furnishes certain equipment used by us.
At December 31, 1999, our core operating units had major operations at the
following locations:
. Systems Integration - - Camden, Arkansas; Goodyear, Arizona; San Jose,
California; Colorado Springs, Colorado; Orlando, Florida; Gaithersburg and
Rockville, Maryland; Eagan, Minnesota; Manchester, Merrimack and Nashua, New
Hampshire; Moorestown/Mt. Laurel, New Jersey; Johnson City, Owego, Yonkers,
Syosset and Syracuse, New York; Akron, Ohio; King of Prussia, Pennsylvania;
Grand Prairie, Texas; Manassas, Reston and Fairfax, Virginia.
. Space Systems - - Sunnyvale and Palo Alto, California; Waterton and
Littleton Colorado; and Newtown, Pennsylvania;
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. Aeronautical Systems - - Palmdale, California; Marietta, Georgia; and Fort
Worth, Texas;
. Technology Services - - Livermore, California; Cherry Hill, New Jersey;
Albuquerque, New Mexico; Greenville, South Carolina; Oak Ridge, Tennessee;
San Antonio, Texas and
. Corporate and Other - - Orlando, Florida; Bethesda and Rockville, Maryland;
Teaneck, New Jersey; and Arlington (Crystal City), Virginia.
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At December 31, 1999, a summary of our floor space by core operating unit
consisted of:
(Square feet in millions)
<TABLE>
<CAPTION>
Leased Owned Gov't Owned Total
------ ----- ----------- -----
<S> <C> <C> <C> <C>
Systems Integration 13.2 18.5 0.2 31.9
Space Systems 2.0 12.0 5.1 19.1
Aeronautical Systems 1.0 4.5 15.0 20.5
Technology Services 5.5 0.1 34.8 40.4
Corporate & Other* 2.8 5.9 0.0 8.7
---- ---- ---- -----
Total 24.5 41.0 55.1 120.6
==== ==== ==== =====
</TABLE>
(* includes owned discontinued operations square footage of 3.9 million
square feet located primarily in Burbank, California and Great Neck, New
York)
At December 31, 1999, we owned various large tracts of land which are
available for sale or development. The location and approximate size of these
tracts include:
LOCATION ACREAGE
-------- -------
1. Potrero Creek, California 9,100
2. Beaumont, California 2,800
3. Palmdale, California 650
4. Austin, Texas 250
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A portion of our activity is related to engineering and research and
development, which is not susceptible to productive capacity analysis. In the
area of manufacturing, most of the operations are of a job-order nature, rather
than an assembly line process, and productive equipment has multiple uses for
multiple products. Management believes that all of our major physical
facilities are in good condition and are adequate for their intended use.
ITEM 3. LEGAL PROCEEDINGS
We are parties or have property subject to litigation and other
proceedings, including matters arising under provisions relating to the
protection of the environment, both as specifically described below or arising
in the ordinary course of our 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 our results of operations or
financial position.
We are 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 our operations are being
conducted in accordance with these requirements. U.S. Government investigations
of us, 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 us, 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 us. For the U.S. government investigations noted below, it is too early
for us
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to determine whether adverse decisions relating to these investigations
could ultimately have a material adverse effect on our results of operations or
financial condition.
The following describes previously reported matters (including one reopened
government investigation), including any developments of these matters. There
were no new matters in the fourth quarter of 1999.
Since January 14, 1999, six class action complaints have been filed against
the Corporation and certain of its officers and directors. These six actions
have been consolidated into two actions, both pending in the United States
District Court for the Central District of California. The complaints allege
that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 in that they or persons they controlled allegedly (a) employed
devices, schemes and artifices to defraud; (b) made untrue statements of
material facts or omitted to state material facts necessary in order to make
statements, in light of the circumstances under which they were made, not
misleading; or (c) engaged in acts, practices and a course of business that
operated as a fraud or deceit upon class members in connection with their
purchases of our common stock. According to the complaints, class members were
damaged as, in reliance on the integrity of the market, they paid artificially
inflated prices for our stock. Plaintiffs seek judgments awarding (a) damages
and costs; (b) equitable or injunctive relief, including the imposition of a
constructive trust upon defendants' alleged insider-trading proceeds; and (c)
other just and proper relief.
The first three actions, filed by plaintiffs Yousefi, Edmonds and
Kretchmeyer, allege claims on behalf of a putative class of shareholders who
purchased stock between August 13,
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1998 and December 23, 1998. The defendants in these actions are Lockheed Martin,
Vance D. Coffman, Marcus C. Bennett, James A. Blackwell, Jr., Thomas A.
Corcoran, Vincent N. Marafino and Norman R. Augustine. These actions were
consolidated under the caption In re Lockheed Martin Corp. Securities
Litigation, CV 99-00372 LGB. The lead plaintiffs filed a consolidated amended
complaint on November 30, 1999.
The second three actions, filed by plaintiffs Kops, Shenker and Kensington
Capital Corp., allege claims on behalf of a putative class of shareholders who
purchased Lockheed Martin stock between January 28, 1999 and June 9, 1999. The
defendants in these actions are Lockheed Martin, Vance D. Coffman, Marcus C.
Bennett, Philip J. Duke, and Thomas A. Corcoran. These actions were
consolidated under the caption Kops v. Lockheed Martin Corporation et. al., CV
99-6171 LGB. It is anticipated that the plaintiffs will file a consolidated
amended complaint. We will move to dismiss all complaints at the appropriate
time. We believe that the complaints' allegations are without merit and intend
to vigorously defend these actions.
In 1994, we were 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. We 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, we 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 us and the restructuring of the contract to
provide for a more
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equitable sharing of the risks associated with the Pit 9 project. We have been
unsuccessful in reaching any agreements with the DOE on cost recovery or other
contract restructuring matters.
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, we 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, we 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 us in the U.S. District Court in Idaho, seeking,
among other things, recovery of approximately $54 million previously paid by
LMITCO to us under the Pit 9 contract. We are defending this action while
continuing to pursue our certified REA. Discovery has been ongoing since August
2, 1999. In the U.S. Court of Federal Claims, on October 1, 1999, the Court
stayed DOE's Motion to Dismiss our lawsuit, finding that the Court has
jurisdiction. The Court 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. We continue to assert our position in the litigation while
continuing our efforts to resolve the dispute through non-litigation means.
Since July 1995, we have been served with grand jury subpoenas issued by
the U.S. District Court for the Eastern District of New York seeking documents
related to the
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performance of various government contracts by the former Unisys Corporation
Defense Systems facility at Great Neck, New York. We acquired the facility when
we acquired Loral Corporation in April 1996. Loral Corporation acquired the
facility from Unisys Corporation. We are cooperating with the government's
continuing investigation of this matter.
On February 21, 2000, we were served with a grand jury subpoena issued by
the United States District Court for the Southern District of Texas in Houston
seeking documents related to cost accounting issues in connection with NASA
service and support contracts performed by Lockheed Engineering & Sciences
Company and its successors, Lockheed Martin Engineering & Sciences Services and
Lockheed Martin Space Operations. We have been advised that the United States
Attorney's Office for the Southern District of Texas has reopened the
investigation, after previously having advised us in 1997, that the grand jury
investigation was closed.
We have been served, along with a number of our current and former
employees, with grand jury subpoenas issued by the U.S. District Court for the
Middle District of Florida and subpoenas issued by the Department of Defense
Inspector General relating to the LANTIRN program. The U.S. Attorney's Office
for the Middle District of Florida has advised us that the grand jury is
investigating allegations of fraud in connection with certain LANTIRN program
contracts. These allegations, in part, were first made in qui tam complaints
filed against us and unsealed on July 16, 1996. We are cooperating with the
government's continuing investigation of this matter.
Lockheed Martin Technical Operations Company, our wholly-owned subsidiary,
and certain of its current and former employees, were served with grand jury
subpoenas issued by the
42
<PAGE>
United States District Court for the District of Colorado seeking documents
relating to efforts to obtain and to perform a contract with the U.S. Air Force
for space operations, maintenance and support services. We are cooperating with
the government's continuing investigation of this matter.
On March 15, 1999, Lockheed Martin Fairchild Systems was served with a
grand jury subpoena issued by the United States District Court for the Southern
District of New York. The subpoena seeks documents related to quality assurance
requirements for the production of a radar warning receiver by Loral Electronic
Defense Systems. We acquired Loral Electronic Defense Systems in April 1996. We
are cooperating with the government's investigation of this matter.
On July 15, 1999, Lockheed Martin Sanders was served with a grand jury
subpoena issued by the United States District Court for the Central District of
California. The subpoena seeks documents relating to the 1990 international
sale of area defense radar systems by the predecessor of Lockheed Martin Sanders
and the compensation of an international sales consultant in connection with
that sale. We are cooperating with the government's continuing investigation of
this matter.
For the past few years, we have been in litigation with residents in the
Redlands and Burbank areas regarding allegations of personal injury, property
damage, and other tort claims arising from our alleged contribution to
contamination of groundwater. With regard to the claims in Burbank, the first of
possibly several trials relating to liability is expected to commence in state
court in Los Angeles during the third quarter of 2000. With regard to claims in
the Redlands matter, on April 22, 1999, the San Bernardino Superior Court in
California issued a
43
<PAGE>
procedural order in one of the filed cases, certifying a medical monitoring
class as well as a punitive damages class. No ruling has been made yet on the
merits, and the first trial on the merits in Redlands is not expected until the
third quarter of 2001. With regard to all of these matters, we believe that the
allegations are without merit and we will continue to defend them.
We are subject to federal and state requirements for protection of the
environment, including those for discharge of hazardous materials and
remediation of contaminated sites. As a result, we are a party to or have our
property subject to various other lawsuits or proceedings involving
environmental protection matters. Due in part to their complexity and
pervasiveness, such requirements have resulted in us being involved with related
legal proceedings, claims and remediation obligations. See "Item 1. Business -
Environmental Regulation."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
44
<PAGE>
ITEM 4(a). EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers are listed below. There were no family relationships
among any of our executive officers and directors. All officers serve at the
pleasure of the Board of Directors.
<TABLE>
<CAPTION>
Name Positions and Principal Occupation and
(Age at 12/31/99) Offices Held Business Experience
- ----------------- ------------ (Past Five Years)
---------------
<S> <C> <C>
Vance D. Coffman Chairman of the Board, Chairman of the Board since April 1998, Chief Executive
(55) Chief Executive Officer Officer since August 1997, and President since October
and President 1999; Vice Chairman of the Board from August 1997 to
April 1998; Board member since 1996; President from June
1996 to July 1997 and Chief Operating Officer from
January 1996 to July 1997; Executive Vice President from
January to June 1996; President and Chief Operating
Officer, Space & Strategic Missiles Sector from March
1995 to December 1995; previously served as Executive
Vice President of Lockheed from 1992 to 1995; and
President of Lockheed Space Systems Division from 1988
to 1992.
</TABLE>
45
<PAGE>
<TABLE>
<S> <C> <C>
Michael F. Executive Vice President - Executive Vice President - Technology Services since
Camardo (57) Technology Services October 1999; President, Lockheed Martin Technology
Services Group from March 1995 through September 1999;
President, Martin Marietta Services Group from April
1993 to March 1995.
Robert B. Coutts Executive Vice President - Executive Vice President - Systems Integration since
(49) Systems Integration October 1999; President and Chief Operating Officer,
Electronics Sector from October 1998 through September
1999; President, Lockheed Martin Government Electronics
Systems from January 1997 until September 1998;
President Lockheed Martin Aero and Naval Systems from
September 1994 to December 1996; previously served as
Vice President, Sourcing for the Martin Marietta
Corporation.
Philip J. Duke Executive Vice President - Executive Vice President- Shared Services since October
(54) Shared Services 1999; Vice President and Chief Financial Officer from
February 1999 through September 1999; Vice President
Finance from July 1996 to January 1999; Vice President
Finance, Space & Strategic Missiles Sector from March
1995 to July 1996; previously served as Vice President
Finance, Martin Marietta from 1994 to 1995.
</TABLE>
46
<PAGE>
<TABLE>
<S> <C> <C>
Dain M. Hancock Executive Vice President - Executive Vice President - Aeronautical Systems since
(58) Aeronautical Systems November 1999 and President of the Lockheed Martin
Aeronautics Company since January 2000; President of
Lockheed Martin Tactical Aircraft Systems from March
1995 to November 1999; Vice President of Lockheed
Corporation from March 1993 to March 1995.
Arthur E. Johnson Vice President - Strategic Vice President - Strategic Development since October
(52) Development 1999; President and Chief Operating Officer, Information
& Services Sector from August 1997 through September
1999; President, Lockheed Martin Systems Integration
Group from January 1997 to August 1997; President,
Lockheed Martin Federal Systems Group from January 1996
to January 1997; and President, Loral Federal Systems
Group from January 1994 to January 1996.
Christopher E. Vice President and Vice President and Controller since November 1999; prior
Kubasik (38) Controller to joining Lockheed Martin, with Ernst & Young LLP since
1983, partner since 1996.
Frank H. Menaker, Senior Vice President and Senior Vice President and General Counsel since July
Jr. (59) General Counsel 1996; Vice President and General Counsel for Lockheed
Martin Corporation from March 1995 to July 1996, having
served in the same capacity for Martin Marietta
Corporation from 1981 until March 1995.
</TABLE>
47
<PAGE>
<TABLE>
<S> <C> <C>
Janet L. McGregor Vice President and Vice President and Treasurer since May 1999; Vice
(45) Treasurer President-Finance for Electronics Sector from August
1996 to May 1999; Vice President and Assistant Treasurer
from March 1995 to August 1996; previously served as
Treasurer of Martin Marietta Corporation from 1992 until
March 1995.
Albert E. Smith Executive Vice President - Executive Vice President - Space Systems since October
(50) Space Systems 1999 and President of Lockheed Martin Space Systems
Company since January 2000; President, Lockheed Martin
Missiles & Space from June through September 1999;
President, Lockheed Martin Aerospace Electronic Systems
from December 1998 to June 1999; President, Sanders, a
Lockheed Martin Company, from February to December 1998;
President, Harris Corporation, a supplier of electronic
components, from April 1996 to February 1998; Executive
Vice President, Lockheed Martin Missiles & Space from
January 1996 to April 1996; Vice President and Assistant
General Manager-Commercial, Lockheed Martin Space
Systems Division from 1993 to January 1996.
</TABLE>
48
<PAGE>
<TABLE>
<S> <C> <C>
John V. Sponyoe Chief Executive Officer of Chief Executive Officer of Lockheed Martin Global
(60) Lockheed Martin Global Telecommunications since August 1998; President of
Telecommunications Lockheed Martin's Electronics Platform Integration (EPI)
Group from April 1997 to August 1998; Corporate Vice
President, from January 1997 to present; President,
Federal Systems Owego from 1994 until April 1997.
Robert J. Stevens Executive Vice President - Executive Vice President and Chief Financial Officer
(48) Finance and Chief since October 1999; Vice President of Strategic
Financial Officer Development from November 1998 through September 1999;
President and Chief Operating Officer, Energy &
Environment Sector from January 1998 to June 1999;
President, Air Traffic Management Division from June
1996 through January 1998; Executive Vice President and
Senior Vice President and Chief Financial Officer of Air
Traffic Management from December 1993; previously served
as an executive employee of Loral Corporation from
August 1987.
</TABLE>
49
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
At January 31, 2000, we had approximately 398,164,999 holders of record of
our Common Stock, $1 par value. In January 2000, we announced that we reduced
our dividend rate to $0.11 per quarter. The decreased dividend will be effective
for dividends declared in the first quarter of 2000. Our Common Stock is traded
on the New York Stock Exchange, Inc. Information concerning stock prices and
dividends paid during the past two years is as follows:
Common Stock -- Dividends Paid and Market Prices
------------------------------------------------
<TABLE>
<CAPTION>
Quarter Dividends Paid Market Prices (High-Low)
- ------- -------------- ------------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
First $0.22 $0.20 $ 43 - 34.63 $58.94 - $48.75
Second 0.22 0.20 46 - 33.75 58.50 - 49.97
Third 0.22 0.20 39.94 - 30.19 54.25 - 43.63
Fourth 0.22 0.22 33.38 - 16.38 56.75 - 41.00
----- -----
Year $0.88 $0.82 46 - 16.38 58.94 - 41.00
===== =====
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
50
<PAGE>
The information required by this Item 6 is included under the caption
"Consolidated Financial Data- Ten-Year Summary" on page 64 through page 65 of
the 1999 Annual Report to Shareholders, and that information is incorporated by
reference in this Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item 7 is included under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 21 through page 37 of the 1999 Annual Report to
Shareholders, and that information is incorporated by reference in this Form 10-
K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation's primary exposure to market risk relates
to interest rates and foreign currency exchange rates. Financial instruments
held by the Corporation which are subject to interest rate risk principally
include variable rate commercial paper and fixed rate long-term debt. The
Corporation's long-term debt obligations are generally not callable until
maturity. The Corporation may use interest rate swaps to manage its exposure to
fluctuations in interest rates; however, there were no such agreements
outstanding at December 31, 1999. Based on its portfolio of variable rate
short-term debt and fixed rate long-term debt outstanding at December 31, 1999,
the Corporation's exposure to interest rate risk is not material.
The Corporation uses forward exchange contracts to manage its exposure to
fluctuations in foreign exchange rates. These contracts are designated as
qualifying hedges of firm commitments or specific anticipated transactions, and
related gains and losses on the contracts are recognized in income when the
hedged transaction occurs. At December 31, 1999, the amounts of forward
exchange contracts outstanding, as well as the amounts of gains and losses
recorded during the year, were not material. Based on the above, the
Corporation's exposure to foreign currency exchange risk is not material. The
Corporation does not hold or issue derivative financial instruments for trading
purposes.
For additional discussion of derivative financial instruments, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations, Other Matters" on page 37 of the 1999 Annual Report to Shareholders,
and "Derivative financial instruments" and "New accounting pronouncements to be
adopted" in "Note 1 - Summary of Significant Accounting Policies" of the "Notes
to Consolidated Financial Statements" on page
51
<PAGE>
46 and page 47 of the Audited Financial Statements included in the 1999 Annual
Report to Shareholders, and that information is incorporated by reference in
this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is included under the captions
"Report of Ernst & Young LLP, Independent Auditors," "Consolidated Statement of
Earnings," "Consolidated Statement of Cash Flows," "Consolidated Balance Sheet,"
"Consolidated Statement of Stockholders' Equity" and "Notes to Consolidated
Financial Statements" in the Audited Consolidated Financial Statements included
on page 39 through page 63 of the 1999 Annual Report to Shareholders. This
information is incorporated by reference in this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors required by this Item 10 is included
under the caption "Election of Directors" in our definitive Proxy Statement to
be filed pursuant to Regulation 14A no later than March 2000 (the "2000 Proxy
Statement"), and that information is incorporated by reference in this Form 10-
K. Information concerning executive officers required by this Item 10 is
located under Part I, Item 4(a) of this Form 10-K.
52
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is included in the text and tables
under the caption "Compensation of Executive Officers" in the 2000 Proxy
Statement and that information, except for the information required by Item
402(k) and 402(l) of Regulation S-K, is incorporated by reference in this Form
10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is included under the headings
"Security Ownership of Certain Beneficial Owners," "Securities Owned by
Directors, Nominees and Named Executive Officers" and "Voting Securities and
Record Date" in the 2000 Proxy Statement, and that information is incorporated
by reference in this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
53
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) List of Financial Statements filed as part of the Form 10-K.
Page
----
The following financial statements of Lockheed Martin Corporation and
consolidated subsidiaries, included in the 1999 Annual Report to
Shareholders, are incorporated by reference into Item 8 of this Annual
Report on Form 10-K. Page numbers refer to the 1999 Annual Report to
Shareholders:
Consolidated Statement of Earnings--
Years ended December 31, 1999, 1998, and 1997...................... 40
Consolidated Statement of Cash Flows--
Years ended December 31, 1999, 1998, and 1997...................... 41
Consolidated Balance Sheet--
December 31, 1999 and 1998......................................... 42
Consolidated Statement of Stockholders' Equity--
Years ended December 31, 1999, 1998 and 1997....................... 43
54
<PAGE>
Notes to Consolidated Financial Statements--
December 31, 1999................................................... 44-63
(2) List of Financial Statement Schedules filed as part of this Form 10-
K. All schedules have been omitted because they are not applicable,
not required, or the information has been otherwise supplied in the
financial statements or notes to the financial statements.
(3) Ernst & Young LLP
The report of Lockheed Martin's independent auditors with respect to
the above-referenced financial statements appears on page 39 of the
1999 Annual Report to Shareholders and that report is incorporated
by reference in this Form 10-K. The consent of Lockheed Martin's
independent auditors appears as Exhibit 23 of this Annual Report on
Form 10-K.
55
<PAGE>
(b) The following reports on Form 8-K were filed during the last quarter
of the period covered by this report:
(1) Lockheed Martin Corporation Current Report on Form 8-K filed with
the Securities and Exchange Commission on October 4, 1999.
(2) Lockheed Martin Corporation Current Report on Form 8-K filed with
the Securities and Exchange Commission on October 27, 1999.
(3) Lockheed Martin Corporation Current Report on Form 8-K filed with
the Securities and Exchange Commission on October 29, 1999, as
amended November 2, 1999.
(4) Lockheed Martin Corporation Current Report on Form 8-K filed with
the Securities and Exchange Commission on November 22, 1999.
During the first quarter of 2000 (up until this report was filed),
Lockheed Martin Corporation made the following filings on Form 8-K:
(1) Lockheed Martin Corporation Current Report on Form 8-K filed with
the Securities and Exchange Commission on January 27, 2000.
56
<PAGE>
(c) Exhibits
(3)(i) Articles of Incorporation.
(a) Articles of Amendment and Restatement of
Lockheed Martin Corporation (formerly Parent
Corporation) filed with the State Department
of Assessments and Taxation of the State of
Maryland on February 7, 1995 (incorporated by
reference to Exhibit 3.1 to Lockheed Martin
Corporation's Registration Statement on Form
S-4 (No. 33-57645) filed with the Commission
on February 9, 1995).
(ii) Bylaws
(a) Copy of the Bylaws of Lockheed Martin
Corporation as last amended on February 24,
2000.
57
<PAGE>
(4) (a) Indenture dated May 16, 1996, between the Corporation,
Lockheed Martin Tactical Systems, Inc., and First Trust
of Illinois, National Association as Trustee
(incorporated by reference to Exhibit 4 of the
Corporation's filing on Form 8-K on May 16, 1996).
(b) Form of Indenture between the Corporation and U.S. Bank
Trust National Association as Trustee (incorporated by
reference to Exhibit 4(a) of the Corporation's filing
on Form S-3 (No. 333-71409) on January 29, 1999).
No other instruments defining the rights of holders of
long-term debt are filed since the total amount of
securities authorized under any such instrument does
not exceed 10% of the total assets of the Corporation
on a consolidated basis. The Corporation agrees to
furnish a copy of such instruments to the Securities
and Exchange Commission upon request.
(b) See Exhibits 3(i) and 3(ii).
(10)* (a) Lockheed Martin Corporation 1995 Omnibus Performance
Award Plan (incorporated by reference to Exhibit 10.36
to Lockheed Martin Corporation's Registration Statement
on
58
<PAGE>
Form S-4 (No. 33-57645) filed with the Commission on
February 9, 1995).
(b) Lockheed Martin Corporation Directors Deferred Stock
Plan, as amended (incorporated by reference to Exhibit
10(b) to Lockheed Martin Corporation's Annual Report on
Form 10-K for the year ended December 31, 1998).
(c) Agreement Containing Consent Order, dated December 22,
1994, among the Corporation, Lockheed Corporation,
Martin Marietta Corporation and the Federal Trade
Commission (incorporated by reference to Exhibit 10.4
to Lockheed Martin Corporation's Registration Statement
on Form S-4 (No. 33-57645) filed with the Commission on
February 9, 1995).
(d) Lockheed Martin Corporation Directors Deferred
Compensation Plan, as amended (incorporated by
reference to Exhibit 10(d) to Lockheed Martin
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1998).
59
<PAGE>
(e) Resolutions relating to Lockheed Martin Corporation
Financial Counseling Program for directors, officers,
company presidents, and other key employees, as amended
(incorporated by reference to Exhibit 10(e) to Lockheed
Martin Corporation's Annual Report on Form 10-K for the
year ended December 31, 1997).
(f) Martin Marietta Corporation Post-Retirement Death
Benefit Plan for Senior Executives, as amended
(incorporated by reference to Exhibit 10.9 to Lockheed
Martin Corporation's Registration Statement on Form S-4
(No. 33-57645) filed with Commission on February 9,
1995).
(g) Martin Marietta Corporation 1984 Stock Option Plan for
Key Employees, as amended (incorporated by reference to
Exhibit 10.12 to Lockheed Martin Corporation's
Registration Statement on Form S-4 (No. 33-57645) filed
with Commission on February 9, 1995).
(h) Martin Marietta Corporation Amended Omnibus Securities
Award Plan, as amended March 25, 1993 (incorporated by
reference to Exhibit 10.13 to Lockheed Martin
Corporation's Registration Statement on Form S-4
60
<PAGE>
(No. 33-57645) filed with Commission on February 9,
1995).
(i) Martin Marietta Corporation Supplemental Excess
Retirement Plan, as amended (incorporated by reference
to Exhibit 10.15 to Lockheed Martin Corporation's
Registration Statement on Form S-4 (No. 33-57645) filed
with Commission on February 9, 1995).
(j) Martin Marietta Corporation Supplemental Excess
Retirement Plan, as amended (incorporated by reference
to Exhibit 10.15 to Lockheed Martin Corporation's
Registration Statement on Form S-4 (No. 33-51645) filed
with the Commission on February 19, 1995).
61
<PAGE>
(k) Martin Marietta Corporation Directors' Life Insurance
Program (incorporated by reference to Exhibit 10.17 to
Lockheed Martin Corporation's Registration Statement on
Form S-4 (No. 33-57645) filed with Commission on
February 9, 1995).
(l) Martin Marietta Corporation Executive Special Early
Retirement Option and Plant Closing Retirement Option
Plan (incorporated by reference to Exhibit 10.18 to
Lockheed Martin Corporation's Registration Statement on
Form S-4 (No. 33-57645) filed with Commission on
February 9, 1995).
(m) Martin Marietta Supplementary Pension Plan for
Employees of Transferred GE Operations (incorporated by
reference to Exhibit 10.19 to Lockheed Martin
Corporation's Registration Statement on Form S-4 (No.
33-57645) filed with Commission on February 9, 1995).
62
<PAGE>
(n) Martin Marietta Corporation Deferred Compensation Plan
for Selected Officers, as amended (incorporated by
reference to Exhibit 10(v) to Lockheed Martin
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1997).
(o) Lockheed Corporation 1992 Employee Stock Option Program
(incorporated by reference to the Registration
Statement on Form S-8 (No. 33-49003) of Lockheed
Corporation filed with the Commission on September 11,
1992).
(p) Amendment to Lockheed Corporation 1992 Employee Stock
Option Plan (incorporated by reference to Exhibit 10.22
to Lockheed Martin Corporation's Registration Statement
on Form S-4 (No. 33-57645) filed with the Commission on
February 9, 1995).
(q) Lockheed Corporation 1986 Employee Stock Purchase
Program, as amended (incorporated by reference to
Exhibit 10.23 to Lockheed Martin Corporation's
Registration Statement on Form S-4 (No. 33-57645) filed
with the Commission on February 9, 1995).
63
<PAGE>
(r) Incentive Retirement Benefit Plan for Certain
Executives of Lockheed Corporation, as amended
(incorporated by reference to Exhibit 10.25 to Lockheed
Martin Corporation's Registration Statement on Form S-4
(No. 33-57645) filed with the Commission on February 9,
1995).
(s) Supplemental Retirement Benefit Plan for Certain
Transferred Employees of Lockheed Corporation, as
amended (incorporated by reference to Exhibit 10.26 to
Lockheed Martin Corporation's Registration Statement on
Form S-4 (No. 33-57645) filed with the Commission on
February 9, 1995).
(t) Supplemental Benefit Plan of Lockheed Corporation, as
amended (incorporated by reference to Exhibit 10.27 to
Lockheed Martin Corporation's Registration Statement on
Form S-4 (No. 33-57645) filed with the Commission on
February 9, 1995).
(u) Lockheed Martin Corporation Supplemental Savings Plan,
as amended and restated (incorporated by reference to
Exhibit 10(ee) to Lockheed Martin Corporation's Annual
64
<PAGE>
Report on Form 10-K for the year ended December 31,
1997).
(v) Deferred Compensation Plan for Directors of Lockheed
Corporation, as amended (incorporated by reference to
Exhibit 10.30 to Lockheed Martin Corporation's
Registration Statement on Form S-4 (No. 33-57645) filed
with the Commission on February 9, 1995).
(w) Lockheed Corporation Retirement Plan for Directors, as
amended (incorporated by reference to Exhibit 10.31 to
Lockheed Martin Corporation's Registration Statement on
Form S-4 (No. 33-57645) filed with the Commission on
February 9, 1995).
(x) Trust Agreement, as amended February 3, 1995, between
Lockheed Corporation and First Interstate Bank of
California (incorporated by reference to Exhibit 10.33
to Lockheed Martin Corporation's Registration Statement
on Form S-4 (No. 33-57645) filed with the Commission on
February 9, 1995).
(y) Lockheed Corporation Directors' Deferred Compensation
Plan Trust Agreement, as amended (incorporated by
65
<PAGE>
reference to Exhibit 10.34 to Lockheed Martin
Corporation's Registration Statement on Form S-4 (No.
33-57645) filed with the Commission on February 9,
1995).
(z) Trust Agreement, dated December 22, 1994, between
Lockheed Corporation and J.P. Morgan California with
respect to certain employee benefit plans of Lockheed
Corporation (incorporated by reference to Exhibit 10.35
to Lockheed Martin Corporation's Registration Statement
on Form S-4 (No. 33-57645) filed with the Commission on
February 9, 1995).
(aa) Lockheed Martin Corporation Directors Charitable Award
Plan (incorporated by reference to Exhibit 10(oo) to
Lockheed Martin Corporation's Annual Report on Form 10-
K for the year ended December 31, 1996).
66
<PAGE>
(bb) Loral Supplemental Executive Retirement Plan
(incorporated by reference to Exhibit 99.2 of the
Schedule 14D-9 filed by Loral Corporation with the
Commission on January 16, 1996).
(cc) Amendment to Lockheed Martin Corporation Supplemental
Excess Retirement Plan (incorporated by reference to
Exhibit 10(nnn) to Lockheed Martin Corporation's Annual
Report on Form 10-K for the year ended December 31,
1996).
(dd) Amendment to Terms of Outstanding Stock Option Relating
to Exercise Period for Employees of Divested Business.
(ee) Lockheed Martin Corporation Post-Retirement Death
Benefit Plan for Elected Officers, as amended
(incorporated by reference to Exhibit 10(ppp) to
Lockheed Martin Corporation's Annual Report on Form 10-
K for the year ended December 31, 1996).
67
<PAGE>
(ff) Lockheed Martin Corporation Directors Retirement Plan,
as amended (incorporated by reference to Exhibit 10(ff)
to Lockheed Martin Corporation's Annual Report on Form
10-K for the year ended December 31, 1998).
(gg) Deferred Performance Payment Plan of Lockheed Martin
Corporation Space & Strategic Missiles Sector
(incorporated by reference to Exhibit 10(ooo) to
Lockheed Martin Corporation's Annual Report on Form 10-
K for the year ended December 31, 1997).
(hh) Resolutions of Board of Directors of Lockheed Martin
Corporation dated June 27, 1997 amending Lockheed
Martin Non-Qualified Pension Plans (incorporated by
reference to Exhibit 10(ppp) to Lockheed Martin
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1997).
(ii) Form of Retention Agreement, including Addendum
(incorporated by reference to Exhibit 10(u) to Lockheed
Martin Corporation's Annual Report on Form 10-K for the
year ended December 31, 1997).
68
<PAGE>
(jj) Lockheed Martin Corporation Directors Equity Plan
(incorporated by reference to Exhibit 10(jj) to
Lockheed Martin Corporation's Annual Report on Form 10-
K for the year ended December 31, 1998).
(kk) Lockheed Martin Corporation Management Incentive
Compensation Plan (incorporated by reference to Exhibit
10(ll) to Lockheed Martin Corporation's Annual Report
on Form 10-K for the year ended December 31, 1998).
(ll) Lockheed Martin Corporation Deferred Management
Incentive Compensation Plan (incorporated by reference
to Exhibit 10(ll) to Lockheed Martin Corporation's
Annual Report on Form 10-K for the year ended December
31, 1998).
(mm) Lockheed Martin Corporation Divested Business Deferred
Management Incentive Compensation Plan.
(nn) Form of Release, Noncompete and Confidentiality
Agreement for Mr. Blackwell.
(oo) Form of Professional Services Agreement for
Mr. Blackwell.
69
<PAGE>
* Exhibits (10)(a) through (10)(oo) constitute management contracts or
compensatory plans or arrangements required to be filed as an Exhibit to
this Form pursuant to Item 14(c) of this Report.
(12) Computation of ratio of earnings to fixed charges for the year
ended December 31, 1999.
(13) Portions of Lockheed Martin Corporation 1999 Annual Report to
Shareholders incorporated by reference in this Annual Report on
Form 10-K.
(23) Consent of Ernst & Young LLP, Independent Auditors for Lockheed
Martin Corporation.
(24) Powers of Attorney.
(27) Financial Data Schedule.
Other material incorporated by reference:
None.
70
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: March 9, 2000 By: /s/ FRANK H. MENAKER, Jr.
---------------------------
Frank H. Menaker, Jr.
Senior Vice President
and General Counsel
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ Vance D. Coffman* Chairman, Chief Executive
- --------------------
VANCE D. COFFMAN Officer and President March 9, 2000
/s/ Robert J. Stevens* Executive Vice President and March 9, 2000
- ---------------------
ROBERT J. STEVENS Chief Financial Officer
71
<PAGE>
/s/ Christopher E. Kubasik* Vice President and Controller March 9, 2000
- --------------------------
CHRISTOPHER E. KUBASIK (Chief Accounting Officer)
/s/ Norman R. Augustine* Director March 9, 2000
- -----------------------
NORMAN R. AUGUSTINE
/s/ Marcus C. Bennett* Director March 9, 2000
- ---------------------
MARCUS C. BENNETT
/s/ Lynne V. Cheney* Director March 9, 2000
- -------------------
LYNNE V. CHENEY
/s/ Houston I. Flournoy* Director March 9, 2000
- -----------------------
HOUSTON I. FLOURNOY
/s/ James F. Gibbons* Director March 9, 2000
- --------------------
JAMES F. GIBBONS
/s/ Edward E. Hood, Jr.* Director March 9, 2000
- -----------------------
EDWARD E. HOOD, JR.
72
<PAGE>
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ Caleb B. Hurtt* Director March 9, 2000
- ------------------
CALEB B. HURTT
/s/ Gwendolyn S. King* Director March 9, 2000
- ---------------------
GWENDOLYN S. KING
/s/ Eugene F. Murphy* Director March 9, 2000
- --------------------
EUGENE F. MURPHY
/s/ Frank Savage* Director March 9, 2000
- ----------------
FRANK SAVAGE
Director
- -----------------------
CARLISLE A.H. TROST
/s/ James R. Ukropina* Director March 9, 2000
- ---------------------
JAMES R. UKROPINA
73
<PAGE>
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ Douglas C. Yearley* Director March 9, 2000
- ----------------------
DOUGLAS C. YEARLEY
*By: /s/ Broc Romanek March 9, 2000
-----------------
(Broc Romanek, Attorney-in-fact**)
___________________________
**By authority of Powers of Attorney filed with this Annual
Report on Form 10-K.
74
<PAGE>
Exhibit (3)(iii)
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)
(Amended February 24, 2000)
<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
<CAPTION>
ARTICLE II
BOARD OF DIRECTORS
<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........................ 6
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>
<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
ARTICLE III
COMMITTEES
<S> <C> <C>
Section 3.01. Executive Committee................................ 8
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 and Corporate Governance Committee...... 10
Section 3.06. Other Committees................................... 11
Section 3.07. Meetings of Committees............................. 11
<CAPTION> ARTICLE IV
OFFICERS
<S> <C> <C>
Section 4.01. Executive Officers -- Election and Term of Office.. 11
Section 4.02 Chairman of the Board.............................. 12
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............................... 13
Section 4.08. Other Officers and Agents.......................... 13
Section 4.09. When Duties of an Officer May Be Delegated......... 13
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
<CAPTION>
ARTICLE V
STOCK
<S> <C> <C>
Section 5.01. Certificates....................................... 13
Section 5.02. Transfer of Shares................................. 14
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>
<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
ARTICLE VI
INDEMNIFICATION
<S> <C> <C>
Section 6.01. Indemnification of Directors, Officers, and Employees 15
Section 6.02. Standard............................................. 15
Section 6.03. Advance Payment of Expenses.......................... 15
Section 6.04. General.............................................. 16
<CAPTION>
ARTICLE VII
SUNDRY PROVISIONS
<S> <C> <C>
Section 7.01. Seal................................................. 16
Section 7.02. Voting of Stock in other Corporations................ 16
Section 7.03. Amendments........................................... 16
</TABLE>
<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 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.
<PAGE>
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 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.
<PAGE>
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 "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.
<PAGE>
(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 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.
<PAGE>
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.
<PAGE>
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 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
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.
<PAGE>
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.
<PAGE>
ARTICLE III
COMMITTEES
Section 3.01. EXECUTIVE COMMITTEE. The Board of Directors, by resolution
adopted by a majority of the Board of Directors, may provide for an Executive
Committee of two (2) or more directors. If provision be made for an Executive
Committee, the members thereof shall be elected by the Board of Directors to
serve at the pleasure of the Board of Directors. During the intervals between
the meetings of the Board of Directors, the Executive Committee shall possess
and may exercise such powers in the management of the business and affairs of
the Corporation as may be authorized by the Board of Directors, subject to
applicable law. All action by the Executive Committee shall be reported to the
Board of Directors at its meeting next succeeding such action, and shall be
subject to revision and alteration by the Board of Directors. Vacancies in the
Executive Committee shall be filled by the Board of Directors.
Section 3.02. FINANCE COMMITTEE. The Board of Directors by resolution
adopted by a majority of the Board of Directors may provide for a Finance
Committee of three (3) or more directors. If provision is made for a Finance
Committee, the members of the Finance Committee shall be elected by the Board of
Directors to serve at the pleasure of the Board of Directors. The Board of
Directors shall designate from among the membership of the Finance Committee a
chairman. During the intervals between the meetings of the Board of Directors,
the Finance Committee shall, except when such powers are by statute or the
Charter or the Bylaws either reserved to the full Board of Directors or
delegated to another committee of the Board of Directors, possess and may
exercise all of the powers of the Board of Directors in the management of the
financial affairs of the Corporation, including but not limited to establishing
bank lines of credit or other short-term borrowing arrangements and investing
excess working capital funds on a short-term basis. The Finance Committee will
review the financial condition of the Corporation, the financial impact of all
benefit plans and all proposed changes to the capital structure of the
Corporation, including the incurrence of long-term indebtedness and the issuance
of additional equity securities, and will make suitable recommendations to the
Board of Directors. It will likewise review on an annual basis the proposed
capital expenditure and contributions budgets of the Corporation and make
recommendations to the Board of Directors for their adoption. It will monitor
the financial impact of all trusteed benefit plans sponsored by the Corporation
and of any amendments or modifications thereto and will monitor the performance
of the assets and administration of the Corporation's trusteed benefit plans.
All action by the Finance Committee shall be reported to the Board of Directors
at its meeting next succeeding such action and shall be subject to revision and
alteration by the Board of Directors. Vacancies in the Finance Committee shall
be filled by the Board of Directors.
Section 3.03. AUDIT AND ETHICS COMMITTEE. The Board of Directors by
resolution adopted by a majority of the Board of Directors shall provide for an
Audit and Ethics Committee of three or more directors who are not officers or
employees of the Corporation, and who otherwise independent of management and
free from any relationship that, in the opinion of the Board of Directors, would
interfere with the exercise of the independent judgment of each member as a
Committee member. The members of the Audit and Ethics Committee shall be
elected by the Board of Directors to serve at the pleasure of the Board of
Directors. The Board of Directors shall designate from among the membership of
the Audit and Ethics Committee a chairman. The Audit and Ethics Committee
shall, except when such powers are by statute or the Charter or the Bylaws
either reserved to the full Board of Directors or delegated to another committee
of the Board of Directors, possess and may exercise the powers of the Board of
Directors relating to all accounting and auditing matters of this Corporation.
The Audit and Ethics Committee shall recommend to the Board of Directors the
selection of and monitor the independence of the independent public accountants
for this Corporation and prior to the end of the Corporation's fiscal year shall
review the scope and timing of the work to be performed and the compensation to
be paid to the accountants selected by the Board; review with the Corporation's
management and the independent public accountants the financial accounting and
reporting principles appropriate for the Corporation, the policies and
procedures concerning audits, accounting and financial controls, and any
recommendations to improve existing practices, and the qualifications and work
of the Corporation's internal auditing staff; review with the Corporation's
independent public accountants the results of their audit and their report
including any changes in accounting principles and any significant amendments;
and shall meet with the Corporation's internal audit department representative
to review the plan and scope of work of the internal auditing staff. The
Committee shall hold quarterly meetings, and shall separately meet in executive
session, with the Corporation's independent public accountants and internal
audit department representative to review and resolve all matters of concern
presented to the Committee. The Committee shall monitor compliance with the
Code of Ethics and Standards of Conduct and shall review and resolve all matters
of concern presented to it by the Corporate Ethics Committee or the Corporate
Ethics Office. The Committee shall review and monitor the 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.
<PAGE>
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, 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.
<PAGE>
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 AND CORPORATE GOVERNANCE COMMITTEE. The Board of
Directors by resolution adopted by a majority of the Board of Directors may
provide for a Nominating and Corporate Governance Committee of three (3) or more
Directors who are not officers or employees of the Corporation. If provision is
made for a Nominating and Corporate Governance Committee, the members of the
Nominating and Corporate Governance 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 and
Corporate Governance Committee a committee chairman. The Nominating and
Corporate Governance 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
chairpersons and members for appointment to the Board Committees. The
Nominating and Corporate Governance Committee will recommend to the Board the
role of the Board in the corporate governance process. The Nominating and
Corporate Governance 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 and Corporate Governance 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 and Corporate Governance Committee shall be filled
by the Board of Directors.
<PAGE>
Section 3.06. OTHER COMMITTEES. The Board of Directors may by resolution
provide for such other standing or special committees, composed of two (2) or
more directors, and discontinue the same at its pleasure. Each such committee
shall have such powers and perform such duties, not inconsistent with law, as
may be assigned to it by the Board of Directors.
Section 3.07. MEETINGS OF COMMITTEES. Each committee of the Board of
Directors shall fix its own rules of procedure, consistent with the provisions
of any rules or resolutions of the Board of Directors governing such committee,
and shall meet as provided by such rules or by resolution of the Board of
Directors, and it shall also meet at the call of its chairman or any two (2)
members of such committee. Unless otherwise provided by such rules or by such
resolution, the provisions of the article of these Bylaws entitled the "Board of
Directors" relating to the place of holding and notice required of meetings of
the Board of Directors shall govern committees of the Board of Directors. A
majority of each committee shall constitute a quorum thereof; provided, however,
that in the absence of any member of such committee, the members thereof present
at any meeting, whether or not they constitute a quorum, may appoint a member of
the Board of Directors to act in the place of such absent member. Except in
cases in which it is otherwise provided by the rules of such committee or by
resolution of the Board of Directors, the vote of a majority of such quorum at a
duly constituted meeting shall be sufficient to pass any measure.
ARTICLE IV
OFFICERS
Section 4.01. EXECUTIVE OFFICERS - ELECTION AND TERM OF OFFICE. The
Executive Officers of the Corporation shall be a Chairman of the Board, who
shall also be the Chief Executive Officer, a President, such number of Vice
Presidents as the Board of Directors may determine, a Secretary and a Treasurer.
The Chairman and Chief Executive Officer and the President shall be chosen from
among the Directors. The Executive Officers shall be elected annually by the
Board of Directors at its first meeting following each annual meeting of
stockholders and each such officer shall hold office until the corresponding
meeting of the Board of Directors in the next year and until his or her
successor shall have been duly chosen and 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.
<PAGE>
Section 4.02. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be
the Chief Executive Officer of the Corporation and shall preside at all meetings
of the stockholders and of the Board of Directors. He shall serve as a member
of the Executive Committee and, in the absence of the Chairman of the Executive
Committee, preside at all meetings of the Executive Committee. Subject to the
authority of the Board of Directors, he shall have general charge and
supervision of the business and affairs of the Corporation. He shall have the
authority to sign and execute in the name of the Corporation all deeds,
mortgages, bonds, contracts or other instruments. He shall have the authority
to vote stock in other corporations, and he shall perform such other duties of
management as may be prescribed by resolution or as otherwise may be assigned to
him by the Board of Directors. He shall have the authority to delegate such
authorization and power as vested in him by these Bylaws to some other officer
or employee or agent of the Corporation as he shall deem appropriate.
Section 4.03. PRESIDENT. The President shall be the Chief Operating
Officer of the Corporation. He or she shall have general charge and supervision
of the operations of the Corporation and shall have such other powers and duties
of management as from time to time may be assigned to him or her by the Board of
Directors or the Chief Executive Officer.
Section 4.04. VICE PRESIDENTS. The Corporation shall have one (1) or more
Vice Presidents, including Executive and Senior Vice Presidents as appropriate,
as elected from time to time by the Board of Directors. The Vice Presidents
shall perform such duties as from time to time may be assigned to them by the
President.
Section 4.05. SECRETARY. The Secretary shall attend all meetings of the
stockholders and of the Board of Directors and record all votes and minutes or
proceedings, in books provided for that purpose; shall see that all notices of
such meetings are duly given in accordance with the provisions of the Bylaws of
the Corporation, or as required by law; may sign certificates of stock of the
Corporation with the Chairman of the Board; shall be custodian of the corporate
seal; shall see that the corporate seal is affixed to all documents, the
execution of which, on behalf of the Corporation, under its seal, is duly
authorized, and when so affixed may attest the same; and in general, shall
perform all duties incident to the office of a secretary of a corporation, and
such other duties as from time to time may be assigned to the Secretary by the
Chairman of the Board.
Section 4.06. TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all monies or other valuable effects in such banks, trust
companies, or other depositories as shall, from time to time, be selected by the
Board of Directors; and in general, shall render such reports and perform such
other duties incident to the office of a treasurer of a corporation, and such
other duties as from time to time may be assigned to him or her by the
President.
<PAGE>
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.
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.
<PAGE>
Section 5.02. TRANSFER OF SHARES. Shares of stock shall be transferable
only on the books of the Corporation only by the holder thereof, in person or by
duly authorized attorney, upon the surrender of the certificate representing the
shares to be transferred, properly endorsed. The Board of Directors shall have
power and authority to make such other rules and regulations concerning the
issue, transfer and registration of certificates of stock as it may deem
expedient.
Section 5.03. TRANSFER AGENTS AND REGISTRARS. The Corporation may have
one (1) or more transfer agents and one (1) or more registrars of its stock,
whose respective duties the Board of Directors may, from time to time, define.
No certificate of stock shall be valid until countersigned by a transfer agent,
if the Corporation has a transfer agent, or until registered by a registrar, if
the Corporation has a registrar. The duties of transfer agent and registrar may
be combined.
Section 5.04. STOCK LEDGERS. Original or duplicate stock ledgers,
containing the names and addresses of the stockholders of the Corporation and
the number of shares of each class held by them respectively, shall be kept at
an office or agency of the Corporation in such city or town as may be designated
by the Board of Directors. If no other place is so designated such original or
duplicate stock ledgers shall be kept at an office or agency of the Corporation
in New York, New York or Bethesda, Maryland.
Section 5.05. RECORD DATES. The Board of Directors is hereby empowered to
fix, in advance, a date as the record date for the purpose of determining
stockholders entitled to notice of, or to vote at, any meeting of stockholders,
or stockholders entitled to receive payment of any dividend or the allotment of
any rights, or in order to make a determination of stockholders for any other
proper purpose. Such date in any case shall be not more than ninety (90) days
and, in case of a meeting of stockholders, not less than thirty (30) days, prior
to the date on which the particular action, requiring such determination of
stockholders, is to be taken. If a record date is not set and the transfer
books are not closed, the record date for the purpose of making any proper
determination with respect to stockholders shall be fixed in accordance with
applicable law.
Section 5.06. NEW CERTIFICATES. In case any certificate of stock is lost,
stolen, mutilated or destroyed, the Board of Directors may authorize the issue
of a new certificate in place thereof upon such terms and conditions as it may
deem advisable; or the Board of Directors may delegate such power to any officer
or officers or agents of the Corporation; but the Board of Directors or such
officer or officers, in their discretion, may refuse to issue such new
certificate save upon the order of some court having jurisdiction in the
premises.
<PAGE>
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 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.
<PAGE>
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
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.
10(dd) Amendment to Terms of Outstanding Stock Option Relating to Exercise
Period for Employees of Divested Business.
<PAGE>
Exhibit 10(dd)
December 20, 1999
THIS LETTER CONSTITUTES PART OF A PROSPECTUS
COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
RE: Lockheed Martin Corporation 1995 Omnibus Performance Award Plan ("Plan")
Dear Optionee:
Effective December 2, 1999, the Stock Option Subcommittee of the Board of
Directors of Lockheed Martin Corporation (the "Corporation") has amended the
terms of your outstanding Lockheed Martin stock options previously granted under
the referenced Plan. The amendments provide that:
. If you die, the expiration date of your outstanding options will be
unaffected and will expire at the end of their remaining term. This amends
the duration of the exercise period for your beneficiaries from three years
following your death to the end of your options' remaining term.
. If you are divested from the Corporation as defined in your outstanding Plan
award agreements, the vesting schedule of your outstanding options will be
unaffected by the divestiture and your outstanding options will expire on the
fifth anniversary of the effective date of the divestiture, or the original
expiration date, whichever occurs first. This amends the duration of the
exercise period following divestiture from one year to five years (but in no
case longer than the original term), and provides for continued vesting of
your options following divestiture (previously, unvested options at the time
of the divestiture were forfeited). The provision concerning your rights upon
voluntary or involuntary termination (other than layoff) has also been
amended but the amendments are technical and do not change the meaning of the
provision.
The full text of the amendments (including non-substantive technical changes) as
implemented in the award letters previously issued to you follow:
SPECIAL RULES AS TO EXPIRATION AND FORFEITURE
Death - Options will expire at the end of their remaining term.
Resignation, Lay-Off or Termination for Cause - If you resign or
otherwise terminate, whether voluntarily or by action of the Corporation
and in the latter case
<PAGE>
whether with or without "cause," unvested Options will be forfeited upon
your termination. Vested Options will expire at the end of their remaining
term or 186 calendar days following your resignation or termination,
whichever is shorter. If you are laid off, your options will be unaffected,
and will vest and be exercisable until the end of their remaining term, in
accordance with the terms of the Plan.
Divestiture - If the Corporation divests (as defined below) all or
substantially all of a business operation of the Corporation and such
divestiture results in the termination of the recipient's employment with
the Corporation or its subsidiaries and transfer of such employment to the
other party to the divestiture, the special rules in this paragraph will
apply. Your service with the other party to the divestiture will be
treated as service with the Corporation and you will continue to vest in
your unvested options while employed by that party as though you had
remained in the employ of the Corporation. Following a divestiture, your
vested options will be exercisable until the first to occur of (i) the
fifth anniversary of the effective date of the divestiture; or (ii) the
original expiration date ("Divestiture Expiration Date"). If you die
following divestiture but prior to the Divestiture Expiration Date, all
unvested options will immediately vest as of the date of death and be
exercisable by your beneficiary until the Divestiture Expiration Date. For
the purposes of this provision, the term "divestiture" shall mean a
transaction which results in the transfer of control of the business
operation divested to any person, corporation, association, partnership,
joint venture or other business entity of which less than 50% of the voting
stock or other equity interests (in the case of entities other than
corporations), is owned or controlled directly or indirectly, by the
Corporation, one or more of the Corporation's subsidiaries or by a
combination thereof.
This letter is intended to notify each holder of options under the Plan that
the amendments have been fully implemented on a prospective basis as of December
2, 1999 and will apply to divestitures and deaths occurring after that date.
Except for the amendments, which serve as an extension of the exercise periods
under circumstances of divestiture or death from those previously authorized,
each option remains in full force and effect in accordance with its terms in
effect prior to the amendments. The amendments do not apply at this time to
Section 16 Insiders.
If you have questions regarding the amendments, please address them to ____,
or me.
Very truly yours,
/s/ Lillian M. Trippett
<PAGE>
Exhibit 10(mm)
This Document Constitutes Part of a Prospectus Covering Securities that have
been Registered under the Securities Act of 1933
LOCKHEED MARTIN CORPORATION
DIVESTED BUSINESS DEFERRED MANAGEMENT INCENTIVE
COMPENSATION PLAN
(Adopted December 2, 1999)
<PAGE>
ARTICLE I
PURPOSES OF THE PLAN
The purposes of the Lockheed Martin Corporation Divested Business Deferred
Management Incentive Compensation Plan (the "DBDMICP") are to provide certain
key management employees who have deferred amounts under the Deferred Management
Incentive Compensation Plan ("DMICP") and who are employed in a business unit of
Lockheed Martin Corporation (the "Company") that has been identified as a
possible candidate for divestiture the opportunity to defer receipt of DMICP
accounts that would otherwise become payable following a divestiture. Except as
expressly provided hereinafter, the provisions of this DBDMICP and the DMICP
shall be construed and applied independently of each other.
The DBDMICP applies solely to amounts that have been deferred under the
DMICP and expressly does not apply to any special awards which may be made under
any of the Company's other incentive plans, except and to the extent
specifically provided under the terms of such other incentive plans and the
relevant awards.
ARTICLE II
DEFINITIONS
Unless the context indicates otherwise, the following words and phrases
shall have the meanings hereinafter indicated:
1. ACCOUNT -- The bookkeeping account maintained by the Company for each
Participant which is credited with the Participant's Deferred Compensation and
earnings (or losses) attributable to the investment options selected by the
Participant, and which is debited to reflect distributions and forfeitures; the
portions of a Participant's Account allocated to different investment options
will be accounted for separately.
2. ACCOUNT BALANCE -- The total amount credited to a Participant's
Account at any point in time, including the portions of the Account allocated to
each investment option.
3. BENEFICIARY -- Unless a Participant designates otherwise on a form
provided by the Company which is on file with the Company before the
Participant's death, the same person or persons (including a trust or trusts)
validly designated by a Participant under the DMICP to receive distributions of
the Participant's DMICP account balance, if any, upon the Participant's death.
In the absence of a valid designation, or if the designated Beneficiary fails to
survive the Participant, the Beneficiary shall be the Participant's estate. A
Participant may amend his or her Beneficiary designation at any
<PAGE>
time by filing another Beneficiary designation with the Company before the
Participant's death.
4. BOARD -- The Board of Directors of Lockheed Martin Corporation.
5. COMMITTEE -- The committee described in Section 1 of Article VIII.
6. COMPANY -- Lockheed Martin Corporation and its subsidiaries.
7. COMPANY STOCK INVESTMENT OPTION -- The investment option under which
the amount credited to a Participant's Account will be based on the market value
and investment return of the Company's Common Stock.
8. DEFERRAL AGREEMENT -- The written agreement executed by an Eligible
Employee on the form provided by the Company under which the Eligible Employee
elects to defer his or her DMICP account balance under this DBDMICP.
9. DEFERRED COMPENSATION -- The amount credited to a Participant's
Account under the DBDMICP.
10 DIVESTITURE - A transaction which results in (i) the transfer of
control of the business unit divested to any person, corporation, association,
partnership, joint venture or other business entity of which less than 50% of
the voting stock or other equity interests (in the case of entities other than
corporations), is owned or controlled, directly or indirectly, by the Company,
one or more of the Company's subsidiaries or a combination thereof, (ii) the
Eligible Employee's employment continuing with such divested business unit or
being transferred from the Company to the other party to the Divestiture; and
(iii) the other party does not assume the liability for the outstanding account
balances in the DMICP of the Eligible Employees employed by the business
operation divested.
11. DIVESTITURE CANDIDATES - The business units of the Corporation that
have been identified as possible candidates for divestiture and whose employees
have been identified as eligible for this DBDMICP by the Vice President, Human
Resources.
12. DMICP -- The Lockheed Martin Corporation Deferred Management Incentive
Compensation Plan, adopted by the Board on July 27, 1995, as subsequently
amended.
13. ELIGIBLE EMPLOYEE -- An employee of the Company who is a participant
in the DMICP, who is employed by a Divestiture Candidate and who has satisfied
such additional requirements for participation in this DBDMICP as the Committee
may from time to time establish. In the exercise of its authority under this
provision, the Committee shall limit participation in the Plan to employees whom
the Committee believes to be a select group of management or highly compensated
<PAGE>
employees within the meaning of Title I of the Employee Retirement Income
Security Act of 1974, as amended.
14. EXCHANGE ACT -- The Securities Exchange Act of 1934.
13
15. INTEREST OPTION -- The investment option under which earnings will be
credited to a Participant's Account based on the interest rate applicable under
Cost Accounting Standard 415, Deferred Compensation.
16. PARTICIPANT -- An Eligible Employee who has elected to defer his or
her account under this DBDMICP and for whom such account has been deferred under
this DBDMICP.
17. PAYMENT DATE -- Means, as to any Participant, the January 15 or July
15 on or about on which payment to the Participant is to begin in accordance
with the Participant's election made pursuant to Section 2 of Article V.
18. SECTION 16 PERSON -- A Participant who at the relevant time is subject
to the reporting and short-swing liability provisions of Section 16 of the
Securities Exchange Act of 1934.
19. SUBSIDIARY -- Means, as to any person, any corporation, association,
partnership, joint venture or other business entity of which 50% or more of the
voting stock or other equity interests (in the case of entities other than
corporation), is owned or controlled (directly or indirectly) by that person, or
by one or more of the Subsidiaries of that person, or by a combination thereof.
20. TRADING DAY -- A day upon which transactions with respect to Company
Common Stock are reported in the consolidated transaction reporting system.
ARTICLE III
ELECTION OF DEFERRED AMOUNT
1. Timing of Deferral Elections. An Eligible Employee may elect to defer
his or her account balances in the DMICP under this DBDMICP by executing and
delivering to the Company a Deferral Agreement during a period of time as
designated by the Vice President, Human Resources as the election period
applicable to Eligible Employees of a particular Divestiture Candidate, provided
that any election by a Section 16 Person shall be subject to the provisions of
Section 4 of Article IV. An Eligible Employee's Deferral Agreement shall be
irrevocable when delivered to the Company.
<PAGE>
2. Amount of Deferral Elections. An Eligible Employee's deferral
election under this DBDMICP will apply to the entire balance of such Eligible
Employee's DMICP account.
ARTICLE IV
CREDITING OF ACCOUNTS
1. Crediting of Deferred Compensation. A Participant's account balance
in the DMICP that has been deferred under this DBDMICP in accordance with
Article III shall be credited to a Participant's Account as of the day on which
such balance would have been paid to the Participant if no Deferral Agreement
had been made.
2. Crediting of Earnings. Earnings shall be credited to a Participant's
Account based on the investment option or options to which the Account has been
allocated, beginning with the day as of which Deferred Compensation (or any
reallocation under Section 4 or 5 of Article IV) is credited to the
Participant's Account. Any amount distributed from a Participant's Account
shall be credited with earnings through the last day of the month preceding the
month in which a distribution is to be made pursuant to the Participant's
election as set forth in Article V. The earnings credited under each of the
investment options shall be determined as follows:
(a) Interest Option: The portion of a Participant's Account allocated
to the Interest Option shall be credited with interest, compounded monthly,
at a rate equivalent to the then published rate for computing the present
value of future benefits at the time cost is assignable under Cost
Accounting Standard 415, Deferred Compensation, as determined by the
Secretary of the Treasury on a semi-annual basis pursuant to Pub. L. 92-41,
85 Stat. 97.
(b) Company Stock Investment Option: The portion of a Participant's
Account allocated to the Company Stock Investment Option shall be credited
as if such amount had been invested in the Company's Common Stock at the
published closing price of the Company's Common Stock on the last Trading
Day preceding the day as of which Deferred Compensation (or any
reallocation under Section 4 or 5 of Article IV) is credited to the
Participant's Account; this portion of the Participant's Account Balance
shall reflect any subsequent appreciation or depreciation in the market
value of the Company's Common Stock based on the closing price of the stock
on the New York Stock Exchange on the last Trading Day of each month and
shall reflect dividends on the Company's Common Stock as if such dividends
had been reinvested in the Company's Common Stock.
(c) Interest Crediting For Late Payments: Notwithstanding the
investment option to which a Participant's Account has been allocated, in
the event payment does not commence by the last day of the month in which
the Payment Date occurs, earnings shall be credited on the Participant's
entire
<PAGE>
Account from the last day of the month preceding the Payment Date to
the last day of the month preceding the actual commencement of payment at
the rate set forth under Section 2(a) of this Article IV. Interest
credited under this Section 2(c) of this Article IV shall be paid on the
date payment under the Plan first commences.
3. Selection of Investment Options. Except as otherwise provided in this
DBDMICP, a Participant's investment selections under this DBDMICP shall be the
same as his or her selections under the DMICP, so that any amounts credited to
the Company Stock Investment Option under the DMICP shall be credited to Company
Stock Investment Option under this DBDMICP and any amounts credited to the
Interest Option under the DMICP shall be credited the Interest Option under this
DBDMICP. A Participant's investment selections shall be irrevocable with
respect to amounts deferred, and no subsequent reallocations shall be made
except in accordance with Article IV, Section 5.
4. Special Rules for Section 16 Persons. Notwithstanding any other
provision in this DBDMICP, no amount shall be distributed to a Section 16 Person
under this DBDMICP unless the amount was allocated to the Participant's Account
at least six months prior to the date of distribution or no portion of the
Participant's Account was allocated to the Company Stock Investment Option.
5. Reallocations to Interest Option. If benefit payments to a
Participant or Beneficiary are to be paid or commenced to be paid over a period
that extends more than six months after the date of a Divestiture in a business
unit in which a Participant is employed or the Participant's death, the
Participant or Beneficiary, as applicable, may elect irrevocably at any time
after the Divestiture or the Participant's death and before the commencement of
benefit payments to have the portion of the Participant's Account that is
allocated to the Company Stock Investment Option reallocated to the Interest
Option. A reallocation under this Section 5 shall take effect as of the first
day of the month following the month in which an executed reallocation election
is delivered to the Company, but in the case of a Section 16 Person not earlier
than the first day of the seventh month following the month in which the
reallocation election is delivered to the Company.
<PAGE>
ARTICLE V
PAYMENT OF BENEFITS
1. General. The Company's liability to pay benefits to a Participant or
Beneficiary under this DBDMICP shall be measured by and shall in no event exceed
the Participant's Account Balance. Except as otherwise provided in this
DBDMICP, a Participant's Account Balance shall be paid to him in accordance with
the Participant's elections under Sections 2 and 3 of this Article, and such
elections shall be continuing and irrevocable. All benefit payments shall be
made in cash and, except as otherwise provided, shall reduce allocations to the
Interest Option and the Company Stock Investment Option in the same proportions
that the Participant's Account Balance is allocated between those investment
options at the end of the month preceding the date of distribution.
2. Election for Commencement of Payment. At the time a Participant first
completes a Deferral Agreement, he or she shall elect from among the following
options governing the date on which the payment of benefits shall commence:
(A) Payment to begin on or about the January 15th or July 15th next
following the first anniversary of the closing of a Divestiture
which results in the Participant's termination of employment with
the Company.
(B) Payment to begin on or about the January 15th or July 15th next
following the second anniversary of the closing of a Divestiture
which results in the Participant's termination of employment with
the Company.
(C) Payment to begin on or about the January 15th or July 15th next
following the third anniversary of the closing of a Divestiture
which results in the Participant's termination of employment with
the Company.
(D) Payment to begin on or about the January 15th or July 15th next
following the fourth anniversary of the closing of a Divestiture
which results in the Participant's termination of employment with
the Company.
(E) Payment to begin on or about the January 15th or July 15th next
following the fifth anniversary of the closing of a Divestiture
which results in the Participant's termination of employment with
the Company.
<PAGE>
The time for commencement of payment elected by a Participant shall apply to
amounts deferred under the DBDMICP notwithstanding any election made by the
Participant for commencement of payments under the DMICP.
3. Election for Form of Payment. The form of payments applicable to a
Participant's Account Balance shall be the form of payment elected by the
Participant under the DMICP. Such payment shall begin at the time elected by
the Participant under Article V, Section 2 and the form of payment will be
governed by Article V, Section 3. In the case of an installment payment
election, the amount of each annual payment shall be determined by dividing the
Participant's Account Balance at the end of the month prior to such payment by
the number of years remaining in the designated installment period. The
installment period may be shortened, in the sole discretion of the Committee, if
the Committee at any time determines that the amount of the annual payments that
would be made to the Participant during the designated installment period would
be too small to justify the maintenance of the Participant's Account and the
processing of payments.
4. Lack of Effect if Employment is Not Terminated Due to a Divestiture or
Liability for DMICP Accounts is Assumed by Another Party. Notwithstanding an
Eligible Employee's payment elections under Sections 2 and 3, if the employment
of an Eligible Employee who makes an election under Article III is not
transferred to the other party in a Divestiture for which the election was made
or the other party to a divestiture assumes the liability for the outstanding
account balances in the DMICP of the Eligible Employees employed by the business
operation divested, the Eligible Employee's election under Article II will be
null and void and his or her account balance under the DMICP shall continue to
be governed by the terms of the DMICP.
5. Death Benefits. Upon the death of a Participant before a complete
distribution of his or her Account Balance, the Account Balance will be paid to
the Participant's Beneficiary in accordance with the payment elections
applicable to the Participant. If a Participant dies before the payment of
benefits has commenced, payments to the Beneficiary shall commence on the date
payments to the Participant would have commenced under Article V. Whether the
Participant dies before or after the commencement of distributions, payments to
the Beneficiary shall be made for the period or remaining period elected by the
Participant.
6. Early Distributions in Special Circumstances. Notwithstanding a
Participant's payment elections under Sections 2 and 3 of this Article V, a
Participant or Beneficiary may request an earlier distribution in the following
limited circumstances:
(a) Hardship Distributions. Subject to the last sentence of this
Section 6(a) with respect to Section 16 Persons, the Committee
shall have the power and discretion at any time to approve a
payment to a Participant if the Committee determines that the
Participant is suffering from a serious financial emergency
caused by circumstances beyond the Participant's control which
would cause
<PAGE>
a hardship to the Participant unless such payment were made. Any
such hardship payment will be in a lump sum and will not exceed
the lesser of (i) the amount necessary to satisfy the financial
emergency (taking account of the income tax liability associated
with the distribution), or (ii) the Participant's Account
Balance. In the event that a Section 16 Person seeks a hardship
withdrawal under this Section 6(a), the distribution will be made
first out of the portion of the Participant's Account, if any,
allocated to the Interest Option; if the hardship distribution
cannot be satisfied in full out of amounts allocated to the
Interest Option, no distribution will be made from the portion of
the Participant's Account allocated to the Company Stock
Investment Option until the seventh month following the month in
which such amount was credited to the Participant's Account.
(b) Withdrawal with Forfeiture. A Participant may elect at any time
to withdraw ninety percent (90%) of the amount credited to the
Participant's Account. If such a withdrawal is made, the
remaining ten percent (10%) of the Participant's Account shall be
permanently forfeited. In the event that a Section 16 Person
seeks a withdrawal under this Section 6(b), any portion of the
Section 16 Person's Account allocated to the Company Stock
Investment Option will not be subject to distribution or
forfeiture until the seventh month following the month in which
such amount was credited to the Participant's Account, which
election shall be irrevocable when made; any portion of the
Section 16 Person's Account allocated to the Interest Option will
be subject to immediate distribution and forfeiture; the ten
percent forfeiture shall be separately applied to each such
portion of the Section 16 Person's Account at the time of
distribution.
(c) Death or Disability. In the event that a Participant dies or
becomes permanently disabled before the Participant's entire
Account Balance has been distributed, the Committee, in its sole
discretion, may modify the timing of distributions from the
Participant's Account, including the commencement date and number
of distributions, if it concludes that such modification is
necessary to relieve the financial burdens of the Participant or
Beneficiary.
7. Acceleration upon Change in Control.
(a) Notwithstanding any other provision of the DBDMICP, the Account
Balance of each Participant shall be distributed in a single lump
sum within fifteen (15) calendar days following a "Change in
Control" of the Company.
<PAGE>
(b) For purposes of this DBDMICP, a Change in Control shall include
and be deemed to occur upon the following events:
(1) A tender offer or exchange offer is consummated for the
ownership of securities of the Company representing 25% or
more of the combined voting power of the Company's then
outstanding voting securities entitled to vote in the
election of directors of the Company.
(2) The Company is merged, combined, consolidated, recapitalized
or otherwise reorganized with one or more other entities
that are not Subsidiaries and, as a result of the merger,
combination, consolidation, recapitalization or other
reorganization, less than 75% of the outstanding voting
securities of the surviving or resulting corporation shall
immediately after the event be owned in the aggregate by the
stockholders of the Company (directly or indirectly),
determined on the basis of record ownership as of the date
of determination of holders entitled to vote on the action
(or in the absence of a vote, the day immediately prior to
the event).
(3) Any person (as this term is used in Sections 3(a)(9) and
13(d)(3) of the Exchange Act, but excluding any person
described in and satisfying the conditions of Rule 13d-
1(b)(1) thereunder), becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 25% or
more of the combined voting power of the Company's then
outstanding securities entitled to vote in the election of
directors of the Company.
(4) At any time within any period of two years after a tender
offer, merger, combination, consolidation, recapitalization,
or other reorganization or a contested election, or any
combination of these events, the "Incumbent Directors" shall
cease to constitute at least a majority of the authorized
number of members of the Board. For purposes hereof,
"Incumbent Directors" shall mean the persons who were
members of the Board immediately before the first of these
events and the persons who were elected or nominated as
their successors or pursuant to increases in the size of the
Board by a vote of at least three-fourths of the Board
members who were then Board members (or successors or
additional members so elected or nominated).
<PAGE>
(5) The stockholders of the Company approve a plan of
liquidation and dissolution or the sale or transfer of
substantially all of the Company's business and/or assets as
an entirety to an entity that is not a Subsidiary.
(c) Notwithstanding the provisions of Section 7(a), if a distribution
in accordance with the provisions of Section 7(a) would result in
a nonexempt short-swing transaction under Section 16(b) of the
Exchange Act with respect to any Section 16 Person, then the date
of distribution to such Section 16 Person shall be delayed until
the earliest date upon which the distribution either would not
result in a nonexempt short-swing transaction or would otherwise
not result in liability under Section 16(b) of the Exchange Act.
(d) This Section 7 shall apply only to a Change in Control of
Lockheed Martin Corporation and shall not cause immediate payout
of Deferred Compensation in any transaction involving the
Company's sale, liquidation, merger, or other disposition of any
subsidiary.
(e) The Committee may cancel or modify this Section 7 at any time
prior to a Change in Control. In the event of a Change in
Control, this Section 7 shall remain in force and effect, and
shall not be subject to cancellation or modification for a period
of five years, and any defined term used in Section 7 shall not,
for purposes of Section 7, be subject to cancellation or
modification during the five year period.
8. Deductibility of Payments. In the event that the payment of benefits
in accordance with the Participant's elections under Sections 2 and 3 would
prevent the Company from claiming an income tax deduction with respect to any
portion of the benefits paid, the Committee shall have the right to modify the
timing of distributions from the Participant's Account as necessary to maximize
the Company's tax deductions. In the exercise of its discretion to adopt a
modified distribution schedule, the Committee shall undertake to have
distributions made at such times and in such amounts as most closely approximate
the Participant's elections, consistent with the objective of maximum
deductibility for the Company. The Committee shall have no authority to reduce
a Participant's Account Balance or to pay aggregate benefits less than the
Participant's Account Balance in the event that all or a portion thereof would
not be deductible by the Company.
<PAGE>
9. Change of Law. Notwithstanding anything to the contrary herein, if
the Committee determines in good faith, based on consultation with counsel, that
the federal income tax treatment or legal status of the Plan has or may be
adversely affected by a change in the Internal Revenue Code, Title I of the
Employee Retirement Income Security Act of 1974, or other applicable law or by
an administrative or judicial construction thereof, the Committee may direct
that the Accounts of affected Participants or of all Participants be distributed
as soon as practicable after such determination is made, to the extent deemed
necessary or advisable by the Committee to cure or mitigate the consequences, or
possible consequences of, such change in law or interpretation thereof.
10. Tax Withholding. To the extent required by law, the Company shall
withhold from benefit payments hereunder, or with respect to any Deferred
Compensation hereunder, any Federal, state, or local income or payroll taxes
required to be withheld and shall furnish the recipient and the applicable
government agency or agencies with such reports, statements, or information as
may be legally required.
ARTICLE VI
EXTENT OF PARTICIPANTS' RIGHTS
1. Unfunded Status of Plan. This DBDMICP constitutes a mere contractual
promise by the Company to make payments in the future, and each Participant's
rights shall be those of a general, unsecured creditor of the Company. No
Participant shall have any beneficial interest in any specific assets that the
Company may hold or set aside in connection with this DBDMICP. Notwithstanding
the foregoing, to assist the Company in meeting its obligations under this
DBDMICP, the Company may set aside assets in a trust described in Revenue
Procedure 92-64, 1992-2 C.B. 422, and the Company may direct that its
obligations under this DBDMICP be satisfied by payments out of such trust. The
assets of any such trust will remain subject to the claims of the general
creditors of the Company. It is the Company's intention that the Plan be
unfunded for Federal income tax purposes and for purposes of Title I of the
Employee Retirement Income Security Act of 1974, as amended.
2. Nonalienability of Benefits. A Participant's rights under this
DBDMICP shall not be assignable or transferable and any purported transfer,
assignment, pledge or other encumbrance or attachment of any payments or
benefits under this DBDMICP, or any interest therein shall not be permitted or
recognized, other than the designation of, or passage of payment rights to, a
Beneficiary.
<PAGE>
ARTICLE VII
AMENDMENT OR TERMINATION
1. Amendment. The Board may amend, modify, suspend or discontinue this
DBDMICP at any time subject to any shareholder approval that may be required
under applicable law, provided, however, that no such amendment shall have the
effect of reducing a Participant's Account Balance or postponing the time when a
Participant is entitled to receive a distribution of his Account Balance.
Further, no amendment may alter the formula for crediting interest to
Participants' Accounts with respect to amounts for which deferral elections have
previously been made, unless the amended formula is not less favorable to
Participants than that previously in effect, or unless each affected Participant
consents to such change.
2. Termination. The Board reserves the right to terminate this DBDMICP
at any time and to pay all Participants their Account Balances in a lump sum
immediately following such termination or at such time thereafter as the Board
may determine; provided, however, that if a distribution in accordance with the
provisions of this Section 2 would otherwise result in a nonexempt short-swing
transaction under Section 16(b) of the Exchange Act, the date of distribution
with respect to any Section 16 Person shall be delayed until the earliest date
upon which the distribution either would not result in a nonexempt short-swing
transaction or would otherwise not result in liability under Section 16(b) of
the Exchange Act.
3. Transfer of Liability. The Board reserves the right to transfer to
another entity all of the obligations of Company with respect to a Participant
under this DBDMICP if such entity agrees pursuant to a binding written agreement
to assume all of the obligations of the Company under this DBDMICP with respect
to such Participant.
ARTICLE VIII
ADMINISTRATION
1. The Committee. This DBDMICP shall be administered by the Compensation
Committee of the Board or such other committee of the Board as may be designated
by the Board and constituted so as to permit this DBDMICP to comply with the
disinterested administration requirements of Rule 16b-3 of the Exchange Act.
The members of the Committee shall be designated by the Board. A majority of
the members of the Committee (but not fewer than two) shall constitute a quorum.
The vote of a majority of a quorum or the unanimous written consent of the
Committee shall constitute action by the Committee. The Committee shall have
full authority to interpret the DBDMICP, and interpretations of the DBDMICP by
the Committee shall be final and binding on all parties.
<PAGE>
2. Delegation and Reliance. The Committee may delegate to the officers
or employees of the Company the authority to execute and deliver those
instruments and documents, to do all acts and things, and to take all other
steps deemed necessary, advisable or convenient for the effective administration
of this DBDMICP in accordance with its terms and purpose, except that the
Committee may not delegate any authority the delegation of which would cause
this DBDMICP to fail to satisfy the applicable requirements of Rule 16b-3. In
making any determination or in taking or not taking any action under this
DBDMICP, the Committee may obtain and rely upon the advice of experts, including
professional advisors to the Company. No member of the Committee or officer of
the Company who is a Participant hereunder may participate in any decision
specifically relating to his or her individual rights or benefits under the
DBDMICP.
3. Exculpation and Indemnity. Neither the Company nor any member of the
Board or of the Committee, nor any other person participating in any
determination of any question under this DBDMICP, or in the interpretation,
administration or application thereof, shall have any liability to any party for
any action taken or not taken in good faith under this DBDMICP or for the
failure of the DBDMICP or any Participant's rights under the DBDMICP to achieve
intended tax consequences, to qualify for exemption or relief under Section 16
of the Exchange Act and the rules thereunder, or to comply with any other law,
compliance with which is not required on the part of the Company.
4. Facility of Payment. If a minor, person declared incompetent, or
person incapable of handling the disposition of his or her property is entitled
to receive a benefit, make an application, or make an election hereunder, the
Committee may direct that such benefits be paid to, or such application or
election be made by, the guardian, legal representative, or person having the
care and custody of such minor, incompetent, or incapable person. Any payment
made, application allowed, or election implemented in accordance with this
Section shall completely discharge the Company and the Committee from all
liability with respect thereto.
5. Proof of Claims. The Committee may require proof of the death,
disability, incompetency, minority, or incapacity of any Participant or
Beneficiary and of the right of a person to receive any benefit or make any
application or election.
6. Claim Procedures. The procedures when a claim under this DBDMICP is
denied by the Committee are as follows:
(A) The Committee shall:
(i) notify the claimant within a reasonable time of such
denial, setting forth the specific reasons therefor;
and
(ii) afford the claimant a reasonable opportunity for a
review of the decision.
<PAGE>
(B) The notice of such denial shall set forth, in addition to the
specific reasons for the denial, the following:
(i) identification of pertinent provisions of this
DBDMICP;
(ii) such additional information as may be relevant to the denial
of the claim; and
(iii) an explanation of the claims review procedure and advice
that the claimant may request an opportunity to submit a
statement of issues and comments.
(C) Within sixty days following advice of denial of a claim, upon
request made by the claimant, the Committee shall take
appropriate steps to review its decision in light of any further
information or comments submitted by the claimant. The Committee
may hold a hearing at which the claimant may present the basis of
any claim for review.
(D) The Committee shall render a decision within a reasonable time
(not to exceed 120 days) after the claimant's request for review
and shall advise the claimant in writing of its decision,
specifying the reasons and identifying the appropriate provisions
of the DBDMICP.
ARTICLE IX
GENERAL AND MISCELLANEOUS PROVISIONS
1. Neither this DBDMICP nor a Participant's Deferral Agreement, either
singly or collectively, shall in any way obligate the Company to continue the
employment of a Participant with the Company, nor does either this DBDMICP or a
Deferral Agreement limit the right of the Company at any time and for any reason
to terminate the Participant's employment. In no event shall this DBDMICP or a
Deferral Agreement, either singly or collectively, by their terms or
implications constitute an employment contract of any nature whatsoever between
the Company and a Participant. In no event shall this DBDMICP or a Deferral
Agreement, either singly or collectively, by their terms or implications in any
way obligate the Company to award compensation to any Eligible Employee, whether
or not the Eligible Employee is a Participant in the DBDMICP, nor in any other
way limit the right of the Company to change an Eligible Employee's compensation
or other benefits.
2. Compensation deferred under this DBDMICP shall not be treated as
compensation for purposes of calculating the amount of a Participant's benefits
or contributions under any pension, retirement, or other plan maintained by the
Company, except as provided in such other plan.
<PAGE>
3. Any written notice to the Company referred to herein shall be made by
mailing or delivering such notice to the Company at 6801 Rockledge Drive,
Bethesda, Maryland 20817, to the attention of the Vice President, Human
Resources. Any written notice to a Participant shall be made by delivery to the
Participant in person, through electronic transmission, or by mailing such
notice to the Participant at his or her place of residence or business address.
4. In the event it should become impossible for the Company or the
Committee to perform any act required by this Plan, the Company or the Committee
may perform such other act as it in good faith determines will most nearly carry
out the intent and the purpose of this DBDMICP.
5. By electing to become a Participant hereunder, each Eligible Employee
shall be deemed conclusively to have accepted and consented to all of the terms
of this DBDMICP and all actions or decisions made by the Company, the Board, or
Committee with regard to the DBDMICP.
6. The provisions of this DBDMICP and the Deferral Agreements hereunder
shall be binding upon and inure to the benefit of the Company, its successors,
and its assigns, and to the Participants and their heirs, executors,
administrators, and legal representatives.
7. A copy of this DBDMICP shall be available for inspection by
Participants or other persons entitled to benefits under the DBDMICP at
reasonable times at the offices of the Company.
8. The validity of this DBDMICP or any of its provisions shall be
construed, administered, and governed in all respects under and by the laws of
the State of Maryland, except as to matters of Federal law. If any provisions
of this instrument shall be held by a court of competent jurisdiction to be
invalid or unenforceable, the remaining provisions hereof shall continue to be
fully effective.
9. This DBDMICP and its operation, including but not limited to, the
mechanics of deferral elections, the issuance of securities, if any, or the
payment of cash hereunder is subject to compliance with all applicable federal
and state laws, rules and regulations (including but not limited to state and
federal insider trading, registration, reporting and other securities laws) and
such other approvals by any listing, regulatory or governmental authority as
may, in the opinion of counsel for the Company, be necessary or advisable in
connection therewith.
10. It is the intent of the Company that this DBDMICP satisfy and be
interpreted in a manner, that, in the case of Participants who are or may be
Section 16 Persons, satisfies any applicable requirements of Rule 16b-3 of the
Exchange Act or other
<PAGE>
exemptive rules under Section 16 of the Exchange Act and will not subject
Section 16 Persons to short-swing profit liability thereunder. If any provision
of this DBDMICP would otherwise frustrate or conflict with the intent expressed
in this Section 10, that provision to the extent possible shall be interpreted
and deemed amended so as to avoid such conflict. To the extent of any remaining
irreconcilable conflict with this intent, the provision shall be deemed
disregarded. Similarly, any action or election by a Section 16 Person with
respect to the DBDMICP to the extent possible shall be interpreted and deemed
amended so as to avoid liability under Section 16 or, if this is not possible,
to the extent necessary to avoid liability under Section 16, shall be deemed
ineffective. Notwithstanding anything to the contrary in this DBDMICP, the
provisions of this DBDMICP may at any time be bifurcated by the Board or the
Committee in any manner so that certain provisions of this DBDMICP are
applicable solely to Section 16 Persons. Notwithstanding any other provision of
this DBDMICP to the contrary, if a distribution which would otherwise occur is
prohibited or proposed to be delayed because of the provisions of Section 16 of
the Exchange Act or the provisions of the DBDMICP designed to ensure compliance
with Section 16, the Section 16 Person involved may affirmatively elect in
writing to have the distribution occur in any event; provided that the Section
16 Person shall concurrently enter into arrangements satisfactory to the
Committee in its sole discretion for the satisfaction of any and all
liabilities, costs and expenses arising from this election.
11. At no time shall the aggregate Account Balances of all Participants to
the extent allocated to the Company Stock Investment Option exceed an amount
equal to the then fair market value of 5,000,000 shares of the Company's Common
Stock, nor shall the cumulative amount of compensation deferred under this
DBDMICP by all Eligible Employees exceed $250,000,000.
ARTICLE X
EFFECTIVE DATE
This DBDMICP was adopted pursuant to a resolution of the Board on December
2, 1999 and became effective on such date.
<PAGE>
Exhibit 10(nn)
RELEASE AND CONFIDENTIALITY AGREEMENT
Lockheed Martin Corporation (the "Corporation") and I, James A. Blackwell,
voluntarily enter into this Release, Noncompete and Confidentiality Agreement
("Release") and agree as follows:
Benefit Payable. In exchange for the Enhanced Termination Benefits as
described in the Letter, originally dated ___, from ____, Vice President,
Human Resources, and the terms of which are incorporated herein by reference,
on my own behalf and on behalf of my successors, assigns and representatives,
I hereby irrevocably and unconditionally release any and all Claims, as
described below, that I may now have against the Released Parties listed
below. I agree that the Enhanced Termination Benefits, including but not
limited to the extension of my termination date from November 30, 1999 to
January 31, 2000, the $200,000 relocation allowance and the consulting
arrangement, are greater in value than any benefit to which I am otherwise
entitled.
Covenant Not to Compete. I acknowledge that upon receipt of full payment
of all amounts due ($1,918,800.00) under the Retention Agreement between me
and the Corporation dated November 1, 1997 ("Retention Agreement") payable on
or about February 1, 2000, I am fully bound by the terms of the Covenant Not
to Compete Provision set forth in Section 5 of the Retention Agreement, which
reasonably restricts my employment and business opportunities through January
31, 2001. In consideration for the lump sum payment in the amount of
$288,000, payable on or about February 1, 2000 (which amount represents the
collective consideration for this Covenant Not to Compete as well as payment
for services rendered, if any, by me pursuant to a two-year consulting
arrangement, set forth in a separate agreement between me and the
Corporation), I agree to extend the Covenant Not to Compete obligation, set
forth in Section 5 of the Retention Agreement, for another 12 month period
beyond its current expiration date of January 31, 2001. Therefore, for a
period extending from February 1, 2001 through January 31, 2002, I shall not
engage in any business (whether as an officer, director, owner, employee,
partner or other direct or indirect participant) competing with that of the
Corporation in any area in which the Corporation is conducting any business on
the date of my termination. For such period, I shall also not interfere with,
disrupt, or attempt to disrupt the relationship, contractual or otherwise,
between the Corporation and any customer, supplier or employee of the
Corporation.
It is the desire and intent of the parties that the provisions of this
Covenant Not to Compete shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular portion of this
Covenant Not to Compete is adjudicated to be invalid or unenforceable, this
Covenant Not to Compete shall be deemed amended to delete therefrom the
portion thus adjudicated to be invalid or unenforceable, such deletion to
<PAGE>
apply only with respect to the operation of this provision in the particular
jurisdiction in which such adjudication is made.
Claims Not Released. I agree that I will not receive any severance benefits
in connection with my termination under any corporate severance plan or
policy. By this agreement, I am not releasing any rights to benefits I may
have under the Retention Agreement or rights to benefits under any of the
Corporation's other benefit programs.
Claims Released. Subject only to the exception noted in the previous
paragraph, I agree to waive and fully release any and all claims of any nature
whatsoever (known and unknown) ("Claims") that I may now have or have had
against the Corporation, its affiliates, subsidiaries, fiduciaries and the
directors, officers, employees, shareholders and agents of any of the
foregoing ("Released Parties"). These Claims released include, but are not
limited to, claims that in any way relate to my employment with the
Corporation or the termination of that employment, and any claims for monetary
damages, wages or other personal remedy sought in any legal proceeding or
charge filed with any court, federal, state or local agency either by me or by
a person claiming to act on my behalf or in my interest.
I understand that the Claims I am releasing might have arisen under many
different local, state and federal statutes, regulations, case law and/or
common law doctrines. By this agreement, I specifically, but without
limitation, agree to release all of the Released Parties from Claims under any
corporate severance plan or policy; the WARN Act (which requires that advance
notice be given of certain workforce reductions); Title VII of the Civil
Rights Act of 1964, as amended (which prohibits discrimination based on race,
color, national origin, religion, or sex); the Civil Rights Act of 1866 (which
prohibits discrimination based on race or color); the Age Discrimination in
Employment Act and the Older Worker Benefit Protection Act (which prohibit
discrimination based upon age); the Americans with Disabilities Act and
Sections 503 and 504 of the Rehabilitation Act of 1972 (which prohibit
discrimination based upon disability); the Equal Pay Act (which prohibits
paying men and women unequal pay for equal work); or any other local, state or
federal statutes prohibiting discrimination or retaliation on these or any
other grounds or otherwise governing the employment relationship. The
Released Claims also include any Claims against the Released Parties relating
to defamation, invasion of privacy, infliction of emotional distress, or any
other Claim based upon any theory of personal injury or breach of express or
implied contract or covenant of good faith and fair dealing. I warrant that I
have not assigned or transferred any Claims described in this Release to any
third parties.
California provision. This release extends to all Claims that I may now
have, even claims unknown at this time, and is an express waiver by me of the
protection of Section 1542 of the Civil Code of California or any other
similar provision under any other state's laws. Section 1542 of the Civil
Code states:
<PAGE>
"A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known to him must have materially affected his settlement with the
debtor." (For the purposes of this Release of Claims, the employee would be
considered the "creditor" and the Corporation would be considered the
"debtor").
<PAGE>
Continuing obligation of nondisclosure, confidentiality and other restrictions.
Throughout the duration of my employment with the Corporation, I have had access
to and may have generated a substantial amount of information that is
proprietary and confidential to the Corporation. Additionally, I may have had
access to certain third-party proprietary information that had been provided in
confidence to the Corporation. In consideration of my employment by the
Corporation, I have undertaken an obligation, both during and following my
employment, not to use or disclose to others, any Proprietary Information,
except as authorized by the Corporation. "Proprietary Information" means any
information of the Corporation or of others which has come into the
Corporation's or my possession, custody or knowledge in the course of my
employment that has independent economic value as a result of its not being
generally known to the public and is the subject of reasonable means to preserve
the confidentiality of the information. Proprietary Information includes
(without limitation) information, whether written or otherwise, regarding the
Corporation's earnings, expenses, marketing information, cost estimates,
forecasts, bid and proposal data, financial data, trade secrets, products,
procedures, inventions, systems or designs, manufacturing or research processes,
material sources, equipment sources, customers and prospective customers,
business plans, strategies, buying practices and procedures, prospective and
executed contracts and other business arrangements or business prospects, except
to the extent such information becomes readily available to the general public
lawfully and without breach of a confidential, contractual, or fiduciary duty.
By signing this Release, I acknowledge and agree that I have a continuing
obligation to not use or disclose Proprietary Information. Further, all
materials to which I have had access, or which were furnished or otherwise made
available to me in connection with the services performed for the Corporation
shall be and remain the property of the Corporation. All such materials,
documents and information, including any Proprietary Information and all
reproductions thereof shall be returned by me promptly to the Corporation.
I further agree that, for a period of 12 months from the date of this Release, I
will not make any slanderous or libelous public statements, whether oral or
written, regarding the Corporation, its stockholders, directors, officers,
employees, agents, technology, or products. For the purposes of this Release,
the term "public statement" shall include any communication to any person with
the exception of internal communications to officials of the Corporation made
by me in the course of the performance of my duties as an employee or consultant
of the Corporation.
I understand and agree that the existence and terms of this Release shall be
maintained in strict confidence. I agree that I shall not disclose the existence
or terms of this Release to any other person except my spouse, members of my
immediate family, my legal and financial advisors in connection with tax returns
and estate planning and as otherwise required by law. Any disclosure of the
existence or terms of this Release by any of the aforesaid persons shall be
deemed to be an unauthorized disclosure by me and a violation of this Release.
<PAGE>
I agree that if at any time I violate any provision of this Release, including
but not limited to these confidentiality provisions, the Corporation shall
immediately cease payment of any of the Enhanced Termination Benefits (including
termination of any existing consultant agreement) and pursue any other remedies
available to the Corporation, including injunctive or other equitable relief.
The Corporation cannot necessarily be reasonably or adequately compensated in
money damages in an action at law in the event I breach my obligations under
this Release, because such obligations are of a unique, special and personal
character and of peculiar value to the Corporation. The parties acknowledge and
agree that this confidentiality provision shall not affect my obligations to
cooperate with any U.S. government investigation or to respond truthfully to any
lawful governmental inquiry or to give truthful testimony in court.
Other provisions. The parties agree that this Release prohibits my ability to
pursue any Claims or charges against the Released Parties seeking monetary
relief or other remedies for myself and/or as a representative on behalf of
others. This agreement does not affect my ability to cooperate with any future
ethics, legal or other investigations, whether conducted by the Corporation or
any governmental agencies.
A determination by a court or arbitrator that any provision of this Release is
invalid, illegal or unenforceable shall not affect the validity, legality or
enforceability of any other provision of this Release.
<PAGE>
Excepting only the Retention Agreement, this document contains all of the
agreements between me and the Corporation relating to my termination of
employment, and supersedes any prior agreements or representations between us as
to the subjects covered herein. This Release may be modified, supplemented or
superseded only in a written document signed by both parties.
This Release shall be governed by and construed in accordance with the laws of
the State of Maryland, without giving effect to the conflict of law provisions
thereof.
By signing below, in addition to releasing all Claims described herein, I
acknowledge that:
a) I have been advised to consult with an attorney prior to signing this
Release;
b) I have been given at least 21 days to consider the actual terms of this
Release. I understand that I must deliver this signed Release to the Corporation
in the care of ____, Vice President, Human Resources, whose office is located
at the following address: 6801 Rockledge Drive, Bethesda, MD 20817, or send
this Release certified mail, return receipt requested, to Lockheed Martin
Corporation, Attention: ____, Vice President, Human Resources at the same
address so that it is received by the Corporation on or before ______.
c) I understand that I may revoke this Release within seven (7) calendar days
from the date of signing, in which case this Release shall be null and void and
of no force and effect on the Corporation or me. I further understand and
acknowledge that to be effective, the revocation must be in writing and either
personally delivered to the Corporation to the Corporation in the care of ____,
Vice President, Human Resources, whose office is located at the following
address: 6801 Rockledge Drive, Bethesda, MD 20817, or sent via certified mail,
return receipt requested, to Lockheed Martin Corporation, Attention: _____,
Vice President, Human Resources at the same address so that it is received by
the Corporation in by 5:00 p.m. on or before the seventh (7th) calendar day
after I sign this Release. If I revoke this Release, I understand and agree
that my effective termination date shall be ____ or the date of my revocation,
whichever date is sooner.
d) I have read this Release, and I am fully aware of the legal effects of the
Release. I have chosen to execute the Release freely, without reliance upon any
promises or representations made by the Corporation other than those contained
in this Release and the Letter.
<PAGE>
Dear _____:
The purpose of this letter ("Letter") is to set forth options concerning your
termination of employment from Lockheed Martin Corporation (the "Corporation").
This Letter reflects terms that you and I have negotiated since the date of my
original letter to you on November 22, 1999. Several drafts of this Letter have
been delivered to you and revised during this negotiation process. The letter
delivered to you on November 22nd set forth two proposals and included a Release
and Confidentiality Agreement for your review and consideration. This Letter
also sets forth an option requiring the Release, Noncompete and Confidentiality
Agreement, the form of which has also been the subject of our negotiations and
is substantially similar to the original form attached to the November 22nd
letter with the addition of a negotiated covenant not to compete provision.
Other than establishing a calendar year 2000 payment date in the event you elect
the Enhanced Termination Benefits, this Letter does not affect the terms of the
Retention Agreement between you and the Corporation, dated November 1, 1997
("Retention Agreement"), the terms of which survive any other agreements between
you and the Corporation.
As I notified you earlier this month, your termination date was initially
scheduled for November 30, 1999. However, as initially set forth in my November
22nd letter to you, in order to give you at least 21 calendar days from November
22, 1999 to review and consider the terms of the Release, Noncompete and
Confidentiality Agreement ("Release"), you were notified that you would be
placed on vacation leave status on December 1, 1999 until December 13, 1999 in
lieu of the November 30th termination date. If you elect the Enhanced
Termination Benefits described in Part I of this Letter, you will receive the
benefits described in Part I and Part II of this Letter, and your termination
date will be extended to January 31, 2000. If you forego the Enhanced
Termination Benefits, you will receive the benefits described in Part II of this
Letter, and your termination date will be on the date you notify me of your
decision to forego the Enhanced Termination Benefit option, or on December 13,
1999, whichever date is sooner. You must inform me of your choice on or before
December 13, 1999.
Part I
- ------
The Corporation offers you the following termination benefits ("Enhanced
Termination Benefits") in consideration for signing the Release, a copy of which
is attached to this Letter. You have 21 calendar days to consider this offer,
which expires on December 13, 1999. To be eligible for the Enhanced Termination
Benefit you must sign and deliver the Release to my office by close of business
on December 13, 1999. You may sign and return the Release earlier at your
option. Provided you timely deliver the signed Release to my office and
further provided you do not revoke the Release within the 7-day revocation
period, the Corporation will provide the following Enhanced Termination
Benefits:
<PAGE>
. Extension of Termination Date -- In lieu of your previously scheduled
-----------------------------
termination date of November 30, 1999, you will be placed on vacation pay
status from December 1, 1999 through January 31, 2000. You will receive
holiday pay rather than vacation pay for the Corporation's designated
holidays during this period.
On January 31, 2000, your employment will be terminated. This will enable
you to retire from active service on February 1, 2000, provided you submit
the necessary retirement paperwork prior to January 31, 2000.
Stock option vesting rules are governed by the Lockheed Martin Corporation
1995 Omnibus Performance Award Plan and the Award Agreement issued to you.
Under the Award Agreement, your vested options will continue to be
exercisable for the duration of their term. By remaining on the payroll
through January 31, 2000 and retiring effective February 1, 2000, this
would allow your unvested options to continue to vest on the schedule
contained in your Award Agreement, and once vested will be exercisable for
the duration of their term. With this extension of your termination date,
under the Award Agreement, the last increment of your 1998 grant should
vest on January 22, 2000. Under the Award Agreement, your retirement from
active service on February 1, 2000, will vest you in the first 50% of your
1999 grant and the remaining 50% of your 1999 grant will vest on
February 1, 2001.
The extension of your termination date will impact the timing of the
payment of the amount due ($1,918,800.00) under the Retention Agreement
between you and the Corporation, dated November 1, 1997. This payment will
be made on or about February 1, 2000. In the event that you do not elect
the Enhanced Termination Benefits, this payment shall be made no later than
December 13, 1999. You have acknowledged that the payment of $1,918,800.00
under the Retention Agreement was properly calculated pursuant to Section
3a of that agreement.
. Consulting and Noncompete Agreement. The Corporation will pay you a lump
-----------------------------------
sum in the amount of $288,000, payable on or about February 1, 2000 as
collective consideration for 1) Covenant not to Compete obligation in the
Release which extends the noncompete obligation set forth in your Retention
Agreement by an additional 12 months (through January 31, 2002) and 2)
services to be rendered, if any, up to 48 days per year during a two-year
consulting arrangement with an effective date of February 1, 2000. Although
the specific terms of the consulting arrangement will be set forth in a
Consultant Agreement to be signed by both parties, generally it will
require that you provide up to 48 days of consulting work per year for two
years (from 2-1-00 through 1-31-02). Days worked in excess of 48 per year
will be compensated at $3,000 per day. For purposes of calculating the 48
days per year under the agreement, each year will begin on February 1st of
2000 and 2001, respectively. The Corporation will not be allowed to
terminate the consulting agreement unless you are in default under its
terms or if the agreement terminates due to unlawful conduct. The
consulting agreement will also include appropriate, but reasonable
restrictions on your ability to terminate the agreement prior to its
<PAGE>
expiration on January 31, 2002. The noncompete obligation in the Release
will survive its entire term, through January 31, 2002, regardless of any
termination of the consulting agreement.
. Moving Allowance. The Corporation will pay you a lump sum of $200,000,
-----------------
which represents the agreed upon estimate of the cost of relocating outside
of Maryland, increased to include estimated taxes. This payment will be
made on or about February 1, 2000.
. MICP Award. In connection with your Management Incentive Compensation
------------
Plan (MICP) participation for plan year 1999, we will recommend to the
Management Development & Compensation Committee of the Board of Directors
(hereafter "MD&C Committee") an individual target rating of no less than
1.0 for the 1999 plan year. However, as you know, the determination
regarding payment and amount of MICP awards is within the discretion of the
MD&C Committee and is governed by the terms of the MICP plan document. The
individual target rating is only one of the factors considered by the MD&C
Committee in determining the amount of any MICP award. You will not be
eligible for MICP participation in plan year 2000.
. Financial Counseling/Tax Preparation. If you retire on February 1, 2000,
------------------------------------
you will be eligible for reimbursement of up to $10,000 for covered
financial counseling and tax preparation expenses incurred in calendar year
2001. In lieu of reimbursement for actual expenses, the Corporation will
pay you $10,000 in a lump sum, less applicable tax withholdings. This
payment will be made on or about February 1, 2000. (If you do not elect the
Enhanced Termination Benefits, then you will only be eligible for this
benefit for expenses incurred in 1999 and 2000. The Financial Counseling /
Tax Preparation benefit for 1999 and 2000 is described in Part II of this
Letter.)
. Personal Umbrella Liability Policy ($5 million). The current policy will
-----------------------------------------------
be paid through November 30, 2000. As a retired Officer, you will be
eligible to continue this policy on an individual basis by paying the
annual premium. Seabury L. Smith, the Corporation's insurance broker for
this coverage, will contact you prior to the December 1, 2000, renewal to
offer continuation of coverage.
. Country Club Membership. You may maintain your membership at the ________
-----------------------
Country Club, which was initially purchased by the Corporation. The
Corporation will not be responsible for paying any past or future dues or
fees associated with your club membership.
. Cellular Telephones. The Corporation will give you the cellular telephones
--------------------
currently in your possession, which were initially purchased by the
Corporation and provided for your business use. The Corporation will not be
responsible for paying for your cellular telephone service or air time
associated with cellular calls unless the air time expense is submitted and
approved as a reimbursable business expense incurred on behalf of the
Corporation during the remainder of your employment or during the term of
your consulting agreement.
<PAGE>
. Laptop Computer. The Corporation will give you the IBM Thinkpad Laptop
----------------
computer currently in your possession, which was initially purchased by the
Corporation and provided for your business use.
. Fax Machine. The Corporation will give you the Canon FAX-B360IF fax
------------
machine currently in your possession, which was initially purchased by the
Corporation and provided for your business use.
. Executive Physical Exam. You will be eligible to receive the Corporation's
------------------------
standard executive physical exam during the calendar year 2000, at the
Corporation's expense.
Part II
The following benefits are also available to you upon termination. These
benefits are not conditioned upon signing and returning the Release:
. LTIP Awards. You will be eligible for prorated amounts for the 1999
--------------
through 2000 and 1999 through 2001 LTIP performance periods based upon your
termination date of December 13, 1999. The prorated payment will be based
on 12 months of participation in each of the performance periods (13 months
of participation in each of the performance periods, if you elect the
Enhanced Termination Benefits) and the payout level authorized for each
performance period. Your LTIP Awards, if any, will be payable at the same
time LTIP Awards are paid to other eligible employees.
. Financial Counseling/Tax Preparation. You will be eligible for
------------------------------------
reimbursement of up to $10,000 per year for covered financial counseling
and tax preparation expenses incurred in calendar years 1999 (to the extent
not already reimbursed to date) and 2000. In lieu of reimbursement for
actual expenses, the Corporation will pay you 1) $10,000, less any amounts
already reimbursed for calendar year 1999 in a lump sum, less applicable
withholding taxes, and 2) $10,000 in a lump sum, less applicable tax
withholdings, for calendar year 2000. If you elect the Enhanced Termination
Benefits, this payment will be made on or about February 1, 2000. If you do
not elect the Enhanced Termination Benefits, this lump sum payment will be
made no later than five (5) days after either December 13, 1999 or the date
upon which you notify me of your election, whichever day is sooner.
. Life Insurance. Any life insurance elected by you under FlexOptions may be
converted to an individual policy in accordance with the terms of the
governing insurance policy.
. Elected Officer Post-Retirement Death Benefit. As a retired Officer of the
---------------------------------------------
Corporation, you will have a death benefit equal to 1 1/2 times your annual
base salary.
. Deferred MICP. Amounts deferred under the Lockheed Martin Corporation
-------------
Deferred Management Incentive Compensation Plan will be paid out in
accordance with the terms of your existing distribution elections. If your
distribution elections either defer payment for more than six months past
your termination date or provide for a payout over a period of more than
six months, you may elect prior to the commencement of payments (but after
termination of employment) to transfer the portion allocated to the Company
Stock Investment Option to the Interest Option. The transfer will be
effective on the first day of the seventh month after your election.
<PAGE>
. Supplemental Savings Plan. Amounts deferred under the Lockheed Martin
-------------------------
Corporation Supplemental Savings Plan will be paid out in accordance with
your existing payout elections.
. Severance Payments. You will not be eligible for severance benefits under
------------------
any program or plan offered by the Corporation to its employees who are
laid off as a result of a reduction in force, including the Severance
Benefit Plan for Eligible Salaried Employees, the benefits described in CPS
528 or any other severance benefit program.
. Vacation. All accrued but unused vacation will be paid in a lump sum
--------
following termination of employment. Vacation pay will be calculated
according to your base salary rate as of November 30, 1999.
For the purposes of this Letter, the term "Corporation" includes the
Corporation and its affiliates as well as the predecessors of the Corporation
and its affiliates. The terms of this Letter shall be governed by and construed
in accordance with the laws of the State of Maryland and the conflict of law
provisions of Maryland law which might apply the laws of another jurisdiction
will not be applicable.
You will be responsible for any income tax liabilities associated with the
termination benefits described in this Letter. With the exception of the
relocation costs described in Part I of the Letter, none of the benefits include
a tax gross up feature. The Corporation will comply with all tax law
requirements, including requirements governing tax withholdings and income
reporting.
This Letter is not intended as a summary plan description or plan document for
any of the benefit plans referenced herein. If there is any conflict between
this Letter and the official plan documents, the official plan documents
(including your award agreements) will govern.
<PAGE>
Exhibit 10(oo)
PROFESSIONAL SERVICES AGREEMENT
This Professional Services Agreement is made and entered into effective as of
February 1, 2000 by and between Lockheed Martin Corporation, a Maryland
corporation, located at 6801 Rockledge Drive, Bethesda, Maryland 20817
(hereinafter "LMC") and James A. Blackwell, Jr. located at ______ (hereinafter
"CONTRACTOR").
WITNESSETH:
That in consideration of the promises and mutual obligations hereinafter set
forth, the parties hereto agree as follows:
1. SERVICES BY CONTRACTOR
A. CONTRACTOR shall provide historical background information, factual
and management assistance, guidance and counsel to the Aeronautical
Systems Business Area Executive Vice President on matters involving
operation of the Business Area (the "Services") on an as needed, on
call basis.
B. CONTRACTOR'S primary contact with LMC shall be _____ ______ referred
to hereafter as the Agreement Monitor.
2. TERM
The term of this Agreement shall commence on February 1, 2000 and end on
January 31, 2002. Upon mutual agreement of the parties, this Agreement may
be extended beyond January 31, 2002.
3. COMPENSATION FOR SERVICES
A. CONTRACTOR shall be compensated for the Services to be performed
hereunder by payment of $288,000 on or about February 1, 2000. This
amount represents the collective consideration for the Covenant Not to
Compete set forth in the Release, Noncompete and Confidentiality
Agreement signed by CONTRACTOR in December 10, 1999, as well as
payment for Services rendered, if any, by CONTRACTOR under this
Agreement. CONTRACTOR shall provide up to 48 days of consulting work
per year for two years (from 2-1-00 through 1-31-02). Days worked in
excess of 48 per year will be compensated at $3,000 per day. For
purposes of calculating the 48 days per year under the agreement, each
year will begin on February 1st of 2000 and 2001, respectively.
B. LMC shall provide the CONTRACTOR notice, either written or oral, at
least five (5) days in advance of any meeting LMC wishes the
CONTRACTOR to attend or other Services LMC wishes CONTRACTOR to
provide. CONTRACTOR shall advise LMC promptly whether he is able to
attend such meeting or render such Services within the times requested
by LMC.
<PAGE>
C. With prior approval of the Agreement Monitor, LMC shall reimburse
CONTRACTOR for reasonable and actual travel expenses (at locations
other than CONTRACTOR'S office), including expenditures for hotels,
meals, first class air or rail fare, taxis, car rental, mileage for
use of personal automobile, parking and toll fees, telephone and
incidentals.
D. The total fee and expenses to be paid under this Agreement shall not
exceed $400,000.00.
4. PAYMENT AND INVOICE
A. CONTRACTOR'S invoice shall identify the Services performed during the
period covered by such invoice and be forwarded to: LMC Corporation,
6801 Rockledge Drive, Bethesda, Maryland 20817, Attn.: ______.
Invoices should be issued on at least a quarterly basis
notwithstanding the fact that the services have already been paid for
by virtue of the front end payment made on or about February 1, 2000.
Each invoice should sufficiently describe the Services rendered during
the period covered by the invoice, the days of performance, and the
total number of days worked to date under this Agreement. With each
invoice, CONTRACTOR must submit an "Activity Report", Form No. ___
(Blank Copy attached hereto), for the period covered by the invoice.
B. In the event sums are due for any days worked in excess of 48 days per
year, LMC agrees to make payment within 30 days of receipt and
approval of a proper invoice reflecting these Services. For invoices
claiming reimbursement for expenses, CONTRACTOR is required to attach
original receipts (for expenses exceeding $25.00) for such
expenditures in a form satisfactory to LMC. If original receipts are
not furnished, CONTRACTOR payment shall be subject to Federal, state,
or local taxes.
5. INDEPENDENT CONTRACTOR RELATIONSHIP
CONTRACTOR is an independent contractor in all its operations and
activities hereunder. CONTRACTOR and LMC agree that CONTRACTOR will render
Services according to CONTRACTOR'S own methods and is subject to LMC's
control only with regard to the CONTRACTOR'S final product or result. LMC
shall not exercise direct control or supervision over the means that
CONTRACTOR uses to accomplish CONTRACTOR'S work. The employees used by
CONTRACTOR to perform Work under this Agreement shall be CONTRACTOR'S
employees exclusively without any relation whatsoever to
<PAGE>
LMC. The parties understand and agree that CONTRACTOR is not an employee of
LMC.
6. CONFLICT OF INTEREST
A. CONTRACTOR shall not engage in any activity which presents a conflict
of interest in the line of his relationship with LMC.
B. CONTRACTOR hereby acknowledges receipt of a copy of the LMC
Corporation Code of Ethics and Business Conduct and, by executing this
Agreement, CONTRACTOR agrees that CONTRACTOR and all employees
providing Services under this Agreement will strictly comply with the
provisions of the code in the performance of the Services hereunder.
7. NON-DISLCOSURE OF PROPRIETARY OR CONFIDENTIAL INFORMATION
A. CONTRACTOR agrees not to disclose to others, either during or
subsequent to the term of this Agreement, any LMC information,
knowledge, or data which CONTRACTOR may receive, or have access to, or
which may otherwise be disclosed to CONTRACTOR, proprietary or
confidential information as further defined herein. "Proprietary or
Confidential Information" as used herein means any information of LMC
or of others which has come into the LMC's or CONTRACTOR'S possession,
custody or knowledge in the course of performing Services under this
Agreement that has independent economic value as a result of its not
being generally known to the public and is the subject of reasonable
means to preserve the confidentiality of the information. Proprietary
or Confidential Information includes (without limitation) information,
whether written or otherwise, regarding LMC's earnings, expenses,
marketing information, cost estimates, forecasts, bid and proposal
data, financial data, trade secrets, products, procedures, inventions,
systems or designs, manufacturing or research processes, material
sources, equipment sources, customers and prospective customers,
business plans, strategies, buying practices and procedures,
prospective and executed contracts and other business arrangements or
business prospects, except to the extent such information becomes
readily available to the general public lawfully and without breach of
a confidential, contractual, or fiduciary duty. CONTRACTOR
acknowledges and agrees that he has a continuing obligation to not use
or disclose Proprietary or Confidential Information.
B. CONTRACTOR agrees that Proprietary or Confidential Information shall
be used solely for the purpose of performing the Services required
under this Agreement, and further agrees that except as may strictly
be required by CONTRACTOR'S obligations under this Agreement,
CONTRACTOR shall not reproduce, nor allow any third party to use or
reproduce, any Proprietary or Confidential Information or any
documents or other material containing Proprietary or Confidential
Information.
<PAGE>
C. All materials to which CONTRACTOR had access, or which were furnished
or otherwise made available to CONTRACTOR in connection with the
Services performed hereunder, shall be and remain the property of LMC.
Upon expiration or termination of this Agreement, or upon request of
LMC, CONTRACTOR shall return to LMC all such materials, documents and
information, including any Proprietary or Confidential information and
all reproductions thereof, then in CONTRACTOR'S possession or control,
and CONTRACTOR in connection with this Agreement in accordance with
specific instructions issued by LMC to CONTRACTOR and shall comply
with any instructions within five (5) days of receipt thereof.
CONTRACTOR'S obligations of confidentiality under this Agreement shall
survive termination or expiration of this Agreement.
8. LIABILITY
A. LMC shall not be liable to CONTRACTOR for any loss, injury, damage,
expense or any liability whatsoever arising out of, or in connection
with, the performance of the Services required by this Agreement.
B. Each party shall be responsible to the other for any costs or expenses
including attorneys' fees, all expenses of litigation and/or
settlement, and court costs, arising from the default of such party,
its officers, employees, agents, suppliers, or subcontractors at any
tier, in the performance of any of its obligations under this
Agreement.
9. GOVERNING LAW
This Agreement shall be governed by, subject to, and construed
according to the laws of the State of Maryland excluding its choice of
law rules. CONTRACTOR shall comply with all applicable Federal, state
and local laws, orders and regulations, as well as with all LMC
policies, operating instructions, rules and regulations applicable to
the performance of this Agreement.
10. TERMINATION
A. LMC may not unilaterally terminate this Agreement unless 1) Section
10.C of this Agreement applies, or 2) CONTRACTOR is in default as
described in Section 16 of this Agreement.
<PAGE>
B. CONTRACTOR may not terminate this Agreement without LMC's advance
written consent. LMC will not unreasonably withhold its written
consent if CONTRACTOR'S reason for termination is due to CONTRACTOR'S
desire to accept employment that is not otherwise in violation of
CONTRACTOR'S Covenant Not to Compete obligations (as set forth in the
Retention Agreement dated November 1, 1997 and the Release, Noncompete
and Confidentiality Agreement, dated December 10, 1999) and which
makes him unavailable or unable to provide the Services called for in
this Agreement.
C. This Agreement shall terminate immediately and all payments due shall
be forfeited if, in rendering Services hereunder, improper payments
are made, unlawful conduct is engaged in, or any part of the fee or
expenses payable under this Agreement is used for an illegal purpose.
D. In the event this Agreement is terminated under any provision herein,
CONTRACTOR shall not be required to repay any of the consideration
already paid under the Agreement to date. The termination of this
Agreement shall have no effect whatsoever on the CONTRACTOR'S
continuing obligations under the Covenants Not to Compete referenced
above, which shall survive this Agreement and shall not expire until
January 31, 2002.
11. SEVERABILITY
If any provision of this Agreement shall be held illegal or
unenforceable, the remainder of the Agreement or the application of
any other provisions to the parties shall not be affected thereby.
12. ACCESS TO CLASSIFIED INFORMATION
Performance of this Agreement requires access to classified
information involving National Security up to and including SCI and
Top Secret. If access is required, CONTRACTOR shall furnish the LMC
Security Department with all data required to obtain or verify a
personal security clearance with access to such Classified
Information. Under no circumstances shall CONTRACTOR perform
service(s) involving access to classified information until
CONTRACTOR'S security clearance has been obtained or verified by LMC.
13. ACCEPTANCE OF CONTRACT/TERMS AND CONDITIONS
A. With the exception of 1) the Retention Agreement between CONTRACTOR
and LMC dated November 1, 1997, 2) the letter from ____ to CONTRACTOR
dated December 10, 1999 setting forth enhanced termination benefits,
and 3) the Release, Noncompete and Confidentiality
<PAGE>
Agreement signed by CONTRACTOR on December 10, 1999, this Agreement
integrates, merges, and supersedes any prior offers, negotiations, and
agreements concerning the subject matter hereof and constitutes the
entire agreement between the Parties.
B. CONTRACTOR'S acknowledgment, acceptance of payment, or commencement of
performance, shall constitute CONTRACTOR'S unqualified acceptance of
this Agreement.
C. Additional or differing terms or conditions proposed by CONTRACTOR or
included in CONTRACTOR'S acknowledgment hereof are hereby objected to
by LMC and have no effect unless accepted in writing by LMC.
14. ASSIGNMENT
Any assignment of CONTRACTOR'S contract rights or delegation of duties
shall be void, unless prior written consent is given by LMC. However,
CONTRACTOR may assign rights to be paid amounts due, or to become due,
to a financing institution if LMC is promptly furnished a signed copy
of such assignment reasonably in advance of the due date for payment
of any such amounts. Amounts assigned to an assignee shall be subject
to setoffs or recoupment for any present or future claims of LMC
against CONTRACTOR. LMC shall have the right to make settlements
and/or adjustments in price with CONTRACTOR without notice to the
assignee.
15. CONTRACT DIRECTION
A. Only the LMC Procurement Representative has authority to make changes
in or amendments to this Agreement. Such changes or amendments must be
in writing.
B. Except as otherwise provided herein, all notices to be furnished by
the CONTRACTOR shall be sent to the LMC Procurement Representative.
16. DEFAULT
A. LMC, by written notice, may terminate this Agreement for default, in
whole or in part, if CONTRACTOR fails to comply with any of the terms
of this Agreement, fails to make progress as to endanger performance
of this Agreement, or fails to provide adequate assurance of future
performance. CONTRACTOR shall have ten (10) days (or such longer
period as LMC may authorize in writing) to cure any such failure after
receipt of notice from LMC.
<PAGE>
B. LMC shall not be liable for any Services not accepted; however, LMC
may require CONTRACTOR to deliver to LMC any supplies and materials,
manufacturing materials, and manufacturing drawings that CONTRACTOR
has specifically produced or acquired for the terminated portion of
this Agreement. LMC and CONTRACTOR shall agree on the amount of
payment for these other deliverables.
C. CONTRACTOR shall continue all Services not terminated.
17. DISPUTES
All disputes under this Agreement which are not disposed of by mutual
agreement may be decided by recourse to an action at law or in equity.
Until final resolution of any dispute hereunder, CONTRACTOR shall
diligently proceed with the performance of this Agreement as directed
by LMC.
18. GRATUITIES/KICKBACKS
No gratuities (in the form of entertainment, gifts or otherwise) or
kickbacks shall be offered or given by CONTRACTOR, to any employee of
LMC with a view toward securing favorable treatment as a supplier.
19. INSURANCE/ENTRY ON LMC'S PROPERTY
In the event that CONTRACTOR, its employees, agents, or subcontractors
enter LMC'S or its customer's premises for any reason in connection
with this Agreement, CONTRACTOR, its subcontractors and lower-tier
subcontractors, shall procure and maintain worker's compensation,
comprehensive general liability, bodily injury and property damage
insurance in reasonable amounts, and such other insurance as LMC may
require and shall comply with all site requirements. CONTRACTOR shall
indemnify and hold harmless LMC, its officers, employees, and agents
from any losses, costs, claims, causes of action, damages,
liabilities, and expenses, including attorneys' fees, all expenses of
litigation and/or settlement, and court costs, by reason of property
damage or personal injury to any person caused in whole or part by the
actions or omissions of CONTRACTOR, its officers, employees, agents,
suppliers, or subcontractors at any tier. CONTRACTOR shall provide
LMC thirty days advance written notice prior to the effective date of
any cancellation or change in the term or coverage of any of
CONTRACTOR'S required insurance. If requested, CONTRACTOR shall send
a "Certificate of Insurance" showing CONTRACTOR'S compliance with
these requirements. CONTRACTOR shall name LMC as an additional
insured for the duration of this Agreement. Insurance maintained
pursuant to this
<PAGE>
clause shall be considered primary as respects the interest of LMC and
is not contributory with any insurance which LMC may carry.
20. INTELLECTUAL PROPERTY
A. CONTRACTOR agrees that LMC shall be the owner of all inventions,
technology, designs, works of authorship, mask works, technical
information, computer software, business information and other
information conceived, developed or otherwise generated in the
performance of this Agreement by or on behalf of CONTRACTOR.
CONTRACTOR hereby assigns and agrees to assign all right title and
interest in the foregoing to LMC, including without limitation all
copyrights, patent rights and other intellectual property rights
therein and further agrees to execute, at LMC'S request and expense,
all documentation necessary to perfect title therein in LMC.
CONTRACTOR agrees that it will maintain and disclose to LMC written
records of, and otherwise provide LMC with full access to, the subject
matter covered by this and that all such subject matter will be deemed
information of LMC and subject to the protection provisions of the
clause entitled "Information of LMC." CONTRACTOR agrees to assist LMC,
at LMC'S request and expense, in every reasonable way, in obtaining,
maintaining, and enforcing patent and other intellectual property
protection on the subject matter covered by this Clause.
B. CONTRACTOR warrants that the Services performed and delivered under
this Agreement will not infringe or otherwise violate the intellectual
property rights of any third party in the United States or any foreign
country. CONTRACTOR agrees to defend, indemnity and hold harmless LMC
and its customers from and against any claims, damages, losses costs
and expenses, including reasonable attorney's fees, arising out of any
action by a third party that is based upon a claim that the Services
performed or delivered under this Agreement infringes or otherwise
violates the intellectual property rights of any person or entity.
21. RELEASE OF INFORMATION
Except as required by law, no public release of any information, or
confirmation or denial of same, with respect to this Agreement or the
subject matter hereof, will be made by CONTRACTOR without the prior
written approval of LMC.
22. TIMELY PERFORMANCE
A. CONTRACTOR'S timely performance is a critical element of this
Agreement.
<PAGE>
B. If CONTRACTOR becomes aware of difficulty in performing the Services,
CONTRACTOR shall timely notify LMC, in writing, giving pertinent
details. This notification shall not change any delivery schedule.
23. WAIVER, APPROVAL, AND REMEDIES
A. Failure by LMC to enforce any of the provision(s) of this Agreement
shall not be construed as a waiver of the requirement(s) of such
provision(s), or as a waiver of the right of LMC thereafter to enforce
each and every such provision(s).
B. LMC'S approval of documents shall not relieve CONTRACTOR from
complying with any requirements of this Agreement.
C. The rights and remedies of LMC in this Agreement are cumulative and in
addition to any other rights and remedies provided by law or in
equity.
24. AMENDMENTS AND NOTICE
A. Sole authority to make changes in or amendments to this Agreement on
behalf of LMC rests with a LMC Central Procurement Administrator, and
no direction from such Administrator shall be valid unless in writing.
B. All notices by LMC or CONTRACTOR shall be given in writing by mail or
fax to the following locations:
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first above written.
<PAGE>
Exhibit 12
LOCKHEED MARTIN CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE YEAR ENDED DECEMBER 31, 1999
(In millions, except ratio)
Earnings:
Earnings from continuing operations before income taxes $1,200
Interest expense 809
Amortization of debt premium and discount, net (4)
Portion of rents representative of an interest factor 75
Losses and undistributed earnings of 50% and less than 50%
owned companies, net 31
------
Adjusted earnings from continuing operations before income taxes $2,111
======
Fixed Charges:
Interest expense $ 809
Capitalized interest 10
Amortization of debt premium and discount, net (4)
Portion of rents representative of an interest factor 75
------
Total fixed charges $ 890
======
Ratio of Earnings to Fixed Charges 2.4
======
<PAGE>
Exhibit 13
FINANCIAL SECTION
Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
The Corporation's Responsibility for
Financial Reporting 38
Audited Consolidated Financial Statements:
Report of Ernst & Young LLP,
Independent Auditors 39
Consolidated Statement of Earnings 40
Consolidated Statement of Cash Flows 41
Consolidated Balance Sheet 42
Consolidated Statement of Stockholders' Equity 43
Notes to Consolidated Financial Statements 44
Consolidated Financial Data - Ten Year Summary 64
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
December 31, 1999
Lockheed Martin Corporation (Lockheed Martin or the Corporation) is engaged in
the conception, research, design, development, manufacture, integration and
operation of advanced technology systems, products and services. The Corporation
serves customers in both domestic and international defense and commercial
markets, with its principal customers being agencies of the U.S. Government. The
following discussion should be read in conjunction with the audited consolidated
financial statements included herein.
Strategic and Organizational Review
In September 1999, Lockheed Martin announced the results to date of its
strategic and organizational review that began in June 1999. As a result of this
review, the Corporation has implemented a new organizational structure (as more
fully described in Note 17 of the Notes to Consolidated Financial Statements,
"Information on Industry Segments and Major Customers"), and announced plans 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 is continuing to evaluate alternatives relative to
maximizing the value of two business units that serve the commercial information
technology markets, including Lockheed Martin's internal information technology
needs. These units have been identified by management as having high growth
potential, but are distinct from the Corporation's core business segments. The
Corporation may seek to maximize the value of these business units through
strategic partnerships or joint ventures, or by accessing public equity markets,
although the outcome of those efforts cannot be predicted. Management has
decided to evaluate for divestiture, subject to appropriate valuation,
negotiation and approval, a third business unit originally identified for
evaluation relative to maximizing its value. This business unit serves state and
local government services markets.
The Corporation is also continuing its evaluation of 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. On a combined basis, net sales in 1999 related to the
business units being evaluated for divestiture, including the business unit in
the state and local government services market described above, totaled $1.9
billion. The divestiture of one business unit in the environmental management
line of business was consummated in December 1999, the impact of which was not
material to the Corporation's net earnings. Relative to all other business units
identified for potential divestiture, 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 net loss on disposition of
approximately $850 million, primarily non-cash. However, the potential proceeds
from these transactions, if consummated, could also generate in excess of $1.5
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 ultimately be realized or whether any or all of the
potential transactions will take place.
In a further development related to the strategic and organizational
review, the Corporation announced in January 2000 its plans to streamline the
Aeronautical Systems and Space Systems segments. These plans provide for the
consolidation of multiple business units into one focused company in each
segment, and the integration of certain operational and administrative
activities within each segment. Management expects these actions to result in
future cost savings for the Corporation.
On an ongoing basis, the Corporation will continue to explore the sale of
various investment holdings and surplus real estate, review its businesses to
identify ways to improve organizational effectiveness and performance, and
clarify and focus on its core business strategy.
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
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
December 31, 1999
conditions to its closing. As a result, the Corporation now owns approximately
49 percent of the outstanding common stock of COMSAT and accounts for its
investment under the equity method of accounting. The total value of this first
phase of the transaction was $1.2 billion, and such amount is included in
investments in equity securities in the December 31, 1999 Consolidated Balance
Sheet.
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 (the House) also passed legislation
which, if adopted into law, would remove these restrictions. There are
substantial differences between the two bills, and significant issues raised by
the House bill in particular which, if not resolved satisfactorily, would likely
have a Significant Adverse Effect on COMSAT (as defined in the Merger
Agreement). The Corporation hopes these issues will be favorably resolved.
In early 2000, sponsors of the two different bills announced a compromise
agreement that, if adopted, would resolve many of the issues raised by the House
bill. It is now expected that legislation that reflects the compromise agreement
will be enacted before May 2000. There is no assurance that this legislation
will be passed or passed in this time frame, or that any legislation that does
become law would not have an adverse effect on COMSAT's business. 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, the Corporation would have the right to
elect not to complete the Merger.
Before the Merger can occur, the Corporation must file separate
notification and report forms under the Hart Scott-Rodino Antitrust Improvement
Act (HSR Act) with the Federal Trade Commission (FTC) and the U.S. Department of
Justice (DOJ) regarding its acquisition of minority interests in two businesses
held by COMSAT. In addition, following the passage of legislation, the Federal
Communications Commission (FCC) must approve the Merger. The precise nature of
the FCC approval requirement will, however, depend upon the details of the final
legislation enacted by Congress. There is no assurance as to the timing or
whether the FTC, DOJ or FCC will provide the requisite approvals. If the Merger
is not completed on or before 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 consummated, the Merger will be accounted for under the purchase method
of accounting. If the Merger is not consummated, the Corporation will not be
able to achieve all of its objectives with respect to the COMSAT transaction and
will be unable to exercise control over COMSAT.
The market value of the Corporation's investment in COMSAT at December 31,
1999 was approximately $515 million based on the closing price of its shares on
the New York Stock Exchange on that date. As noted previously, completion of the
Merger will require the exchange of one share of the Corporation's common stock
for each remaining share of COMSAT's common stock. As a result, the price of
COMSAT's common stock is closely aligned with the price of Lockheed Martin's
common stock and may not reflect the price at which COMSAT's common stock might
trade absent the Merger Agreement.
Formation of Lockheed Martin Global Telecommunications
Effective January 1, 1999, investments in several existing joint ventures and
certain operating 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
22
<PAGE>
Lockheed Martin Corporation
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 equity markets may be accessed to raise capital, although the Corporation
cannot predict the outcome of these efforts.
Divestiture Activities
In March 1997, the Corporation repositioned 10 of its non-core business units as
a new independent company, L-3 Communications Holdings, Inc. (L-3), in which the
Corporation retained an approximate 35 percent ownership interest at closing.
The Corporation's ownership percentage was reduced to approximately 25 percent
in the second quarter of 1998 as a result of an initial public offering of L-3's
common stock. In 1999, the Corporation sold its remaining shares of L-3 in two
separate transactions. On a combined basis, these transactions increased 1999
pretax earnings by $155 million, and increased net earnings by $101 million, or
$.26 per diluted share.
In September 1999, the Corporation sold its interest in Airport Group
International Holdings, LLC which resulted in a pretax gain of $33 million. In
October 1999, the Corporation exited its commercial 3D graphics business through
a series of transactions which resulted in the sale of its interest in Real 3D,
Inc., a majority-owned subsidiary, and a pretax gain of $33 million. On a
combined basis, these transactions increased net earnings by $43 million, or
$.11 per diluted share.
In November 1997, Lockheed Martin exchanged all of the outstanding capital
stock of a wholly-owned subsidiary for all of the outstanding Series A preferred
stock held by General Electric Company (GE) and certain subsidiaries of GE (the
GE Transaction). The Series A preferred stock was convertible into approximately
58 million shares of Lockheed Martin common stock. The Lockheed Martin
subsidiary was composed of two non-core commercial business units which
contributed approximately five percent of the Corporation's 1997 net sales,
Lockheed Martin's investment in a telecommunications partnership and
approximately $1.6 billion in cash. The GE Transaction was accounted for at fair
value, and resulted in the reduction of the Corporation's stockholders' equity
by $2.8 billion and the recognition of a tax-free gain of approximately $311
million in other income and expenses. Also see the discussion under the caption
"Results of Operations" regarding the impact of the GE Transaction on the
computation of 1997 earnings per share. In 1998 and 1997, in connection with the
GE Transaction, the Corporation issued notes to a wholly-owned subsidiary of GE
for $210 million, bearing interest at 5.73%, and $1.4 billion, bearing interest
at 6.04%, respectively. The notes are due November 17, 2002.
Industry Considerations
The Corporation's primary lines of business are in advanced technology systems,
products and services for aerospace and defense, serving both government and
commercial customers. In recent years, domestic and worldwide political and
economic developments have strongly affected these markets, requiring
significant adaptation by market participants.
The U.S. aerospace and defense industry has experienced years of declining
budgets for research, development, test and evaluation, and procurement. After
over a decade of continuous declines in the U.S. defense budget, the portion of
the Federal budget devoted to defense is at one of its lowest levels in modern
history. In addition, worldwide defense budgets have been declining with a focus
on operational readiness and personnel issues at the expense of acquisition
programs, with modernization becoming increasingly popular over acquisition.
Consequently, an increasing portion of expenditures for defense is used for
upgrading and modernizing existing equipment rather than acquisition of new
equipment. Such trends in defense spending have created risks associated with
demand and timing of orders relative to certain of the Corporation's existing
programs. For example, the Corporation has not received the level of orders
anticipated for the C-130J airlift aircraft program which has resulted in lower
than expected production levels. The Corporation is continuing to focus its
efforts on new orders from foreign and domestic customers, though it cannot
predict the outcome of these efforts.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
December 31, 1999
The industry participants have reacted to shrinking defense budgets by
combining to maintain critical mass and attempting to achieve significant cost
savings. The U.S. Government had been supportive of industry consolidation
activities through 1997, and the Corporation had been at the forefront of these
activities. Through its own consolidation activities, the Corporation has been
able to pass along savings to its customers, principally the U.S. Department of
Defense (DOD). With the more recent decline of significant domestic industry
consolidation, major aerospace companies continue to focus on cost savings and
efficiency improvements, as well as generation of cash to repay debt incurred
during this period of consolidation.
Ongoing consolidation continues within the European aerospace industry
resulting in fewer but larger and more capable competitors, potentially
resulting in an environment where there could be less demand for products from
U.S. companies. Such an environment could affect opportunities for European
partnerships and sales potential for U.S. products outside the U.S.
There are signs that the continuing decline in the defense budget may have
ended, with proposals being made for modest increases in the next several years.
The Corporation's broad mix of programs and capabilities makes it a likely
beneficiary of any increased defense spending. However, there are risks
associated with certain of the programs for which the Corporation is competing
which will be the primary recipients of significant future U.S. Government
spending. These programs are very large and likely to be well-funded, but may
only involve one prime contractor. For example, the Corporation is involved in
the competition for the Joint Strike Fighter (JSF) tactical aircraft program.
Because of the magnitude of this program, being unsuccessful in the competition
would be significant to any of the competitors' future fighter aircraft
operations. Additionally, the JSF program and other large, highly visible
programs, such as the Corporation's F-22 tactical fighter program, frequently
receive substantial Congressional focus as potential targets for reductions
and/or extensions of their funding to pay for other programs. However, the JSF
and F-22 programs remain a high priority for the DOD and the armed services, as
well as for the Corporation.
As a government contractor, the Corporation is subject to U.S. Government
oversight. The government may investigate and make inquiries of the
Corporation's business practices and conduct audits of contract performance and
cost accounting. Depending on the results of these investigations, the
government may make claims against the Corporation. Under U.S. Government
procurement regulations and practices, an indictment of a government contractor
could result in that contractor being fined and/or suspended for a period of
time from eligibility for bidding on, or for award of, new government contracts.
A conviction could result in debarment for a specified period of time. Similar
government oversight exists in most other countries where the Corporation
conducts business. Although the outcome of such investigations and inquiries
cannot be predicted, in the opinion of management, there are no claims, audits
or investigations pending against the Corporation that are likely to have a
material adverse effect on the Corporation's business or its consolidated
results of operations, cash flows or financial position.
The Corporation remains exposed to other inherent risks associated with
U.S. Government contracting, including technological uncertainties and
obsolescence, changes in government policies and dependence on annual
Congressional appropriation and allotment of funds. Many of the Corporation's
programs involve development and application of state-of-the-art technology
aimed at achieving challenging goals. As a result, setbacks and failures can
occur. It is important for the Corporation to resolve performance issues related
to such programs in a timely manner to achieve success on these programs.
The Corporation also conducts business in related commercial and
non-defense markets. Although these lines of business are not dependent on
defense budgets, they share many of the risks associated with the Corporation's
defense businesses, as well as other risks unique to the commercial marketplace.
Such risks include development of competing products, technological feasibility
and product obsolescence.
Industry-wide, the launch vehicle industry experienced a reduction in
demand in 1999 primarily reflecting start-up issues for certain satellite
systems with which the Corporation was not involved, delays in completing
certain
24
<PAGE>
Lockheed Martin Corporation
satellite systems due to over-capacity of transponders in some regional areas,
and launch vehicle failures experienced by the Corporation and its competitors
during the past two years. These issues have also resulted in delays for
commercial satellite orders, which are expected to continue into 2000. The
Corporation has addressed issues associated with prior failures of its Titan and
Proton launch vehicles, which have been returned to flight status. The above
factors related to reductions in launch vehicle orders have resulted in pricing
pressures due to increased competition in the launch vehicle industry. The
Corporation has established cost objectives related to its launch vehicle
programs intended to allow it to continue to compete in this market while
maintaining its focus on successful launches, though it cannot predict the
outcome of these efforts.
In connection with expanding its portfolio of offered products and
services in commercial space and telecommunications activities, the Corporation
has entered into various joint venture, teaming and other business arrangements,
including some with foreign partners. The conduct of international business
introduces other risks into the Corporation's operations, including fluctuating
economic conditions, fluctuations in relative currency values and the potential
for unanticipated cost increases and timing issues resulting from the possible
deterioration of political relations.
In 1992, the Corporation entered into a joint venture with two Russian
government-owned space firms to form Lockheed-Khrunichev-Energia International,
Inc. (LKEI). Lockheed Martin owns 51 percent of LKEI and consolidates the
operations of LKEI into its financial statements. LKEI has exclusive rights to
market launches of commercial, non-Russian-origin space payloads on the Proton
rocket from a launch site in Kazakhstan. In 1995, another joint venture was
formed, International Launch Services (ILS), with the Corporation and LKEI each
holding 50 percent ownership. ILS was formed to market commercial Atlas and
Proton launch services worldwide. Contracts for Proton launch services typically
require substantial advances from the customer in advance of launch, and a
sizable percentage of these advances are forwarded to Khrunichev State Research
and Production Space Center (Khrunichev), the manufacturer in Russia, to provide
for the manufacture of the related launch vehicle. Significant portions of such
advances would be required to be refunded to each customer if launch services
were not successfully provided within the contracted time frame. At December 31,
1999, approximately $724 million related to launches not yet provided was
included in customer advances and amounts in excess of costs incurred, and
approximately $848 million of payments to Khrunichev for launches not yet
provided was included in inventories. Through year end 1999, launch services
provided through LKEI and ILS have been in accordance with contract terms.
An additional risk exists related to launch vehicle services in Russia.
Under a trade agreement in effect since September 1993 between the United States
and Russia, as amended most recently in July 1999, the number of Russian
launches of U.S. built satellites into geosynchronous and geosynchronous
transfer orbit is limited to twenty from trade agreement inception through the
year 2000. Officials of the U.S. Government have stated that this limit will not
be raised until Russia takes satisfactory action to resolve missile technology
proliferation concerns. This limit, if not raised or eliminated, could impair
the Corporation's ability to achieve certain of its business objectives related
to launch services, satellite manufacture and telecommunications market
penetration. At December 31, 1999, no portion of customer advances was
associated with launches in excess of the quota, and approximately $245 million
of the $848 million of payments to Khrunichev disclosed in the prior paragraph
were associated with launches in excess of the number currently allowed under
the quota. The Corporation determines amounts related to launches in excess of
the quota taking into account the number of launches currently allowed under the
quota (twenty at December 31, 1999, as discussed above), and without regard to
the quota's current expiration date of December 31, 2000. Management is working
to achieve a favorable resolution to raise or eliminate the limitation on the
number of Russian launches covered by the quota.
The Corporation has entered into agreements with RD AMROSS, a joint
venture of the Pratt & Whitney division of United Technologies Corporation and
the Russian firm NPO Energomash, 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 Atlas
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
December 31, 1999
launch vehicle. 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. Approximately $55 million of payments made under these
agreements were included in the Corporation's inventories at December 31, 1999.
[BAR GRAPH]
----------------------------------------
Net Sales
(In millions)
----------------------------------------
'97 '98 '99
----------------------------------------
$28,069 $26,266 $25,530
Results of Operations
The Corporation's operating cycle is long-term and involves many types of
production contracts with varying production delivery schedules. Accordingly,
the results of a particular year, or year-to-year comparisons of recorded sales
and profits, may not be indicative of future operating results. The following
comparative analysis should be viewed in this context.
The Corporation's consolidated net sales for 1999 were $25.5 billion, a
decrease of three percent compared to 1998. Net sales during 1998 were $26.3
billion, a decrease of six percent compared to 1997. The net sales decrease in
the Space Systems segment in 1999 more than offset increases in the remaining
business segments. In 1998, slight increases in net sales in the Systems
Integration and Aeronautical Systems segments compared to 1997 were more than
offset by decreases in the other business segments. The U.S. Government remained
the Corporation's largest customer, comprising approximately 71 percent of the
Corporation's net sales for 1999 compared to 70 percent in 1998 and 66 percent
in 1997.
The Corporation's operating profit (earnings before interest and taxes)
for 1999 was approximately $2.0 billion, a decrease of 20 percent compared to
1998. Operating profit for 1998 was approximately $2.5 billion, a decrease of
nine percent compared to 1997. The reported amounts for the three years
presented include the financial impacts of various nonrecurring and unusual
items, the details of which are described below. Excluding the effects of these
nonrecurring and unusual items for each year, operating profit for 1999 would
have decreased by 34 percent compared to 1998, and would have decreased by five
percent for 1998 compared to 1997. For 1999 compared to 1998, decreases in
operating profit at the Space Systems and Aeronautical Systems segments more
than offset the slight increase in operating profit at the Systems Integration
and Technology Services segments. For 1998 compared to 1997, increases in
operating profit at the Aeronautical Systems and Systems Integration segments
were more than offset by reductions in operating profit in the remaining
segments. For a more detailed discussion of the operating results of the
business segments, see "Discussion of Business Segments" below.
Operating profit in 1999 included the effects of nonrecurring and unusual
items which on a combined basis, net of state income taxes, increased operating
profit by $249 million. These items included a $155 million gain related to the
sale of the Corporation's remaining interest in L-3, a $57 million gain
associated with the sale of surplus real estate, and a net gain of $37 million
associated with the sale of non-core businesses and investments and other
portfolio shaping actions.
Operating profit in 1998 included the effects of nonrecurring and unusual
items which on a combined basis, net of state income taxes, decreased operating
profit by $162 million. These items included a $233 million charge related to
the timely non-bankruptcy shutdown of CalComp Technology, Inc. (CalComp), a
majority-owned subsidiary of the Corporation. The Corporation's decision to
finance the shutdown of CalComp resulted in a charge related to the impairment
of assets and estimated costs required to
26
<PAGE>
Lockheed Martin Corporation
[BAR GRAPH]
----------------------------------------
Net Earnings
(In millions)
----------------------------------------
'97 '98 '99
----------------------------------------
$1,300 $1,001 $382
$1,234(a) $1,137(b) $575(c)
(a) Excluding the effects of the gain on the transaction with GE, the charges
relating to the decision to exit certain lines of business and to
impairment in values for certain assets, and gains from sales of surplus
real estate and other portfolio shaping items, 1997 net earnings would
have been $1,234 million.
(b) Excluding the effects of the charge related to CalComp, and gains from
sales of surplus real estate and other portfolio shaping items, 1998 net
earnings would have been $1,137 million.
(c) Excluding the effects of gains from the sale of the Corporation's interest
in L-3 and sales of surplus real estate, a net gain from sales of non-core
businesses and investments and other portfolio shaping items, and the
cumulative effect adjustment related to start-up costs, 1999 net earnings
would have been $575 million.
accomplish the shutdown of CalComp's operations. The remaining 1998 nonrecurring
and unusual items included net gains of $18 million related to the initial
public offering of L-3's stock, $35 million associated with gains on sales of
surplus real estate, and $18 million associated with other portfolio shaping
actions.
Operating profit for 1997 also included the effects of nonrecurring and
unusual items which on a combined basis, net of state income taxes, decreased
operating profit by $58 million. These items included the $311 million tax-free
gain resulting from the GE Transaction, and charges totaling $457 million
recorded in the fourth quarter of 1997 related to the Corporation's decision to
exit certain lines of business and to the impairment in the values of various
non-core investments and certain other assets. In addition, 1997 included
nonrecurring and unusual items related to a $19 million gain associated with the
sale of surplus real estate and a net gain of $69 million associated with the
sale of non-core businesses and investments and other portfolio shaping actions.
The Corporation's reported net earnings for 1999 were $382 million, a
decrease of 62 percent compared to 1998. Reported net earnings for 1998 were
$1.0 billion, a decrease of 23 percent compared to the reported 1997 net
earnings of $1.3 billion. The 1999 reported amount includes the combined
after-tax effects of the nonrecurring and
[BAR GRAPH]
----------------------------------------
Diluted Earnings
(Loss) Per Share
(In dollars)
----------------------------------------
'97 '98 '99
----------------------------------------
$(1.56)(a) $2.63 $ .99
$ 2.87 (b) $2.99(c) $1.50(d)
(a) Includes the effects of a deemed preferred stock dividend in determining
net loss applicable to common stock in the computation of loss per share
which resulted from the GE Transaction. The effect of this deemed dividend
was to reduce the diluted per share amount by $4.93.
(b) Excluding the effects of the deemed preferred stock dividend, the gain on
the transaction with GE, the charges relating to the decision to exit
certain lines of business and to impairment in values for certain assets,
and gains from sales of surplus real estate and other portfolio shaping
items, and including the dilutive effects of preferred stock conversion
and stock options, 1997 diluted earnings per share would have been $2.87.
(c) Excluding the effects of the charge related to CalComp, and gains from
sales of surplus real estate and other portfolio shaping items, 1998
diluted earnings per share would have been $2.99.
(d) Excluding the effects of gains from the sale of the Corporation's interest
in L-3 and sales of surplus real estate, a net gain from sales of non-core
businesses and investments and other portfolio shaping items, and the
cumulative effect adjustment related to start-up costs, 1999 diluted
earnings per share would have been $1.50.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
December 31, 1999
unusual items discussed above of $162 million, including $101 million related to
the gain on the sale of the Corporation's remaining interest in L-3, $37 million
associated with gains on the sale of surplus real estate, and a $24 million net
gain associated with the sale of non-core businesses and investments and other
portfolio shaping actions. Nonrecurring and unusual items for 1999 also include
the effects of the Corporation's adoption of 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 that reduced
1999 net earnings by $355 million. On a combined basis, these nonrecurring and
unusual items decreased 1999 net earnings by $193 million, or $.51 per diluted
share. The after-tax effects of the nonrecurring and unusual items in 1998
discussed above included $183 million related to the charge for CalComp, $12
million related to a gain on the initial public offering of L-3's stock, $23
million associated with gains on the sale of surplus real estate, and a gain of
$12 million associated with the sale of non-core businesses and investments and
other portfolio shaping actions. On a combined basis, these items decreased 1998
net earnings by $136 million, or $.36 per diluted share. The after-tax effects
of the nonrecurring and unusual items in 1997 discussed above included the $311
million tax-free gain resulting from the GE Transaction, $303 million related to
the charges recorded in the fourth quarter, $12 million associated with a gain
on the sale of surplus real estate, and a net gain of $46 million associated
with other portfolio shaping actions. On a combined basis, these items increased
1997 net earnings by $66 million, or $.15 per diluted share.
The Corporation reported diluted earnings (loss) per share of $.99, $2.63,
and $(1.56) for 1999, 1998, and 1997, respectively. For the purposes of
determining the 1997 net loss applicable to common stock used in the calculation
of earnings per share, the excess fair value of the assets transferred to GE
over the carrying value of the preferred stock (approximately $1.8 billion) was
treated as a deemed preferred stock dividend and deducted from 1997 net
earnings. This deemed dividend had a significant impact on the 1997 loss per
share calculations, but did not impact reported 1997 net earnings. The effect of
this deemed dividend was to reduce basic and diluted earnings per share amounts
by $4.93. If the nonrecurring and unusual items described above were excluded
from the calculation of earnings per share, and, for 1997, if the dilutive
effects of preferred stock conversion and stock options were factored into the
diluted earnings per share calculation, diluted earnings per share for 1999,
1998 and 1997 would have been $1.50, $2.99 and $2.87, respectively.
Discussion of Business Segments
In September 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 four principal business segments are Systems Integration, Space
Systems, Aeronautical Systems, and Technology Services. 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 structure.
The following table displays net sales for the Lockheed Martin business
segments for 1999, 1998 and 1997, which correspond to the segment information
presented in Note 17 of the Notes to Consolidated Financial Statements:
(In millions) 1999 1998 1997
================================================================================
Net Sales
Systems Integration $10,954 $10,895 $10,853
Space Systems 5,825 7,039 7,931
Aeronautical Systems 5,499 5,459 5,319
Technology Services 2,261 1,935 1,989
Corporate and Other 991 938 1,977
- --------------------------------------------------------------------------------
$25,530 $26,266 $28,069
================================================================================
Operating profit (loss) by industry segment for 1999, 1998 and 1997,
including the effects of the nonrecurring and unusual items discussed
previously, is displayed in the
28
<PAGE>
Lockheed Martin Corporation
table below. This information also corresponds to the segment information
presented in Note 17 of the Notes to Consolidated Financial Statements.
(In millions) 1999 1998 1997
================================================================================
Operating Profit (Loss)
Systems Integration $ 967 $ 949 $ 843
Space Systems 474 954 1,090
Aeronautical Systems 247 649 561
Technology Services 137 135 187
Corporate and Other 184 (165) 98
- --------------------------------------------------------------------------------
$ 2,009 $ 2,522 $ 2,779
================================================================================
The following table displays the pretax impact of the nonrecurring and
unusual items discussed earlier and the related effects on each segment's
operating profit (loss) for each of the three years presented:
(In millions) 1999 1998 1997
================================================================================
Nonrecurring and Unusual Items--
Profit (Loss):
Consolidated Effects
Sale of remaining interest in L-3 $ 155 $ -- $ --
Sales of surplus real estate 57 35 19
Divestitures and other
portfolio shaping items 37 18 69
Initial public offering of L-3 -- 18 --
Charge for shutdown of CalComp -- (233) --
GE Transaction -- -- 311
Charges for exit from businesses and
impairment of assets -- -- (457)
- --------------------------------------------------------------------------------
$ 249 $(162) $ (58)
- --------------------------------------------------------------------------------
Segment Effects
Systems Integration $ 13 $ 4 $ (65)
Space Systems 21 -- (60)
Aeronautical Systems -- -- (31)
Technology Services -- -- (12)
Corporate and Other 215 (166) 110
- --------------------------------------------------------------------------------
$ 249 $(162) $ (58)
================================================================================
In an effort to make the following discussion of significant operating
results of each business segment more understandable, the effects of these
nonrecurring and unusual items discussed earlier have been excluded. 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 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' overall results of operations.
Systems Integration
Net sales of the Systems Integration segment increased by one percent in 1999
compared to 1998, and also increased by one percent in 1998 compared to 1997.
The increase in 1999 was comprised of an $80 million increase in volume on
tactical training systems and a $65 million increase in postal systems
activities. These increases were partially offset by a decrease of $100 million
in classified activities and space electronics programs. The remaining increase
is primarily attributable to increased electronics activities in the United
Kingdom. The 1998 increase resulted from an increase in production deliveries of
postal systems equipment of $180 million and a $170 million increase in volume
on surface ship systems. These increases were partially offset by a $215 million
decrease in fire control systems, air defense systems and defense information
systems program activities. An additional $70 million decrease related to the
absence in 1998 of sales associated with the segment's Commercial Electronics
business, which was divested early in 1998. The remaining decrease is
attributable to a decline in volume on various other systems integration
activities.
Operating profit for the segment increased by one percent in 1999 compared
to 1998, and increased by four percent in 1998 compared to 1997. The 1999
increase is comprised of a $50 million increase related to the tactical training
systems and postal systems volume increases discussed in the preceding paragraph
as well as improved performance on missile and fire control programs. These
increases were partially offset by a $15 million penalty on the Theater High
Altitude Area Defense (THAAD) program booked in the second quarter and the
absence in 1999 of a $16 million favorable arbitration resolution
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
December 31, 1999
recorded in 1998. The remaining decrease relates to the decline in volume on
various other systems integration activities. The increase in operating profit
in 1998 compared to 1997 was comprised of $45 million in improved margins on
naval electronics programs, a $15 million increase from deliveries of control
systems, approximately $20 million related to volume increase in postal systems
activities and $16 million from the previously mentioned favorable arbitration
resolution. These increases were partially offset by a $32 million decrease in
air defense systems, an $11 million decrease in operating profit on fire control
systems and, to a lesser extent, other volume decreases that impacted net sales.
Space Systems
Net sales of the Space Systems segment decreased by 17 percent in 1999 compared
to 1998, and decreased by 11 percent in 1998 compared to 1997. Almost half of
the segment's 1999 net sales decrease resulted from volume decreases on military
satellite programs and classified activities. Net sales were also reduced by a
$185 million decrease in commercial and civil satellite activities as a result
of the maturity of certain programs and lower market demand. Net sales were
further reduced by a $50 million decrease from 1998 in launch vehicle
activities. In addition, during the second quarter of 1999, the segment recorded
a $90 million negative adjustment related to the Titan IV program which included
the effects of changes in estimates for award and incentive fees resulting from
the launch failure on April 30, 1999, as well as a more conservative assessment
of future program performance. The remaining decrease is related to a decline in
volume on various other space systems activities. The segment's 1998 net sales
activity was adversely impacted by a decrease in commercial launch vehicle
activity resulting from delays in the availability of commercial satellites due
primarily to supplier issues. This reduction accounted for approximately 20
percent of the 1998 decrease and was mainly attributable to the Atlas and Proton
commercial launch vehicles. The 1998 net sales further decreased by $165 million
due to a reduction in volume on the Trident fleet ballistic missile program and
$85 million due to a reduction in commercial and civil satellite activities.
Approximately 40 percent of the remaining decrease was due to additional
reductions in 1998 net sales relating to a net decrease in military satellite
programs and classified activities, with the remainder due to various other
space systems activities.
Operating profit for the segment decreased by 53 percent in 1999 compared
to 1998, and decreased by 17 percent in 1998 compared to 1997. A contributing
factor to the decrease in the segment's operating profit in 1999 compared to
1998 was the impact of a third quarter 1998 favorable adjustment of
approximately $120 million, net of state income taxes, which resulted from a
significant improvement in the Atlas program related to the retirement of
technical and program risk based upon an evaluation of historical performance.
In addition, 1999 operating profit was adversely affected by the impact of the
$90 million Titan IV program adjustment discussed above. Operating profit in
1999 was also adversely impacted by increased period costs (principally start-up
costs) related to launch vehicle investments which accounted for approximately
15 percent of the decrease, by a reduction in Trident fleet ballistic missile
activities that reduced operating profit by approximately $30 million, and by a
launch vehicle contract cancellation which resulted in a charge of $30 million.
The remainder of the decrease is attributable to the decline in sales related to
military satellite and classified activities discussed above as well as a
reduction in commercial satellite activities. The 1998 decrease resulted from
the same issues that impacted net sales, as discussed above, with the Trident
fleet ballistic missile program and classified activities accounting for
approximately 75 percent of the total decrease. In addition, $75 million of the
decrease was attributable to reductions in commercial launch vehicle activities,
and $30 million related to a decline in commercial and civil satellite
activities. These decreases were partially offset by the previously discussed
$120 million favorable Atlas program adjustment and $15 million contributed by
enhanced performance on the military satellite programs. The remaining decrease
was due to reduced operating profit related to various other activities of the
segment.
Aeronautical Systems
Net sales of the Aeronautical Systems segment increased by one percent in 1999
compared to 1998, and increased
30
<PAGE>
Lockheed Martin Corporation
by three percent in 1998 compared to 1997. The 1999 increase was comprised of
$715 million in increased sales related to C-130J airlift aircraft program
activities offset by a $717 million decrease in F-16 sales and deliveries. The
remaining increase was attributable to increased sales on various other aircraft
programs. The 1998 net sales increase was primarily due to $116 million in
increased volume related to F-16 fighter aircraft. Activities related to the
F-22 program and other tactical aircraft programs accounted for the remaining
increase in sales.
Operating profit for the segment decreased by 62 percent in 1999 compared
to 1998 after increasing 10 percent during 1998 compared to 1997. The 1999
decrease principally reflects adjustments during the second quarter 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. This adjustment negatively impacted operating profit by $210
million. Additionally, until further favorable progress occurs in terms of
orders and cost, the Corporation does not intend to record profit on future
deliveries of the aircraft, and will reduce production levels over time from 16
to 8 aircraft per year. Of the remaining decrease, $80 million resulted from
reduced F-16 deliveries, with the remaining decrease due to volume decreases on
various other aircraft programs. Operating profit increased during 1998 by $60
million as a result of increased F-16 aircraft deliveries and the absence of
approximately $60 million in C-130J development costs incurred in 1997. These
increases were partially offset by approximately $30 million related to a
decrease in operating profit on the F-22 program, as well as decreases
associated with various other military aircraft programs.
Technology Services
Net sales of the Technology Services segment increased by 17 percent in 1999
compared to 1998 after having decreased three percent in 1998 compared to 1997.
The increase in 1999 net sales is mainly the result of an approximate $300
million increase in volume on the Consolidated Space Operations Contract, which
was awarded in September 1998. The 1998 decrease was primarily attributable to
the absence in 1998 of approximately $240 million in sales related to the
segment's Aerostructures business unit, which was divested in November 1997 as
part of the GE Transaction. Excluding the effect of this divestiture, 1998 net
sales would have increased by 11 percent. This increase resulted mainly from
$110 million in higher sales volume related to the aircraft maintenance and
logistics lines of business and a $70 million increase in certain technology
services programs.
Operating profit for the segment increased by one percent in 1999 compared
to 1998 after having decreased 32 percent in 1998 compared to 1997. The increase
in 1999 operating profit is attributable to the Consolidated Space Operations
Contract as well as increases related to improved performance in the segment's
aircraft maintenance and logistics lines of business, partially offset by
decreases attributable to the timing of award fees on certain energy-related
contracts. The operating profit decrease for 1998 was primarily attributable to
the absence in 1998 of $62 million in operating profit related to the segment's
Aerostructures business unit, as discussed above. Excluding the effect of this
divestiture, the 1998 operating profit would have only decreased by one percent
due to performance issues related to certain of the segment's aircraft
maintenance and logistics contracts and the absence in 1998 of profit associated
with a Space Station contract, which was canceled in 1997.
Corporate and Other
Net sales of the Corporate and Other segment increased by six percent in 1999
compared to 1998 after having decreased 53 percent in 1998 compared to 1997. The
1999 increases of $75 million in the information technology outsourcing
business, $65 million in state and municipal services, and $75 million in Global
Telecommunications programs more than offset the absence in 1999 of the $155
million net sales of the CalComp subsidiary during 1998. The majority of this
segment's 1998 decrease is due to the absence in 1998 of $1.2 billion in net
sales of the segment's Access Graphics business unit which was
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
December 31, 1999
divested in the fourth quarter of 1997. In addition, approximately 13 percent of
the decrease is due to the absence in 1998 of net sales resulting from the
Corporation's repositioning of 10 business units to form L-3 effective in March
1997. Excluding the impact of these divestitures, the segment's net sales for
1998 would have increased 62 percent compared to 1997. Approximately $155
million of this increase resulted from higher sales volume on state and
municipal programs, with the remainder primarily due to increases in net sales
related to various information technology outsourcing programs.
Operating profit for this segment decreased by $32 million in 1999
compared to 1998 after having increased by $13 million in 1998 compared to 1997.
The decrease in 1999 reflects $103 million in operating losses on Global
Telecommunications partially offset by the absence of the 1998 operating losses
of $70 million on CalComp and Real 3D. Adjusting the 1997 results for the
effects of Access Graphics and L-3 divestitures discussed in the preceding
paragraph, on a comparable basis, operating profit for 1998 would have decreased
by $13 million. The operating profit decrease from 1997 to 1998 resulted from
unfavorable performance in the segment's commercial products businesses,
primarily CalComp, partially offset by increases related to state and municipal
programs and information technology outsourcing programs.
[BAR GRAPH]
----------------------------------------
Negotiated Backlog
(In millions)
----------------------------------------
'97 '98 '99
----------------------------------------
$47,059 $45,345 $45,913
Backlog
Total negotiated backlog of $45.9 billion at December 31, 1999 included both
unfilled firm orders for the Corporation's products for which funding has been
authorized and appropriated by the customer (Congress, in the case of U.S.
Government agencies) and firm orders for which funding has not been
appropriated.
The following table shows total backlog by segment at the end of each of
the last three years:
(In millions) 1999 1998 1997
================================================================================
Backlog
Systems Integration $15,220 $14,025 $14,126
Space Systems 14,749 15,829 16,380
Aeronautical Systems 9,003 10,265 13,019
Technology Services 4,399 3,503 2,107
Corporate and Other 2,542 1,723 1,427
- --------------------------------------------------------------------------------
$45,913 $45,345 $47,059
================================================================================
Total Systems Integration backlog increased by nine percent in 1999
compared to 1998, after having decreased by one percent in 1998 compared to
1997. Approximately one half of the 1999 increase was comprised of new orders
for missile systems, with the remaining increase primarily attributable to
increased orders for various platform integration activities and increased
surface ship system awards. During 1998, backlog decreased due to a reduction of
orders for missile systems and increased deliveries related to air traffic
control programs. These decreases were partially offset by increased orders for
certain radar electronics and surface ship systems.
Total Space Systems backlog decreased by seven percent in 1999 compared to
1998, and decreased by three percent in 1998 compared to 1997. The decrease in
1999 was mainly attributable to a significant decrease in launch vehicle backlog
as a result of decreases in new orders as well as a decrease in backlog
associated with military satellites and classified activities. Approximately one
half of these decreases were offset by new orders for commercial and civil
satellites. The decrease in 1998 resulted principally from a decrease in backlog
on military and classified satellite programs in addition to decreases
32
<PAGE>
Lockheed Martin Corporation
related to contract modifications to the Titan IV program. These reductions were
partially offset by increased orders on commercial launch vehicle and satellite
programs. During 1998, the Corporation entered into an agreement with the U.S.
Government that provides $500 million of funding to develop the Evolved
Expendable Launch Vehicle. The Corporation will use its best efforts to design a
prototype to comply with the launch capability requirements included in the
agreement. Since this agreement does not constitute a procurement contract,
funding has been excluded from backlog for 1998 and 1999.
Total Aeronautical Systems backlog decreased by 12 percent in 1999
compared to 1998, and decreased by 21 percent in 1998 compared to 1997. The
decline in 1999 backlog was comprised of approximately equal decreases on the
F-16 tactical fighter program and C-130J airlift aircraft program related to the
timing of new orders and sales recorded during 1999. An increase in orders
associated with the F-22 tactical fighter program offset approximately one-third
of the aforementioned decreases. In January 2000, the Corporation received
orders from the government of Israel for F-16 fighter aircraft in an agreement
estimated to be worth approximately $1.5 billion. During 1998, the government of
the United Arab Emirates (UAE) selected the Corporation's F-16 as its advanced
fighter aircraft. In March 2000, an agreement was reached for the sale of 80
F-16 fighter aircraft with an estimated value of $6.4 billion, pending various
government approvals. The segment's 1998 backlog was impacted by a significant
decrease in new order activity from the prior year, principally related to the
decrease in backlog on F-16 tactical fighter programs due to the timing of new
orders. An additional decrease resulted from decreases in backlog on the C-130J
airlift aircraft and F-22 tactical fighter programs.
Total Technology Services backlog increased by 26 percent in 1999 compared
to 1998, after having increased significantly, over 66 percent, in 1998 compared
to 1997. The increase in 1999 was attributable to the booking of new orders
associated with the 1999 award of an aircraft engine maintenance contract by the
United States Air Force which was partially offset by sales on existing
information management service contracts. The increase from 1997 to 1998 is
primarily attributed to the 1998 award of the Consolidated Space Operations
Contract by the National Aeronautics and Space Administration, and increases
related to the receipt of new information management services contracts.
Total Corporate and Other backlog increased by 48 percent in 1999 compared
to 1998, and increased by 21 percent in 1998 compared to 1997. Slightly more
than one half of the 1999 increase was primarily due to new orders on
information outsourcing contracts with the remainder of the increase reflecting
new orders associated with the Corporation's Global Telecommunications line of
business. The 1998 increase was mainly attributable to an increase on various
information services and state and municipal services programs.
[BAR GRAPH]
----------------------------------------
Net Cash Provided By
Operating Activities
(In millions)
----------------------------------------
'97 '98 '99
----------------------------------------
$1,208 $2,031 $1,077
Liquidity and Cash Flows
Operating Activities
Operating activities provided $1.1 billion in cash during 1999, compared to $2.0
billion and $1.2 billion provided in 1998 and 1997, respectively. The
significant decrease
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
December 31, 1999
in cash provided by operations during 1999 compared to 1998 resulted from the
decrease in earnings before cumulative effect of change in accounting between
the periods and increased working capital requirements. The significant increase
in cash provided by operations during 1998 compared to 1997 was a result of
improved operating cash flow and reduced net federal income tax payment
activity.
Investing Activities
The Corporation used $1.6 billion in cash for investing activities during 1999,
compared to $455 million used during 1998 and $185 million provided during 1997.
For the three years presented, cash used for additions to property, plant and
equipment declined four percent in 1999 after a seven percent decrease in 1998.
During 1999, $1.2 billion was used to acquire the Corporation's 49 percent
interest in COMSAT, as discussed previously, which was the primary reason for
the increase in the use of cash in 1999 compared to 1998. Also in 1999, $263
million of cash was provided related to the sale of the Corporation's remaining
interest in L-3, which was partially offset by $103 million of cash used for
additional investments in Astrolink International, LLC and other acquisition and
divestiture activities. During 1998, $134 million of net cash was provided by
divestiture and acquisition activities. In 1997, cash was principally provided
by the disposition of the Armament Systems and Defense Systems businesses and
the repositioning of 10 business units to form L-3 in March 1997.
Financing Activities
Financing activities provided $731 million in cash during 1999, compared to $1.3
billion used during 1998 and $1.4 billion used during 1997. The $2.0 billion
increase in cash provided by financing activities in 1999 as compared to the
cash used during 1998 reflects the Corporation's issuance of $3.0 billion in
long-term debt securities in the fourth quarter of 1999, partially offset by
repayments of long-term debt totaling $1.1 billion and a net decrease of $868
million in short-term borrowings outstanding. The debt issuance, which
represented the entire amount registered under its previously filed shelf
registration statement, included Notes and Debentures ranging in maturity from
six years to 30 years, with interest rates ranging from 7.95% to 8.5%. The
proceeds from the debt issuance were used for general corporate purposes,
including the repayment of commercial paper and borrowings under the
Corporation's short-term and long-term credit facilities. During 1998, operating
activities generated significantly more cash, which allowed the Corporation to
reduce its total debt by more than $1.0 billion. During 1997, the Corporation
also was able to decrease its short-term borrowings significantly, while
long-term debt was increased to finance the GE Transaction. Approximately $52
million of long-term debt will mature in 2000.
The Corporation paid dividends of $345 million in 1999 compared to $310
million and $299 million during 1998 and 1997, respectively. During the first
quarter of 2000, the Corporation's Board of Directors approved management's
recommendation to reduce the quarterly cash dividend per common share from $.22
per share, or $.88 annually, to $.11 per share, or $.44 annually. The decreased
dividend will be effective for dividends declared in the first quarter of 2000.
Other
The Corporation receives advances on certain contracts to finance inventories.
At December 31, 1999, approximately $1.85 billion in advances and progress
payments related to work in process were received from customers and recorded as
a reduction to inventories in the Corporation's Consolidated Balance Sheet. Also
at December 31, 1999, approximately $486 million of customer advances and
progress payments were recorded in receivables as an offset to unbilled costs
and accrued profits. Approximately $4.7 billion of customer advances and amounts
in excess of costs incurred, which are typically from foreign governments and
commercial customers, are included in current liabilities at the end of 1999.
Capital Structure and Resources
Total debt, including short-term borrowings, increased by $1.1 billion during
1999 from approximately $10.9 billion at December 31, 1998. This increase was
comprised of the issuance of $3.0 billion in long-term debt securities, offset
by repayments of long-term debt of $1.1 billion and net repayments of short-term
debt of $868 million. The Corporation's long-term debt is primarily in the form
of publicly issued, fixed-rate notes and debentures. At year-end 1999,
34
<PAGE>
Lockheed Martin Corporation
the Corporation held cash and cash equivalents of $455 million which were used
to pay down its commercial paper borrowings in January 2000. Total stockholders'
equity was $6.4 billion at December 31, 1999, an increase of approximately $224
million from the December 31, 1998 balance. This increase resulted from 1999 net
earnings of $382 million and employee stock option and ESOP activities of $189
million, partially offset by the payment of dividends of $345 million. As a
result of the above factors, the Corporation's debt to total capitalization
ratio increased from 64 percent at December 31, 1998 to 65 percent at December
31, 1999.
At the end of 1999, the Corporation had in place a short-term revolving
credit facility in the amount of $1.0 billion which matures on May 26, 2000, and
a long-term revolving credit facility in the amount of $3.5 billion, which
matures on December 20, 2001 (collectively, the Credit Facilities). No
borrowings were outstanding under these facilities at December 31, 1999. The
Credit Facilities support commercial paper borrowings of approximately $475
million outstanding at December 31, 1999, all of which are classified as
short-term borrowings.
The Corporation has entered into standby letter of credit agreements and
other arrangements with financial institutions primarily relating to the
guarantee of future performance on certain contracts. At December 31, 1999, the
Corporation had contingent liabilities on outstanding letters of credit,
guarantees and other arrangements aggregating approximately $1.1 billion.
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.
In February 2000, the Corporation and Loral Space & Communications Ltd.
(Loral Space) filed certain notices under the HSR Act with the FTC and the DOJ
in connection with the Corporation's plan to convert its 45.9 million shares of
Loral Space Series A Preferred Stock (the Preferred Stock) into an equal number
of shares of Loral Space common stock. The Corporation will be able to convert
the Preferred Stock following expiration on March 5, 2000 of the waiting period
required by the HSR Act, unless such period is extended by a request from the
FTC for additional information. Also in February 2000, the Corporation and Loral
Space entered into an agreement which will facilitate the Corporation's ability
to divest its interest in Loral Space, but in no case earlier than mid-May 2000.
Year 2000 Issues
Lockheed Martin completed its Year 2000 Compliance Program (the Program). The
Program was designed to minimize risk to the Corporation's business units and
its customers in advance of the century change using a standard six-phase
industry approach. The six phases included: Awareness, Assessment, Renovation,
Validation, Implementation and Post-Implementation. The Corporation experienced
no significant Year 2000-related issues with respect to its internal information
technology (IT), its external IT systems or its non-IT systems. Based on
information currently available, the Corporation is not aware of any continued
exposure to issues associated with the century change.
The Corporation incurred total costs of approximately $75 million to
complete the Program which included internal costs as well as costs for outside
consulting services, but did not include estimated costs for system replacements
which were not accelerated due to Year 2000 issues. The
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
December 31, 1999
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 is being reflected in the
Corporation's sales and cost of sales. The total costs incurred were not
material to the Corporation's consolidated results of operations, cash flows or
financial position for any prior period. The Corporation anticipates no material
expenditures relating to Year 2000 issues subsequent to December 31, 1999.
Environmental Matters
As more fully described in Note 16 of the Notes to Consolidated Financial
Statements, the Corporation is responding to three administrative orders issued
by the California Regional Water Quality Control Board (the Regional Board) in
connection with its facilities in Redlands, California. The Corporation
estimates that expenditures required to implement work currently approved by the
Regional Board related to the Redlands facilities will be approximately $140
million. Also in connection with its Redlands facilities, the Corporation is
coordinating with the U.S. Air Force, which is conducting studies of the
potential health effects of exposure to perchlorates, a regional groundwater
contaminant. The results of these studies indicate that the Corporation's
current efforts with water purveyors regarding perchlorate issues are
appropriate; however, the Corporation currently cannot project the extent of its
ultimate clean-up obligation, if any, with respect to perchlorates. The
Corporation has also entered into two consent decrees with the U.S.
Environmental Protection Agency (EPA) relating to certain property in Burbank,
California, and is operating under a clean-up and abatement order from the
Regional Board regarding its Burbank facilities. In addition, the Corporation is
one of several parties responding to administrative orders from the EPA
regarding the city of Glendale, California. The Corporation estimates that total
expenditures required over the remaining terms of the consent decrees and the
Regional Board order related to the Burbank property, and the administrative
orders related to the city of Glendale, will be approximately $100 million.
The Corporation is a party to various other proceedings and potential
proceedings related to environmental clean-up issues, including matters at
various sites where it has been designated a Potentially Responsible Party (PRP)
by the EPA or by a state agency. In the event the Corporation is ultimately
found to have liability at those sites where it has been designated a PRP, the
Corporation anticipates that the actual burden for the costs of remediation will
be shared with other liable PRPs. Generally, PRPs that are ultimately determined
to be responsible parties are strictly liable for site clean-ups and usually
agree among themselves to share, on an allocated basis, the costs and expenses
for investigation and remediation of hazardous materials. Under existing
environmental laws, however, responsible parties are jointly and severally
liable and, therefore, the Corporation is potentially liable for the full cost
of funding such remediation. In the unlikely event that the Corporation was
required to fund the entire cost of such remediation, the statutory framework
provides that the Corporation may pursue rights of contribution from the other
PRPs. Among the variables management must assess in evaluating costs associated
with these sites are changing cost estimates, continually evolving governmental
environmental standards and cost allowability issues. Therefore, the nature of
these environmental matters makes it extremely difficult to estimate the timing
and amount of any future costs that may be necessary for remedial actions.
The Corporation records appropriate financial statement accruals for
environmental issues in the period in which it is probable that a liability has
been incurred and the amounts can be reasonably estimated. In addition to the
matters with respect to the Redlands and Burbank properties and the city of
Glendale described above, the Corporation has accrued approximately $200 million
at December 31, 1999 for other matters in which an estimate of financial
exposure could be determined. Management believes, however, that it is unlikely
that any additional liability the Corporation may incur for known environmental
issues would have a material adverse effect on its consolidated results of
operations or financial position.
36
<PAGE>
Lockheed Martin Corporation
Also as more fully described in Note 16 to the Notes to 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. The Corporation is defending this action in which discovery has been
pending since August 2, 1999. On October 1, 1999, the U.S. Court of Federal
Claims stayed the DOE's motion to dismiss the Corporation's lawsuit, finding
that the Court has jurisdiction. The Court 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.
Other Matters
The Corporation's primary exposure to market risk relates to interest rates and
foreign currency exchange rates. Financial instruments held by the Corporation
which are subject to interest rate risk principally include variable rate
commercial paper and fixed rate long-term debt. The Corporation's long-term debt
obligations are generally not callable until maturity. The Corporation may use
interest rate swaps to manage its exposure to fluctuations in interest rates;
however, there were no such agreements outstanding at December 31, 1999. Based
on its portfolio of variable rate short-term debt and fixed rate long-term debt
outstanding at December 31, 1999, the Corporation's exposure to interest rate
risk is not material.
The Corporation uses forward exchange contracts to manage its exposure to
fluctuations in foreign exchange rates. These contracts are designated as
qualifying hedges of firm commitments or specific anticipated transactions, and
related gains and losses on the contracts are recognized in income when the
hedged transaction occurs. At December 31, 1999, the amounts of forward exchange
contracts outstanding, as well as the amounts of gains and losses recorded
during the year, were not material. Based on the above, the Corporation's
exposure to foreign currency exchange risk is not material. The Corporation does
not hold or issue derivative financial instruments for trading purposes.
As described more fully in Note 1 of the Notes to Consolidated Financial
Statements, the Corporation does not intend to adopt Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," prior to the current required date of January 1, 2001. The
Statement will require 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. In general, these
provisions of the Statement could result in a greater degree of income statement
volatility than current accounting practice. 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.
37
<PAGE>
THE CORPORATION'S RESPONSIBILITY FOR
FINANCIAL REPORTING Lockheed Martin Corporation
The management of Lockheed Martin Corporation prepared and is responsible
for the consolidated financial statements and all related financial information
contained in this report. The consolidated financial statements, which include
amounts based on estimates and judgments, have been prepared in accordance with
accounting principles generally accepted in the United States applied on a
consistent basis after consideration of the Corporation's adoption of the
provisions of the American Institute of Certified Public Accountants' Statement
of Position No. 98-5, "Reporting on the Costs of Start-Up Activities" as
discussed in Note 1 of the Notes to Consolidated Financial Statements.
The Corporation maintains a system of internal accounting controls
designed and intended to provide reasonable assurance that assets are
safeguarded, transactions are properly executed and recorded in accordance with
management's authorization, and accountability for assets is maintained. An
environment that establishes an appropriate level of control consciousness is
maintained and monitored and includes examinations by an internal audit staff
and by the independent auditors in connection with their annual audit.
The Corporation's management recognizes its responsibility to foster a
strong ethical climate. Management has issued written policy statements which
document the Corporation's business code of ethics. The importance of ethical
behavior is regularly communicated to all employees through the distribution of
written codes of ethics and standards of business conduct, and through ongoing
education and review programs designed to create a strong compliance
environment.
The Audit and Ethics Committee of the Board of Directors is composed of
seven outside directors. This Committee meets periodically with the independent
auditors, internal auditors and management to review their activities. Both the
independent auditors and the internal auditors have unrestricted access to meet
with members of the Audit and Ethics Committee, with or without management
representatives present.
The consolidated financial statements have been audited by Ernst & Young
LLP, independent auditors, whose report follows.
/s/ Robert J. Stevens
Robert J. Stevens
Executive Vice President--Finance and Chief Financial Officer
/s/Christopher E. Kubasik
Christopher E. Kubasik
Vice President and Controller
38
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Lockheed Martin Corporation
Board of Directors and Stockholders
Lockheed Martin Corporation
We have audited the accompanying consolidated balance sheet of Lockheed
Martin Corporation as of December 31, 1999 and 1998, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Lockheed Martin Corporation at December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
As discussed in Note 1 of the Notes to Consolidated Financial Statements,
in 1999 the Corporation adopted the provisions of the American Institute of
Certified Public Accountants' Statement of Position No. 98-5, "Reporting on the
Costs of Start-Up Activities."
/s/ Ernst & Young LLP
Washington, D.C.
January 21, 2000
39
<PAGE>
CONSOLIDATED STATEMENT OF EARNINGS Lockheed Martin Corporation
<TABLE>
<CAPTION>
Year ended December 31,
(In millions, except per share data) 1999 1998 1997
===================================================================================================
<S> <C> <C> <C>
Net sales $25,530 $26,266 $28,069
Cost of sales 23,865 23,914 25,772
- ---------------------------------------------------------------------------------------------------
Earnings from operations 1,665 2,352 2,297
Other income and expenses, net 344 170 482
- ---------------------------------------------------------------------------------------------------
2,009 2,522 2,779
Interest expense 809 861 842
- ---------------------------------------------------------------------------------------------------
Earnings before income taxes and cumulative effect
of change in accounting 1,200 1,661 1,937
Income tax expense 463 660 637
- ---------------------------------------------------------------------------------------------------
Earnings before cumulative effect of change in accounting 737 1,001 1,300
Cumulative effect of change in accounting (355) -- --
- ---------------------------------------------------------------------------------------------------
Net earnings $ 382 $ 1,001 $ 1,300
- ---------------------------------------------------------------------------------------------------
Earnings (loss) per common share:*
Basic:
Before cumulative effect of change in accounting $ 1.93 $ 2.66 $ (1.56)
Cumulative effect of change in accounting (.93) -- --
- ---------------------------------------------------------------------------------------------------
$ 1.00 $ 2.66 $ (1.56)
Diluted:
Before cumulative effect of change in accounting $ 1.92 $ 2.63 $ (1.56)
Cumulative effect of change in accounting (.93) -- --
- ---------------------------------------------------------------------------------------------------
$ .99 $ 2.63 $ (1.56)
===================================================================================================
</TABLE>
* As more fully described in Notes 3 and 5, in 1997 the Corporation
reacquired all of its outstanding Series A preferred stock resulting in a
deemed dividend of $1,826 million. For purposes of computing net loss
applicable to common stock for basic and diluted loss per share, the
deemed preferred stock dividend was deducted from 1997 net earnings.
See accompanying Notes to Consolidated Financial Statements.
40
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS Lockheed Martin Corporation
<TABLE>
<CAPTION>
Year ended December 31,
(In millions) 1999 1998 1997
=========================================================================================================================
<S> <C> <C> <C>
Operating Activities
Earnings before cumulative effect of change in accounting $ 737 $ 1,001 $ 1,300
Adjustments to reconcile earnings to net cash provided by operating activities:
Depreciation and amortization 529 569 606
Amortization of intangible assets 440 436 446
Deferred federal income taxes 293 203 155
GE Transaction -- -- (311)
Changes in operating assets and liabilities:
Receivables 130 809 (572)
Inventories (404) (1,183) (687)
Customer advances and amounts in excess of costs incurred 313 329 1,048
Income taxes (284) 189 (560)
Other (677) (322) (217)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,077 2,031 1,208
- -------------------------------------------------------------------------------------------------------------------------
Investing Activities
Expenditures for property, plant and equipment (669) (697) (750)
Consummation of COMSAT Tender Offer (1,203) -- --
Sale of remaining interest in L-3 263 -- --
Divestiture of L-3 companies -- -- 464
Divestiture of Armament Systems and Defense Systems -- -- 450
Other acquisition and divestiture activities (103) 134 12
Other 74 108 9
- -------------------------------------------------------------------------------------------------------------------------
Net cash (used for) provided by investing activities (1,638) (455) 185
- -------------------------------------------------------------------------------------------------------------------------
Financing Activities
Net decrease in short-term borrowings (868) (151) (866)
Increases in long-term debt 2,994 266 1,505
Repayments and extinguishments of long-term debt (1,067) (1,136) (219)
Issuances of common stock 17 91 110
Dividends on common stock (345) (310) (299)
Dividends on preferred stock -- -- (53)
Redemption of preferred stock -- (51) (1,571)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 731 (1,291) (1,393)
- -------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 170 285 --
Cash and cash equivalents at beginning of year 285 -- --
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 455 $ 285 $ --
=========================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
41
<PAGE>
CONSOLIDATED BALANCE SHEET Lockheed Martin Corporation
<TABLE>
<CAPTION>
December 31,
(In millions) 1999 1998
=========================================================================================
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 455 $ 285
Receivables 4,348 4,178
Inventories 4,051 4,293
Deferred income taxes 1,237 1,109
Other current assets 605 746
- -----------------------------------------------------------------------------------------
Total current assets 10,696 10,611
Property, plant and equipment 3,634 3,513
Investments in equity securities 2,210 948
Intangible assets related to contracts and programs acquired 1,259 1,418
Cost in excess of net assets acquired 9,162 9,521
Other assets 3,051 2,733
- -----------------------------------------------------------------------------------------
$30,012 $ 28,744
- -----------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,228 $ 1,382
Customer advances and amounts in excess of costs incurred 4,655 4,012
Salaries, benefits and payroll taxes 941 842
Income taxes 51 553
Short-term borrowings 475 1,043
Current maturities of long-term debt 52 886
Other current liabilities 1,410 1,549
- -----------------------------------------------------------------------------------------
Total current liabilities 8,812 10,267
Long-term debt 11,427 8,957
Post-retirement benefit liabilities 1,805 1,903
Other liabilities 1,607 1,480
Stockholders' equity:
Common stock, $1 par value per share 398 393
Additional paid-in capital 222 70
Retained earnings 5,901 5,864
Unearned ESOP shares (150) (182)
Accumulated other comprehensive income (loss) (10) (8)
- -----------------------------------------------------------------------------------------
Total stockholders' equity 6,361 6,137
- -----------------------------------------------------------------------------------------
$30,012 $ 28,744
=========================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
42
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Lockheed Martin Corporation
<TABLE>
<CAPTION>
Accumulated
Additional Unearned Other Total
Preferred Common Paid-In Retained ESOP Comprehensive Stockholders' Comprehensive
(In millions, except per share data) Stock Stock Capital Earnings Shares Income (Loss) Equity Income
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 1,000 $ 193 $ 92 $ 5,823 $(252) $ -- $ 6,856
Net earnings -- -- -- 1,300 -- -- 1,300 $1,300
Dividends declared on preferred
stock ($2.65 per share) -- -- -- (53) -- -- (53) --
Dividends declared on common
stock ($.80 per share) -- -- -- (299) -- -- (299) --
Stock awards and options, and
ESOP activity -- 1 161 -- 36 -- 198 --
Redemption of preferred stock (1,000) -- (228) (1,598) -- -- (2,826) --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 -- 194 25 5,173 (216) -- 5,176 $1,300
======
Net earnings -- -- -- 1,001 -- -- 1,001 $1,001
Dividends declared on common
stock ($.82 per share) -- -- -- (310) -- -- (310) --
Stock awards and options, and
ESOP activity -- 2 204 -- 34 -- 240 --
Stock issued for acquisitions -- -- 38 -- -- -- 38 --
Other comprehensive income (loss) -- -- -- -- -- (8) (8) (8)
Two-for-one stock split -- 197 (197) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 -- 393 70 5,864 (182) (8) 6,137 $ 993
======
Net earnings -- -- -- 382 -- -- 382 $ 382
Dividends declared on common
stock ($.88 per share) -- -- -- (345) -- -- (345) --
Stock awards and options, and
ESOP activity -- 5 152 -- 32 -- 189 --
Other comprehensive income (loss) -- -- -- -- -- (2) (2) (2)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ -- $ 398 $ 222 $ 5,901 $(150) $(10) $ 6,361 $ 380
====================================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Note 1--Summary of Significant Accounting Policies
Organization--Lockheed Martin Corporation (Lockheed Martin or the Corporation)
is engaged in the conception, research, design, development, manufacture,
integration and operation of advanced technology systems, products and services.
Its products and services range from aircraft, spacecraft and launch vehicles to
missiles, electronics, information systems, telecommunications and energy
management. The Corporation serves customers in both domestic and international
defense and commercial markets, with its principal customers being agencies of
the U.S. Government.
Basis of consolidation and use of estimates--The consolidated financial
statements include the accounts of wholly-owned and majority-owned subsidiaries.
Intercompany balances and transactions have been eliminated in consolidation.
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions, including estimates of anticipated
contract costs and revenues utilized in the earnings recognition process, that
affect the reported amounts in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Common stock split--On December 31, 1998, the Corporation effected a two-for-one
split of the Corporation's common stock in the form of a stock dividend. All
references to shares of common stock and per share amounts in periods prior to
December 1998 were restated to reflect the stock split.
Classifications--Receivables and inventories are primarily attributable to
long-term contracts or programs in progress for which the related operating
cycles are longer than one year. In accordance with industry practice, these
items are included in current assets. Certain amounts for prior years have been
reclassified to conform with the 1999 presentation.
Cash and cash equivalents--Cash and cash equivalents are net of outstanding
checks that are funded daily as presented for payment. Cash equivalents are
generally comprised of highly liquid instruments with maturities of three months
or less when purchased. Due to the short maturity of these instruments, carrying
value on the Corporation's Consolidated Balance Sheet approximates fair value.
Receivables--Receivables consist of amounts billed and currently due from
customers, and include unbilled costs and accrued profits primarily related to
revenues on long-term contracts that have been recognized for accounting
purposes but not yet billed to customers. As such revenues are recognized,
appropriate amounts of customer advances and progress payments are reflected as
an offset to the related accounts receivable balance.
Inventories--Inventories are stated at the lower of cost or estimated net
realizable value. Costs on long-term contracts and programs in progress
represent recoverable costs incurred for production, allocable operating
overhead and, where appropriate, research and development and general and
administrative expenses. Pursuant to contract provisions, agencies of the U.S.
Government and certain other customers have title to, or a security interest in,
inventories related to such contracts as a result of advances and progress
payments. Such advances and progress payments are reflected as an offset against
the related inventory balances. General and administrative expenses related to
commercial products and services provided essentially under commercial terms and
conditions are expensed as incurred. Costs of other product and supply
inventories are principally determined by the first-in, first-out or average
cost methods.
Property, plant and equipment--Property, plant and equipment are carried
principally at cost. Depreciation is provided on plant and equipment generally
using accelerated methods during the first half of the estimated useful lives of
the assets; thereafter, straight-line depreciation generally is used. Estimated
useful lives generally range from 8 years to
44
<PAGE>
Lockheed Martin Corporation
40 years for buildings and 2 years to 20 years for machinery and equipment.
Investments in equity securities--Investments in equity securities include the
Corporation's ownership interests in affiliated companies accounted for under
the equity method of accounting. Under this method of accounting, which
generally applies to investments that represent a 20 percent to 50 percent
ownership of the equity securities of the investees, the Corporation's share of
the earnings of the affiliated companies is included in other income and
expenses. The Corporation recognizes currently gains or losses arising from
issuances of stock by wholly-owned or majority-owned subsidiaries, or by equity
method investees. These gains or losses are also included in other income and
expenses. Investments in equity securities also include the Corporation's
ownership interests in companies in which its investment represents less than 20
percent. These investments are generally accounted for under the cost method of
accounting.
Intangible assets--Intangible assets related to contracts and programs acquired
are amortized over the estimated periods of benefit (15 years or less) and are
displayed on the Consolidated Balance Sheet net of accumulated amortization of
$958 million and $800 million at December 31, 1999 and 1998, respectively. Cost
in excess of net assets acquired (goodwill) is amortized ratably over
appropriate periods, primarily 40 years, and is displayed on the Consolidated
Balance Sheet net of accumulated amortization of $1,373 million and $1,103
million at December 31, 1999 and 1998, respectively. The carrying values of
intangible assets, as well as other long-lived assets, are reviewed for
impairment if changes in the facts and circumstances indicate potential
impairment of their carrying values. Any impairment determined is recorded in
the current period and is measured by comparing the discounted cash flows of the
related business operations to the appropriate carrying values.
Customer advances and amounts in excess of costs incurred--The Corporation
receives advances and progress payments from customers in excess of costs
incurred on certain contracts, including contracts with agencies of the U.S.
Government. Such advances and progress payments, other than those reflected as
an offset to accounts receivable or inventories as discussed above, are
classified as current liabilities.
Environmental matters--The Corporation records a liability for environmental
matters when it is probable that a liability has been incurred and the amount
can be reasonably estimated. A substantial portion of these costs are expected
to be reflected in sales and cost of sales pursuant to U.S. Government agreement
or regulation. At the time a liability is recorded for future environmental
costs, an asset is recorded for estimated future recovery considered probable
through the pricing of products and services to agencies of the U.S. Government.
The portion of those costs expected to be allocated to commercial business is
reflected in cost of sales at the time the liability is established.
Sales and earnings--Sales and anticipated profits under long-term fixed-price
production contracts are recorded on a percentage of completion basis, generally
using units of delivery as the measurement basis for effort accomplished.
Estimated contract profits are taken into earnings in proportion to recorded
sales. Sales under certain long-term fixed-price contracts which, among other
things, provide for the delivery of minimal quantities or require a significant
amount of development effort in relation to total contract value, are recorded
upon achievement of performance milestones or using the cost-to-cost method of
accounting where sales and profits are recorded based on the ratio of costs
incurred to estimated total costs at completion.
Sales under cost-reimbursement-type contracts are recorded as costs are
incurred. Applicable estimated profits are included in earnings in the
proportion that incurred costs bear to total estimated costs. Sales of products
and
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999
services provided essentially under commercial terms and conditions are recorded
upon shipment or completion of specified tasks.
Amounts representing contract change orders, claims or other items are
included in sales only when they can be reliably estimated and realization is
probable. Incentives or penalties and awards applicable to performance on
contracts are considered in estimating sales and profit rates, and are recorded
when there is sufficient information to assess anticipated contract performance.
Incentive provisions which increase or decrease earnings based solely on a
single significant event are generally not recognized until the event occurs.
When adjustments in contract value or estimated costs are determined, any
changes from prior estimates are reflected in earnings in the current period.
Anticipated losses on contracts or programs in progress are charged to earnings
when identified.
Research and development and similar costs--Corporation-sponsored research and
development costs primarily include research and development and bid and
proposal efforts related to government products and services. Except for certain
arrangements described below, these costs are generally included as part of the
general and administrative costs that are allocated among all contracts and
programs in progress under U.S. Government contractual arrangements.
Corporation-sponsored product development costs not otherwise allocable are
charged to expense when incurred. Under certain arrangements in which a customer
shares in product development costs, the Corporation's portion of such
unreimbursed costs is expensed as incurred. Customer-sponsored research and
development costs incurred pursuant to contracts are accounted for as contract
costs.
Derivative financial instruments--The Corporation may use derivative financial
instruments to manage its exposure to fluctuations in interest rates and foreign
exchange rates. Forward exchange contracts are designated as qualifying hedges
of firm commitments or specific anticipated transactions. Gains and losses on
these contracts are recognized in income when the hedged transactions occur. At
December 31, 1999, the amounts of forward exchange contracts outstanding, as
well as the amounts of gains and losses recorded during the year, were not
material. The Corporation does not hold or issue derivative financial
instruments for trading purposes.
Stock-based compensation--The Corporation measures compensation cost for
stock-based compensation plans using the intrinsic value method of accounting as
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. The Corporation has adopted
those provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," which require disclosure of the pro
forma effect on net earnings and earnings per share as if compensation cost had
been recognized based upon the estimated fair value at the date of grant for
options awarded.
Comprehensive income--Comprehensive income for the Corporation consists
primarily of net earnings, foreign currency translation adjustments and
unrealized gains and losses on available-for-sale securities. At December 31,
1999 and 1998, the accumulated balances of other comprehensive income related to
foreign currency translation adjustments were insignificant. Prior to 1998, such
adjustments were recorded in other liabilities and were also insignificant. In
October 1999, the Corporation sold its remaining interest in L-3 Communications
Holdings, Inc. (L-3) (see Note 3), and reclassified to net earnings $30 million
of unrealized gains previously recorded as comprehensive income.
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
46
<PAGE>
Lockheed Martin Corporation
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 year ended December 31, 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.
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,
affects the future cash 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 pronouncement 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 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. In general, these provisions of the Statement
could result in a greater degree of income statement volatility than current
accounting practice. At adoption, existing hedging relationships must be
designated anew and documented pursuant to the provisions of the Statement. The
Corporation does not intend to adopt SFAS No. 133, as amended, prior to the
required date of January 1, 2001. 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 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, subsequent to
obtaining all necessary regulatory approvals and approval of the Merger by the
stockholders of COMSAT, the Corporation completed a cash tender offer (the
Tender Offer) on September 18, 1999. On that date, the Corporation 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
investments in equity securities in the December 31, 1999 Consolidated Balance
Sheet. The Corporation accounts for its 49 percent investment in COMSAT under
the equity method of accounting.
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
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999
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 (the House) also passed legislation which, if
adopted into law, would remove these restrictions. There are substantial
differences between the two bills, and significant issues raised by the House
bill in particular which, if not resolved satisfactorily, would likely have a
Significant Adverse Effect on COMSAT (as defined in the Merger Agreement). The
Corporation hopes these issues will be favorably resolved.
In early 2000, sponsors of the two different bills announced a
compromise agreement that, if adopted, would resolve many of the issues raised
by the House bill. It is now expected that legislation that reflects the
compromise agreement will be enacted before May 2000. There is no assurance that
this legislation will be passed or passed in this time frame, or that any
legislation that does become law would not have an adverse effect on COMSAT's
business. 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, the Corporation would have the
right to elect not to complete the Merger.
Before the Merger can occur, the Corporation must file separate
notification and report forms under the Hart Scott-Rodino Antitrust Improvement
Act with the Federal Trade Commission (FTC) and the U.S. Department of Justice
(DOJ) regarding its acquisition of minority interests in two businesses held by
COMSAT. In addition, following the passage of legislation, the Federal
Communications Commission (FCC) must approve the Merger. The precise nature of
the FCC approval requirement will, however, depend upon the details of the final
legislation enacted by Congress. There is no assurance as to the timing or
whether the FTC, DOJ or FCC will provide the requisite approvals. If the Merger
is not completed on or before 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 consummated, the Merger will be accounted for under the purchase method
of accounting. 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.
Effective January 1, 1999, investments in several existing joint ventures
and 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 noted above.
Note 3--Divestiture Activities
The Corporation executed a definitive agreement in March 1997 to reposition 10
of its non-core business units as a new independent company, L-3, in which the
Corporation retained an approximate 35 percent ownership interest at closing.
The transaction did not have a material impact on the Corporation's 1997
earnings. During May 1998, L-3 completed an initial public offering resulting in
the issuance of an additional 6.9 million shares of its common stock to the
public. This transaction resulted in a reduction in the Corporation's ownership
to approximately 25 percent and the recognition of a pretax gain of $18 million.
The gain increased net earnings by $12 million, or $.03 per diluted share. In
February 1999, the Corporation sold 4.5 million of its shares in 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. The gain increased net earnings by $74
million, or $.19 per diluted share. After this transaction was consummated, the
Corporation began accounting for its remaining investment in L-3 as an
available-for-sale investment. In October 1999, the Corporation sold its
remaining interest in L-3. This transaction resulted in the recognition of a
pretax gain of $41 million which increased net earnings by $27 million, or $.07
per diluted share.
48
<PAGE>
Lockheed Martin Corporation
In September 1999, the Corporation sold its interest in Airport Group
International Holdings, LLC which resulted in a pretax gain of $33 million. In
October 1999, the Corporation exited its commercial 3D graphics business through
consummation of a series of transactions which resulted in the sale of its
interest in Real 3D, Inc., a majority-owned subsidiary, and a pretax gain of
$33 million. On a combined basis, these transactions increased net earnings by
$43 million, or $.11 per diluted share.
In November 1997, the Corporation exchanged all of the outstanding capital
stock of a wholly-owned subsidiary, LMT Sub, for all of the outstanding Series A
preferred stock held by General Electric Company (the GE Transaction). LMT Sub
was composed of two non-core commercial business units which contributed
approximately five percent of the Corporation's 1997 net sales, Lockheed
Martin's investment in a telecommunications partnership, and approximately $1.6
billion in cash, of which $1.4 billion was subsequently refinanced with a 6.04%
note, due November 17, 2002, from Lockheed Martin to LMT Sub. The fair value of
the non-cash net assets exchanged was approximately $1.2 billion. During the
second quarter of 1998, the final determination of the closing net worth of the
businesses exchanged was completed, resulting in a payment of $51 million from
the Corporation to MRA Systems, Inc. (formerly LMT Sub). Subsequently, the
remainder of the cash included in the transaction was refinanced with a 5.73%
note for $210 million, due November 17, 2002, from Lockheed Martin to MRA
Systems, Inc.
The GE Transaction was accounted for at fair value, and resulted in the
reduction of the Corporation's stockholders' equity by $2.8 billion and the
recognition of a tax-free gain of approximately $311 million during the fourth
quarter of 1997. The final settlement payment in 1998 did not impact the gain
previously recorded on the transaction. For purposes of determining net loss
applicable to common stock used in the computation of loss per share for 1997,
the excess of the fair value of the consideration transferred to GE
(approximately $2.8 billion) over the carrying value of the Series A preferred
stock ($1.0 billion) was treated as a deemed preferred stock dividend and
deducted from 1997 net earnings in accordance with the requirements of the
Emerging Issues Task Force's Issue D-42. This deemed dividend had a significant
impact on the loss per share calculations, but did not impact reported 1997 net
earnings. The effect of this deemed dividend was to reduce the basic and diluted
loss per share amounts by $4.93.
Note 4--Restructuring and Other Charges
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.
The pretax charge reflected the effects of impairment related to goodwill of
approximately $75 million; writedowns of approximately $73 million to reflect
other assets at estimated recoverable values; estimated severance and other
costs related to employees of approximately $25 million; estimated costs related
to warranty obligations, and purchase and other commitments of approximately $37
million; and other estimated exit costs, primarily related to facilities, of
approximately $23 million. This charge decreased net earnings by $183 million,
or $.48 per diluted share.
As of December 31, 1999, CalComp had, among other actions, consummated
sales of substantially all of its assets, terminated substantially all of its
work force, and initiated the corporate dissolution process under the applicable
state statutes and, for its foreign subsidiaries, foreign government statutes.
The financial impacts of these actions were less than anticipated in the
Corporation's plans and estimates and, in the fourth quarter of 1999, the
Corporation reversed approximately 10 percent of the original pretax charge
recorded in 1998. While uncertainty remains concerning the resolution of matters
in dispute or litigation, management believes that the remaining
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999
amount recorded is adequate to provide for resolution of these matters and to
complete the dissolution process.
During the fourth quarter of 1997, the Corporation recorded nonrecurring
and unusual pretax charges, net of state income tax benefits, totaling $457
million, which reduced net earnings by $303 million. The charges were identified
in connection with the Corporation's review, which concluded in the fourth
quarter, of non-strategic lines of business, non-core investments and certain
other assets. Approximately $200 million of the pretax charges reflected the
estimated effects of exiting non-strategic lines of business, including amounts
related to the fixed price systems development line of business in the area of
children and family services, and related to increases in estimated exposures
relative to the environmental remediation lines of business initially identified
in 1996 and for which initial estimates of exposure were provided in the fourth
quarter of 1996. These increases in estimated exposures were based on more
current information, including deterioration in a partner's financial condition
as evidenced by the partner seeking protection under the bankruptcy laws. The
remaining charges reflected impairment in the values of various non-core
investments and certain other assets in keeping with the Corporation's continued
focus on core operations. These charges, in combination with the gain recognized
on the GE Transaction (see Note 3), decreased loss per diluted share for 1997 by
$.02.
During the fourth quarter of 1996, the Corporation recorded nonrecurring
pretax charges, net of state income tax benefits, of $307 million, which
decreased net earnings by $209 million. Approximately one-half of the charges
reflected the estimated effects of terminating a business relationship formed to
provide environmental remediation services to government and commercial
customers worldwide, and the initial estimated effects related to management's
decision to exit a certain environmental remediation line of business. Charges
of approximately $85 million were identified in connection with an evaluation of
the Corporation's future strategic focus, and reflected impairment in the values
of non-core investments and certain other assets which were other than temporary
in nature. The remaining charges of approximately $75 million pertained to costs
for facility closings and transfers of programs related to the Corporation's
acquisition of Loral Corporation in April 1996 (the Loral Transaction).
As of December 31, 1999, initiatives undertaken as part of the 1997 and
1996 charges relating to the Corporation's reviews of non-core investments and
certain other assets which resulted in impairment in values of those assets,
facility closings and transfers of programs resulting from the consummation of
the Loral Transaction, and the termination of a business relationship formed to
provide environmental remediation services, which in total represented
approximately 75 percent of the amounts originally recorded, have been completed
consistent with the Corporation's original plans and estimates. Actions
contemplated as part of the Corporation's exit from a certain environmental
remediation line of business and a fixed price systems development line of
business in the area of children and family services have not been completed. In
1999, the Corporation recorded an additional charge of approximately $40 million
related to the exit from these lines of business. During 1998 and 1997, the
effects on the Corporation's net earnings of adjustments associated with these
charges were not material. The amounts recorded in the Consolidated Balance
Sheet at December 31, 1999 related to these actions are, in the opinion of
management, adequate to complete the remaining initiatives originally
contemplated in the 1997 and 1996 charges.
During 1995, the Corporation recorded pretax charges of $690 million from
merger related expenses in connection with the formation of Lockheed Martin and
the related corporate-wide consolidation plan. The charges represented the
portion of the accrued costs and net realizable value adjustments that were not
probable of recovery. In
50
<PAGE>
Lockheed Martin Corporation
addition, the Corporation has incurred costs through the end of 1999 which were
anticipated in the 1995 consolidation plan but had not met the requirements for
accrual earlier. These costs include relocation of personnel and programs,
retraining, process re-engineering and certain capital expenditures, among
others. As of December 31, 1999, cumulative merger related and consolidation
payments were approximately $1.2 billion. Consistent with the original 1995
consolidation plan, consolidation actions were substantially completed by
December 31, 1999.
Under existing U.S. Government regulations, certain costs incurred for
consolidation actions that can be demonstrated to result in savings in excess of
the cost to implement can be deferred and amortized for government contracting
purposes and included as allowable costs in future pricing of the Corporation's
products and services. Included in the Consolidated Balance Sheet at December
31, 1999 is approximately $375 million of deferred costs that will be recognized
in future sales and cost of sales.
Note 5--Earnings Per Share
Basic and diluted earnings per share for 1999 and 1998 are computed based on net
earnings. For these years, the weighted average number of common shares
outstanding during each year 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. Basic loss per share for 1997 was computed based on net
earnings, less the dividend requirement for preferred stock to the date of
redemption, and less the deemed preferred stock dividend resulting from the
November 1997 GE Transaction representing the excess of the fair value of the
consideration transferred to GE (approximately $2.8 billion) over the carrying
value of the Lockheed Martin preferred stock redeemed ($1.0 billion). The
weighted average number of common shares outstanding during the year was used in
this calculation. The diluted loss per share for 1997 was computed in the same
manner as basic loss per share, as adjustments related to the assumed conversion
of the preferred stock (50.6 million common shares) and the related dividend
requirement for the preferred stock to the date of redemption ($53 million), and
the dilutive effect of stock options (5.8 million common shares), were not made
since they would have had antidilutive effects.
The following table sets forth the computations of basic and diluted
earnings (loss) per share:
<TABLE>
<CAPTION>
(In millions, except per share data) 1999 1998 1997
======================================================================================
<S> <C> <C> <C>
Net earnings (loss) applicable to common stock:
Earnings before cumulative
effect of change in accounting $ 737 $1,001 $ 1,300
Cumulative effect of change in
accounting (355) -- --
- --------------------------------------------------------------------------------------
Net earnings 382 1,001 1,300
Dividends on preferred stock -- -- (53)
Deemed preferred stock dividend -- -- (1,826)
- --------------------------------------------------------------------------------------
Net earnings (loss) applicable
to common stock for basic and
diluted computations $ 382 $1,001 $ (579)
- --------------------------------------------------------------------------------------
Average common shares
outstanding:
Average number of common
shares outstanding
for basic computations 382.3 376.5 370.6
Dilutive stock options--based
on the treasury stock method 1.8 4.6 --
- --------------------------------------------------------------------------------------
Average number of common
shares outstanding for diluted
computations 384.1 381.1 370.6
- --------------------------------------------------------------------------------------
Earnings (loss) per share:
Basic:
Before cumulative effect of
change in accounting $ 1.93 $ 2.66 $ (1.56)
Cumulative effect of change
in accounting (.93) -- --
- --------------------------------------------------------------------------------------
$ 1.00 $ 2.66 $ (1.56)
Diluted:
Before cumulative effect of
change in accounting $ 1.92 $ 2.63 $ (1.56)
Cumulative effect of change
in accounting (.93) -- --
- --------------------------------------------------------------------------------------
$ .99 $ 2.63 $ (1.56)
======================================================================================
</TABLE>
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999
Note 6--Receivables
(In millions) 1999 1998
================================================================================
U.S. Government:
Amounts billed $ 927 $ 987
Unbilled costs and accrued profits 2,300 2,440
Less customer advances and progress
payments (395) (491)
Commercial and foreign governments:
Amounts billed 644 635
Unbilled costs and accrued profits, primarily
related to commercial contracts 963 638
Less customer advances and progress
payments (91) (31)
- --------------------------------------------------------------------------------
$4,348 $4,178
================================================================================
Approximately $385 million of the December 31, 1999 unbilled costs and
accrued profits are not expected to be recovered within one year.
Note 7--Inventories
(In millions) 1999 1998
================================================================================
Work in process,
commercial launch vehicles $1,514 $1,326
Work in process, primarily
related to other long-term
contracts and programs
in progress 3,879 4,872
Less customer advances and
progress payments (1,848) (2,499)
- --------------------------------------------------------------------------------
3,545 3,699
Other inventories 506 594
- --------------------------------------------------------------------------------
$ 4,051 $ 4,293
================================================================================
Work in process inventories related to commercial launch vehicles included
costs for launch vehicles, both under contract and not under contract, including
unamortized deferred costs related to the commercial Atlas and the Evolved
Expendable Launch Vehicle (Atlas V) programs. Work in process inventories
related to other long-term contracts and programs included approximately $150
million of unamortized deferred costs at December 31, 1999 for aircraft not
under contract related to the Corporation's C-130J program.
Included in 1999 and 1998 commercial launch vehicle inventories were
amounts advanced to Russian manufacturers, Khrunichev State Research and
Production Space Center and RD AMROSS, a joint venture between Pratt & Whitney
and NPO Energomash, of approximately $903 million and $840 million,
respectively, for the manufacture of launch vehicles and related launch
services.
Approximately $1.5 billion of costs included in 1999 inventories,
including approximately $652 million advanced to the Russian manufacturers, are
not expected to be recovered within one year.
Included in 1998 inventories were capitalized costs related to start-up
activities of approximately $560 million which were included in the cumulative
effect adjustment related to the Corporation's adoption of SOP No. 98-5
effective January 1, 1999.
An analysis of general and administrative costs, including research and
development costs, included in work in process inventories follows:
(In millions) 1999 1998 1997
================================================================================
Beginning of year $ 693 $ 533 $ 460
Incurred during the year 2,354 2,469 2,245
Charged to cost of sales during the year:
Research and
development (822) (864) (788)
Other general and
administrative (1,732) (1,445) (1,384)
- --------------------------------------------------------------------------------
End of year $ 493 $ 693 $ 533
================================================================================
In addition, included in cost of sales in 1999, 1998 and 1997 were general
and administrative costs, including research and development costs, of
approximately $509 million, $490 million and $539 million, respectively,
incurred by commercial business units or programs.
52
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Lockheed Martin Corporation
Note 8--Property, Plant and Equipment
(In millions) 1999 1998
================================================================================
Land $ 218 $ 235
Buildings 3,027 2,979
Machinery and equipment 5,662 5,459
- --------------------------------------------------------------------------------
8,907 8,673
Less accumulated depreciation
and amortization (5,273) (5,160)
- --------------------------------------------------------------------------------
$ 3,634 $ 3,513
================================================================================
Note 9--Investments in Equity Securities
(In millions) 1999 1998
================================================================================
Equity method investments:
COMSAT Corporation $ 1,188 $ --
ACeS International, Ltd. 163 162
Astrolink International, LLC 148 --
Americom Asia-Pacific, LLC 114 105
Space Imaging LLC 86 99
L-3 Communications Holdings, Inc. -- 77
Other 72 85
- --------------------------------------------------------------------------------
1,771 528
Cost method investments:
Loral Space & Communications Ltd. 393 393
Other 46 27
- --------------------------------------------------------------------------------
439 420
- --------------------------------------------------------------------------------
$ 2,210 $ 948
================================================================================
At December 31, 1999, the carrying value of the Corporation's 49 percent
investment in COMSAT exceeded the Corporation's share of COMSAT's net assets by
approximately $900 million, and this amount is being amortized ratably over 30
years. The Corporation also has commitments to provide funding to Astrolink
International, LLC totaling approximately $270 million at December 31, 1999.
The estimated fair value of the Corporation's investment in Loral Space &
Communications Ltd., which consists of 45.9 million shares of Loral Space
Series A Preferred Stock, was $750 million at December 31, 1999.
Note 10--Debt
Type (Maturity Dates)
(In millions, except Range of
interest rate data) Interest Rates 1999 1998
================================================================================
Notes (2000-2022) 5.7 - 9.4% $ 6,778 $6,014
Debentures (2011-2036) 7.0 - 9.1% 4,407 3,160
Commercial paper 5.4 - 6.0% -- 300
ESOP obligations
(2000-2004) 8.4% 217 256
Other obligations
(2000-2016) 1.0 -12.7% 77 113
- --------------------------------------------------------------------------------
11,479 9,843
Less current maturities (52) (886)
- --------------------------------------------------------------------------------
$11,427 $8,957
================================================================================
During the fourth quarter of 1999, the Corporation issued $3.0 billion of
long-term fixed rate debt securities, the entire amount registered under its
previously filed shelf registration statement. These Notes and Debentures range
in maturity from six years to 30 years, with interest rates ranging from 7.95%
to 8.5%.
As of December 31, 1999, the Corporation had $1.3 billion of notes
outstanding which had been issued to a wholly-owned subsidiary of GE in
connection with the GE Transaction. The notes are due November 17, 2002 and bear
interest at a rate of approximately 6%. The agreements relating to these notes
require that, so long as the aggregate principal amount of the notes exceeds
$1.0 billion, the Corporation will recommend to its stockholders the election of
one person designated by GE to serve as a director of the Corporation.
The registered holders of $300 million of 40 year Debentures issued in
1996 may elect, between March 1 and April 1, 2008, to have their Debentures
repaid by the Corporation on May 1, 2008.
Included in Debentures are $112 million of 7% obligations ($175 million at
face value) which were originally sold at approximately 54 percent of their
principal amount.
53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999
These Debentures, which are redeemable in whole or in part at the Corporation's
option at 100 percent of their face value, have an effective yield of 13.25%.
A leveraged employee stock ownership plan (ESOP) incorporated into the
Corporation's salaried savings plan borrowed $500 million through a private
placement of notes in 1989. These notes are being repaid in quarterly
installments over terms ending in 2004. The ESOP note agreement stipulates that,
in the event that the ratings assigned to the Corporation's long-term senior
unsecured debt are below investment grade, holders of the notes may require the
Corporation to purchase the notes and pay accrued interest. These notes are
obligations of the ESOP but are guaranteed by the Corporation and included as
debt in the Corporation's Consolidated Balance Sheet.
At the end of 1999, the Corporation had a long-term revolving credit
facility, which matures on December 20, 2001, in the amount of $3.5 billion, and
a short-term revolving credit facility, which matures on May 26, 2000, in the
amount of $1.0 billion (collectively, the Credit Facilities). Borrowings under
the Credit Facilities would be unsecured and bear interest, at the Corporation's
option, at rates based on the Eurodollar rate or a bank Base Rate (as defined).
Each bank's obligation to make loans under the Credit Facilities is subject to,
among other things, compliance by the Corporation with various representations,
warranties, covenants and agreements, including, but not limited to, covenants
limiting the ability of the Corporation and certain of its subsidiaries to
encumber their assets and a covenant not to exceed a maximum leverage ratio.
There were no borrowings outstanding under the Credit Facilities at December
31, 1999.
The Credit Facilities support commercial paper borrowings of approximately
$475 million and $1.3 billion outstanding at December 31, 1999 and 1998,
respectively, of which $300 million was classified as long-term debt in the
Corporation's Consolidated Balance Sheet at December 31, 1998 based on
management's ability and intention to maintain that amount of debt outstanding
for at least one year. The weighted average interest rates for commercial paper
outstanding at December 31, 1999 and 1998 were 6.6% and 5.8%, respectively.
The Corporation's long-term debt maturities for the five years following
December 31, 1999 are: $52 million in 2000; $816 million in 2001; $1,336 million
in 2002; $858 million in 2003; $828 million in 2004; and $7,589 million
thereafter.
Certain of the Corporation's other financing agreements contain
restrictive covenants relating to debt, limitations on encumbrances and sale and
lease-back transactions, and provisions which relate to certain changes in
control.
The estimated fair values of the Corporation's long-term debt instruments
at December 31, 1999, aggregated approximately $10.9 billion, compared with a
carrying amount of approximately $11.5 billion. The fair values were estimated
based on quoted market prices for those instruments publicly traded. For
privately placed debt, the fair values were estimated based on the quoted market
prices for similar issues, or on current rates offered to the Corporation for
debt with similar remaining maturities. Unless otherwise indicated elsewhere in
the Notes to Consolidated Financial Statements, the carrying values of the
Corporation's other financial instruments approximate their fair values.
Interest payments were $790 million in 1999, $856 million in 1998 and $815
million in 1997.
Note 11--Income Taxes
The provision for federal and foreign income taxes consisted of the following
components:
(In millions) 1999 1998 1997
================================================================================
Federal income taxes:
Current $136 $432 $448
Deferred 293 203 155
- --------------------------------------------------------------------------------
Total federal income taxes 429 635 603
Foreign income taxes 34 25 34
- --------------------------------------------------------------------------------
Total income taxes provided $463 $660 $637
================================================================================
54
<PAGE>
Lockheed Martin Corporation
Net provisions for state income taxes are included in general and
administrative expenses, which are primarily allocable to government contracts.
Such state income taxes were $22 million for 1999, $70 million for 1998 and $62
million for 1997.
The Corporation's effective income tax rate varied from the statutory
federal income tax rate because of the following differences:
1999 1998 1997
================================================================================
Statutory federal tax rate 35.0% 35.0% 35.0%
Increase (reduction) in tax rate from:
Nondeductible amortization 7.6 5.5 4.9
Revisions to prior years'
estimated liabilities (6.0) (2.4) (5.7)
Divestitures -- 1.1 (2.4)
Other, net 2.0 .5 1.1
- --------------------------------------------------------------------------------
38.6% 39.7% 32.9%
================================================================================
The primary components of the Corporation's federal deferred income tax
assets and liabilities at December 31 were as follows:
(In millions) 1999 1998
================================================================================
Deferred tax assets related to:
Accumulated post-retirement
benefit obligations $ 632 $ 666
Contract accounting methods 587 635
Accrued compensation and benefits 248 181
Other 165 240
- --------------------------------------------------------------------------------
1,632 1,722
Deferred tax liabilities related to:
Intangible assets 436 444
Prepaid pension asset 383 338
Property, plant and equipment 93 147
- --------------------------------------------------------------------------------
912 929
- --------------------------------------------------------------------------------
Net deferred tax assets $ 720 $ 793
================================================================================
At December 31, 1999 and 1998, other liabilities included net long-term
deferred tax liabilities of $517 million and $316 million, respectively.
Federal and foreign income tax payments, net of refunds received, were
$530 million in 1999, $228 million in 1998 and $986 million in 1997.
Note 12--Other Income and Expenses, Net
(In millions) 1999 1998 1997
================================================================================
Equity in earnings of equity investees $ 18 $ 39 $ 48
Interest income 33 38 40
Sales of surplus real estate 57 35 19
Royalty income 17 19 52
Sale of remaining interest in L-3 155 -- --
Sale of Airport Group International 33 -- --
Real 3D disposition 33 -- --
GE Transaction -- -- 311
Other portfolio shaping activities (9) 18 69
Other 7 21 (57)
- --------------------------------------------------------------------------------
$ 344 $ 170 $ 482
================================================================================
Note 13--Stockholders' Equity and Related Items
Capital structure--At December 31, 1999, the authorized capital of the
Corporation was composed of 1.5 billion shares of common stock (approximately
398 million shares issued), 50 million shares of series preferred stock (no
shares issued), and 20 million shares of Series A preferred stock (no shares
outstanding).
In 1995, the Corporation's Board of Directors authorized a common stock
repurchase plan for the repurchase of up to 18 million common shares to counter
the dilutive effect of common stock issued under certain of the Corporation's
benefit and compensation programs and for other purposes related to such plans.
No shares were repurchased in 1999, 1998 or 1997 under this plan.
Stock option and award plans--In March 1995, the stockholders approved the
Lockheed Martin 1995 Omnibus Performance Award Plan (the Omnibus Plan). Under
the Omnibus Plan, employees of the Corporation may be granted stock-based
incentive awards, including options to purchase common stock, stock appreciation
rights, restricted stock or other stock-based incentive awards. Employees may
also be granted cash-based incentive awards, such as performance units. These
awards may be granted either individually or in combination with other awards.
The Omnibus Plan requires that options to purchase common stock have an exercise
price of not less than 100 percent of the market value of the underlying stock
on the date of grant. The number of shares of Lockheed Martin common stock
reserved
55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999
for issuance under the Omnibus Plan at December 31, 1999 was 38 million shares.
The Omnibus Plan does not impose any minimum vesting periods on options or other
awards. The maximum term of an option or any other award is 10 years. The
Omnibus Plan allows the Corporation to provide for financing of purchases of its
common stock, subject to certain conditions, by interest-bearing notes payable
to the Corporation.
In December 1999, 175,000 shares of restricted common stock were awarded
under the Omnibus Plan to certain senior executives of the Corporation. The
shares were recorded based on the market value of the Corporation's common stock
on the date of the award. The award requires the recipients to pay the $1 par
value of each share of stock and provides for payment to be made in cash or in
the form of a recourse note to the Corporation. Recipients are entitled to cash
dividends and to vote their respective shares, but are prohibited from selling
or transferring shares prior to vesting. One-third of the restricted shares will
vest in two years from the date of grant, with the remainder vesting four years
from the grant date. The impact of these awards was not material to
stockholders' equity or compensation expense in 1999.
The following table summarizes employee stock option and restricted stock
activity related to the Corporation's plans during 1997, 1998 and 1999:
Number of Shares
(In thousands) Weighted
--------------------------- Average
Available Options Exercise
for Grant Outstanding Price
================================================================================
December 31, 1996 14,646 19,316 $ 25.33
Granted (5,796) 5,796 45.60
Exercised -- (3,519) 20.86
Terminated 654 (716) 40.84
- ---------------------------------------------------------------
December 31, 1997 9,504 20,877 31.18
Additions 17,000 -- --
Granted (5,090) 5,090 52.06
Exercised -- (2,697) 24.70
Terminated 220 (223) 49.03
- ---------------------------------------------------------------
December 31, 1998 21,634 23,047 36.38
Granted (5,444) 5,444 37.01
Exercised -- (656) 19.76
Terminated 565 (567) 42.51
- ---------------------------------------------------------------
16,755 27,268 36.78
Restricted stock awards (175) -- --
- ---------------------------------------------------------------
December 31, 1999 16,580 27,268 $36.78
================================================================================
Approximately 19.7 million, 15.5 million and 13.0 million outstanding
options were exercisable by employees at December 31, 1999, 1998 and 1997,
respectively.
Information regarding options outstanding at December 31, 1999 follows
(number of options in thousands):
Weighted
Average
Weighted Remaining
Range of Number of Average Contractual
Exercise Prices Options Exercise Price Life
================================================================================
Options Outstanding:
Less than $20.00 3,328 $15.82 2.7
$20.00-$29.99 4,922 26.33 4.9
$30.00-$39.99 9,220 37.19 8.3
$40.00-$50.00 4,980 45.53 7.0
Greater than $50.00 4,818 52.09 9.0
------
27,268 $36.78 6.9
- --------------------------------------------------------------------------------
Options Exercisable:
Less than $20.00 3,328 $15.82
$20.00-$29.99 4,922 26.33
$30.00-$39.99 4,006 37.42
$40.00-$50.00 4,975 45.53
Greater than $50.00 2,454 52.11
------
19,685 $34.87
================================================================================
All stock options granted in 1999, 1998 and 1997 under the Omnibus Plan
have 10 year terms and vest over a two year service period. Exercise prices of
options awarded in those years were equal to the market price of the stock on
the date of grant. Pro forma information regarding net earnings and earnings per
share as required by SFAS No. 123 has been prepared as if the Corporation had
accounted for its employee stock options under the fair value method. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions for 1999, 1998 and 1997, respectively: risk-free interest rates of
4.64 percent, 5.39 percent and 6.36 percent; dividend yields of 2.4 percent, 1.9
percent and 1.5 percent; volatility factors related to the expected market price
of the Corporation's common stock of .247, .174 and .163; and a weighted average
expected option life of five years. The weighted average fair values of options
granted during 1999, 1998 and 1997 were $8.53, $10.96 and $10.94, respectively.
56
<PAGE>
Lockheed Martin Corporation
For purposes of pro forma disclosures, the options' estimated fair values
are amortized to expense over the options' vesting periods. The Corporation's
pro forma information follows:
(In millions, except per share data) 1999 1998 1997
================================================================================
Pro forma net earnings $ 351 $ 965 $1,267
Pro forma earnings (loss) per share:
Basic $ .92 $2.56 $(1.65)
Diluted $ .91 $2.53 $(1.65)
================================================================================
Note 14--Post-Retirement Benefit Plans
Defined contribution plans--The Corporation maintains a number of defined
contribution plans which cover substantially all employees, the most significant
of which are the 401(k) plans for salaried employees and hourly employees. Under
the provisions of these 401(k) plans, employees' eligible contributions are
matched by the Corporation at established rates. The Corporation's matching
obligations were $222 million in 1999, $226 million in 1998 and $212 million in
1997.
The Lockheed Martin Corporation Salaried Savings Plan includes an ESOP
which purchased 34.8 million shares of the Corporation's common stock with the
proceeds from a $500 million note issue which is guaranteed by the Corporation.
The Corporation's match consisted of shares of its common stock, which was
partially fulfilled with stock released from the ESOP at approximately 2.4
million shares per year based upon the debt repayment schedule through the year
2004, with the remainder being fulfilled through purchases of common stock from
terminating participants or in the open market, or through newly issued shares
from the Corporation. Interest incurred on the ESOP debt totaled $20 million,
$23 million and $26 million in 1999, 1998 and 1997, respectively. Dividends
received by the ESOP with respect to unallocated shares held are used for debt
service. The ESOP held approximately 42.6 million issued shares of the
Corporation's common stock at December 31, 1999, of which approximately 32.2
million were allocated and 10.4 million were unallocated. Unallocated common
shares held by the ESOP are considered outstanding for voting and other
Corporate purposes, but excluded from weighted average outstanding shares in
calculating earnings per share. For 1999, 1998 and 1997, the weighted average
unallocated ESOP shares excluded in calculating earnings per share totaled
approximately 11.3 million, 13.6 million and 15.8 million common shares,
respectively. The fair value of the unallocated ESOP shares at December 31, 1999
was approximately $228 million.
Certain plans for hourly employees include non-leveraged ESOPs. The
Corporation's match to these plans was made through cash contributions to the
ESOP trusts which were used, in part, to purchase common stock from terminating
participants and in the open market for allocation to participant accounts.
These ESOP trusts held approximately 3.7 million issued and outstanding shares
of common stock at December 31, 1999.
Dividends paid to the salaried and hourly ESOP trusts on the allocated
shares are paid annually by the ESOP trusts to the participants based upon the
number of shares allocated to each participant.
Defined benefit pension plans, and retiree medical and life insurance
plans--Most employees are covered by defined benefit pension plans, and certain
health care and life insurance benefits are provided to eligible retirees by the
Corporation. The Corporation has made contributions to trusts (including
Voluntary Employees' Beneficiary Association trusts and 401(h) accounts, the
assets of which will be used to pay expenses of certain retiree medical plans)
established to pay future benefits to eligible retirees and dependents. Benefit
obligations as of the end of each year reflect assumptions in effect as of those
dates. Net pension and net retiree medical costs for 1999 and 1998 were based on
assumptions in effect at the end of the respective preceding years. Effective
October 1997, the Corporation changed its expected long-term rate of return on
assets related to its defined benefit pension and retiree medical plans.
57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999
The following provides a reconciliation of benefit obligations, plan
assets and funded status of the plans:
<TABLE>
<CAPTION>
Retiree Medical
Defined Benefit and Life
Pension Plans Insurance Plans
------------------------------------------------------
(In millions) 1999 1998 1999 1998
=========================================================================================
<S> <C> <C> <C> <C>
Change in Benefit Obligations
Benefit obligations
at beginning of year $ 18,146 $ 16,326 $ 2,685 $ 2,526
Service cost 564 491 43 40
Interest cost 1,245 1,197 177 178
Benefits paid (1,110) (1,117) (208) (210)
Amendments 77 259 3 (72)
Divestitures -- (9) -- (11)
Actuarial (gains) losses (852) 995 (23) 205
Participants' contributions 3 4 29 29
- -----------------------------------------------------------------------------------------
Benefit obligations
at end of year $ 18,073 $ 18,146 $ 2,706 $ 2,685
- -----------------------------------------------------------------------------------------
Change in Plan Assets
Fair value of plan assets
at beginning of year $ 22,811 $ 20,642 $ 1,002 $ 895
Actual return on
plan assets 3,211 3,140 116 86
Corporation's contributions 149 152 118 120
Benefits paid (1,110) (1,117) (124) (128)
Participants' contributions 3 4 29 29
Divestitures -- (10) -- --
- -----------------------------------------------------------------------------------------
Fair value of plan assets
at end of year $ 25,064 $ 22,811 $ 1,141 $ 1,002
- -----------------------------------------------------------------------------------------
Funded (unfunded) status
of the plans $ 6,991 $ 4,665 $ (1,565) $ (1,683)
Unrecognized net
actuarial gain (6,240) (4,142) (191) (156)
Unrecognized prior
service cost 659 651 (49) (64)
Unrecognized
transition asset (13) (17) -- --
- -----------------------------------------------------------------------------------------
Prepaid (accrued)
benefit cost $ 1,397 $ 1,157 $ (1,805) $ (1,903)
=========================================================================================
</TABLE>
The net pension cost and the net post-retirement benefit cost related to
the Corporation's plans include the following components:
(In millions) 1999 1998 1997
================================================================================
Defined Benefit Pension Plans
Service cost $ 564 $ 491 $ 444
Interest cost 1,245 1,197 1,163
Expected return on plan assets (1,920) (1,715) (1,542)
Amortization of prior service cost 69 58 54
Recognized net actuarial
(gains) losses (43) (22) --
Amortization of transition asset (4) (89) (90)
- --------------------------------------------------------------------------------
Net pension (income) cost $ (89) $ (80) $ 29
- --------------------------------------------------------------------------------
Retiree Medical and Life Insurance Plans
Service cost $ 43 $ 40 $ 39
Interest cost 177 178 191
Expected return on plan assets (90) (79) (64)
Amortization of prior service cost (12) (6) (6)
Recognized net actuarial gains (8) (15) (9)
- --------------------------------------------------------------------------------
Net post-retirement cost $ 110 $ 118 $ 151
================================================================================
The following actuarial assumptions were used to determine the benefit
obligations and the net costs related to the Corporation's defined benefit
pension and post-retirement benefit plans, as appropriate:
1999 1998 1997
================================================================================
Discount rates 7.75% 7.0% 7.5%
Expected long-term rates of
return on assets 9.5 9.5 9.5
Rates of increase in future
compensation levels 5.5 5.5 6.0
================================================================================
The medical trend rates used in measuring the post-retirement benefit
obligation were 6.0 percent in 1999 and 6.7 percent in 1998, and were assumed to
gradually decrease to 4.5 percent by the year 2004. An increase or decrease of
one percentage point in the assumed medical trend rates would result in a change
in the benefit obligation of approximately 4.6 percent and (3.6) percent,
respectively, at December 31, 1999, and a change in the 1999 post-retirement
service cost plus interest cost of approximately 7.2 percent and (5.8) percent,
respectively. The medical trend rate for 2000 is 7.8 percent.
58
<PAGE>
Lockheed Martin Corporation
Note 15--Leases
Total rental expense under operating leases, net of immaterial amounts of
sublease rentals and contingent rentals, was $287 million, $285 million and $295
million for 1999, 1998 and 1997, respectively.
Future minimum lease commitments at December 31, 1999 for all operating
leases that have a remaining term of more than one year were approximately
$1,013 million ($247 million in 2000, $200 million in 2001, $156 million in
2002, $112 million in 2003, $89 million in 2004, and $209 million in later
years). Certain major plant facilities and equipment are furnished by the U.S.
Government under short-term or cancelable arrangements.
Note 16--Commitments and Contingencies
The Corporation or its subsidiaries are parties to or have property subject to
litigation and other proceedings, including matters arising under provisions
relating to the protection of the environment. In the opinion of management and
in-house counsel, the probability is remote that the outcome of these matters
will have a material adverse effect on the Corporation's consolidated results of
operations or financial position. These matters include the following items:
Environmental matters--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, if any, with respect to
perchlorates.
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;
however, the responsibility for the actual operations of these facilities will
be assumed by the city of Burbank late in 2000. The Corporation has also been
operating under a cleanup and abatement order from the Regional Board affecting
its facilities and former 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. Also as a result of its former
operations at the Burbank facilities, the Corporation is participating as one of
several parties under administrative orders from the EPA to design, build and
operate a groundwater treatment system in Glendale, California as part of the
San Fernando Superfund site that includes Burbank. The city of Glendale is
expected to assume responsibility for the actual operations of the Glendale
treatment plant. The Corporation estimates that total expenditures required over
the remaining terms of the consent decrees and the Regional Board order related
to the Burbank property, and the administrative orders related to the city of
Glendale, will be approximately $100 million. Under an agreement reached with
the U.S. Government and filed with the U.S. District Court in January 2000, an
amount equal to approximately 50 percent of these future expenditures will be
reimbursed by the U.S. Government as
59
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999
a responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act (CERCLA).
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 Redlands and Burbank properties and the city of
Glendale described above, a liability of approximately $200 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 in 1990, the Burbank
groundwater treatment and soil remediation expenditures referenced above are
being allocated to the Corporation's operations as general and administrative
costs and, under existing government regulations, these and other environmental
expenditures related to U.S. Government business, after deducting any recoveries
from insurance or other potentially 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, 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. A final decision is expected to be issued by
March 31, 2000. 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 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.
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,
60
<PAGE>
Lockheed Martin Corporation
seeking, among other things, recovery of approximately $54 million previously
paid by LMITCO to the Corporation under the Pit 9 contract. The Corporation is
defending this action while continuing to pursue its certified REA. Discovery
has been ongoing since August 2, 1999. On October 1, 1999, the U.S. Court of
Federal Claims stayed the DOE's motion to dismiss the Corporation's lawsuit,
finding that the Court has jurisdiction. The Court 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.
Letters of credit and other matters--The Corporation has entered into standby
letter of credit agreements and other arrangements with financial institutions
primarily relating to the guarantee of future performance on certain contracts.
At December 31, 1999, the Corporation had contingent liabilities on outstanding
letters of credit, guarantees, and other arrangements aggregating approximately
$1.1 billion.
Note 17--Information on Industry Segments and Major Customers
On September 27, 1999, Lockheed Martin announced the results to date 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 which was
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 structure.
Transactions between segments are generally negotiated and accounted for
under terms and conditions that are similar to other government and commercial
contracts; however, these intercompany transactions are eliminated in
consolidation. Other accounting policies of the business segments are the same
as those described in "Note 1--Summary of Significant Accounting Policies."
Systems Integration--Engaged in the design, development, integration and
production of high performance electronic systems for undersea, shipboard, land,
and airborne applications. Major product lines include missiles and fire control
systems; air and theater missile defense systems; surface ship and submarine
combat systems; anti-submarine and undersea warfare systems; avionics and ground
combat vehicle integration; platform integration systems; command, control,
communications, computers and intelligence (C4I) systems for naval, airborne and
ground applications; surveillance and reconnaissance systems; air traffic
control systems; and postal automation systems.
Space Systems--Engaged in the design, development, engineering and production of
civil, commercial and military space systems. Major product lines include
spacecraft, space launch vehicles, manned space systems and their supporting
ground systems and services; and strategic fleet ballistic missiles. In addition
to its consolidated business units, the segment has investments in joint
ventures that are principally engaged in businesses which complement and enhance
other activities of the segment.
Aeronautical Systems--Engaged in design, research and development, and
production of tactical aircraft, surveillance/ command systems, reconnaissance
systems, platform systems integration and advanced development programs. Major
programs include the F-22 air-superiority fighter, the Joint Strike Fighter, the
F-16 multi-role fighter, the C-130J airlift aircraft, the X-33 reusable launch
vehicle technology demonstrator, and Airborne Early Warning & Control systems
programs.
Technology Services--Provides a wide array of management, engineering,
scientific, logistic and information services to federal agencies and other
customers. Major product lines include engineering, science and information
services for NASA; aircraft maintenance and modification services; operation,
maintenance, training, and logistics support for military and civilian systems;
launch, mission, and analysis services for military, classified and commercial
satellites; research, development, engineering and science
61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999
in support of nuclear weapons stewardship and naval reactor programs.
Corporate and Other--Includes commercial information technology and state and
local government services lines of business. Also includes Global
Telecommunications, 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 certain other joint ventures and businesses.
Selected Financial Data by Business Segment
(In millions) 1999 1998 1997
================================================================================
Net sales
Systems Integration $10,954 $10,895 $10,853
Space Systems 5,825 7,039 7,931
Aeronautical Systems 5,499 5,459 5,319
Technology Services 2,261 1,935 1,989
Corporate and Other 991 938 1,977
- --------------------------------------------------------------------------------
$25,530 $26,266 $28,069
- --------------------------------------------------------------------------------
Operating profit (loss)
Systems Integration $ 967 $ 949 $ 843
Space Systems 474 954 1,090
Aeronautical Systems 247 649 561
Technology Services 137 135 187
Corporate and Other 184 (165) 98
- --------------------------------------------------------------------------------
$ 2,009 $ 2,522 $ 2,779
- --------------------------------------------------------------------------------
Intersegment revenue
Systems Integration $ 636 $ 692 $ 548
Space Systems 101 44 35
Aeronautical Systems 88 60 73
Technology Services 641 507 445
Corporate and Other 67 46 96
- --------------------------------------------------------------------------------
$ 1,533 $ 1,349 $ 1,197
- --------------------------------------------------------------------------------
Depreciation and amortization
Systems Integration $ 242 $ 269 $ 282
Space Systems 146 160 177
Aeronautical Systems 82 74 81
Technology Services 14 12 16
Corporate and Other 45 54 50
- --------------------------------------------------------------------------------
$ 529 $ 569 $ 606
================================================================================
(In millions) 1999 1998 1997
================================================================================
Amortization of intangible assets
Systems Integration $ 304 $ 304 $ 308
Space Systems 29 29 29
Aeronautical Systems 80 80 80
Technology Services 18 18 17
Corporate and Other 9 5 12
- --------------------------------------------------------------------------------
$ 440 $ 436 $ 446
- --------------------------------------------------------------------------------
Nonrecurring and unusual items--profit (loss)
Systems Integration $ 13 $ 4 $ (65)
Space Systems 21 -- (60)
Aeronautical Systems -- -- (31)
Technology Services -- -- (12)
Corporate and Other 215 (166) 110
- --------------------------------------------------------------------------------
$ 249 $ (162) $ (58)
- --------------------------------------------------------------------------------
Expenditures for property, plant and equipment
Systems Integration $ 237 $ 220 $ 256
Space Systems 113 271 293
Aeronautical Systems 123 100 72
Technology Services 24 25 43
Corporate and Other 172 81 86
- --------------------------------------------------------------------------------
$ 669 $ 697 $ 750
- --------------------------------------------------------------------------------
Investments in equity method investees
Systems Integration $ 26 $ 19 $ 4
Space Systems 101 115 121
Aeronautical Systems 5 -- --
Technology Services 19 20 29
Corporate and Other 1,620 374 63
- --------------------------------------------------------------------------------
$ 1,771 $ 528 $ 217
- --------------------------------------------------------------------------------
Assets/(a)/
Systems Integration $13,252 $13,435 $13,968
Space Systems 5,017 5,228 4,599
Aeronautical Systems 3,206 3,593 3,507
Technology Services 1,484 1,421 1,284
Corporate and Other 7,053 5,067 5,003
- --------------------------------------------------------------------------------
$30,012 $28,744 $28,361
================================================================================
(a) The Corporation has no significant long-lived assets located in foreign
countries.
Net Sales by Customer Category
(In millions) 1999 1998 1997
================================================================================
U.S. Government
Systems Integration $ 8,349 $ 8,295 $ 8,228
Space Systems 4,722 5,589 6,100
Aeronautical Systems 2,979 2,706 2,541
Technology Services 2,033 1,718 1,518
Corporate and Other 15 -- 9
- --------------------------------------------------------------------------------
$18,098 $18,308 $18,396
================================================================================
62
<PAGE>
Lockheed Martin Corporation
(In millions) 1999 1998 1997
================================================================================
Foreign governments/(a)/(b)/
Systems Integration $ 2,167 $ 2,157 $ 1,930
Space Systems 146 37 94
Aeronautical Systems 2,501 2,721 2,737
Technology Services 106 97 100
Corporate and Other -- 1 --
- --------------------------------------------------------------------------------
$ 4,920 $ 5,013 $ 4,861
- --------------------------------------------------------------------------------
Commercial/(b)/
Systems Integration $ 438 $ 443 $ 695
Space Systems 957 1,413 1,737
Aeronautical Systems 19 32 41
Technology Services 122 120 371
Corporate and Other 976 937 1,968
- --------------------------------------------------------------------------------
$ 2,512 $ 2,945 $ 4,812
================================================================================
(a) Sales made to foreign governments through the U.S. Government are included
in the foreign governments category above.
(b) Export sales, included in the foreign governments and commercial
categories above, were approximately $5.7 billion, $6.1 billion and $5.9
billion in 1999, 1998 and 1997, respectively.
Note 18--Summary of Quarterly Information (Unaudited)
1999 Quarters
(In millions, except ---------------------------------------------------
per share data) First/(a)/ Second/(b)/ Third/(c)/ Fourth/(d)/
================================================================================
Net sales $6,188 $6,203 $6,157 $6,982
Earnings from
operations 487 131 488 559
Earnings (loss) before
cumulative effect
of change in
accounting 268 (41) 217 293
Net (loss) earnings (87) (41) 217 293
Diluted earnings (loss)
per share before
cumulative effect
of change in
accounting .70 (.11) .57 .76
Diluted (loss) earnings
per share (.23) (.11) .57 .76
================================================================================
1998 Quarters
(In millions, except ---------------------------------------------------
per share data) First Second/(e)/ Third/(f)/ Fourth/(g)/
================================================================================
Net sales $6,217 $6,520 $6,349 $7,180
Earnings from
operations 618 638 696 400
Net earnings 269 289 318 125
Diluted earnings
per share .71 .76 .83 .33
================================================================================
(a) Net loss for the first quarter of 1999 includes a nonrecurring and unusual
gain from the Corporation's sale of 4.5 million of its shares of L-3 as
part of a secondary public offering by L-3. The gain favorably impacted
the net loss by $74 million, or $.19 per diluted share. Net loss also
includes the effect of the Corporation's adoption of SOP No. 98-5
pertaining to the costs of start-up activities which resulted in the
recognition of a cumulative effect adjustment that negatively impacted the
net loss by $355 million, or $.93 per diluted share.
(b) Net loss for the second quarter of 1999 includes the effects of negative
adjustments related to changes in estimate 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 benefits, negatively impacted (loss) earnings before
income taxes and cumulative effect of change in accounting by $197
million, and increased the net loss by $128 million, or $.33 per diluted
share. Net loss for the second quarter also includes the effects of
negative adjustments related to changes in estimate on the Titan IV
program due to reduced award and incentive fees resulting from the Titan
IV launch failure on April 30, 1999 as well as a more conservative
assessment of future program performance. These adjustments, net of state
income tax benefits, negatively impacted (loss) earnings before income
taxes and cumulative effect of change in accounting by $84 million, and
increased the net loss by $54 million, or $.14 per diluted share. Also,
net earnings for the second quarter of 1999 include a nonrecurring and
unusual item related to portfolio shaping activities which increased the
net loss by $12 million, or $.03 per diluted share.
(c) Net earnings for the third quarter of 1999 include nonrecurring and
unusual items related to gains from the sale of surplus real estate and a
net gain associated with sales of various non-core businesses and
investments and other portfolio shaping items. On a combined basis, these
nonrecurring and unusual items increased net earnings by $34 million, or
$.09 per diluted share.
(d) Net earnings for the fourth quarter of 1999 include a nonrecurring and
unusual gain from the Corporation's sale of its remaining interest in L-3,
which increased net earnings by $27 million, or $.07 per diluted share.
Net earnings for the fourth quarter of 1999 also include nonrecurring and
unusual gains related to the Corporation's sale of surplus real estate,
and a net gain associated with sales of various non-core businesses and
investments and other portfolio shaping items. On a combined basis, these
items increased net earnings by $39 million, or $.10 per diluted share.
(e) Net earnings for the second quarter of 1998 include a nonrecurring and
unusual gain related to the initial public offering of L-3's stock. This
gain increased net earnings by $12 million, or $.03 per diluted share.
(f) Net earnings for the third quarter of 1998 include an adjustment resulting
from significant improvement in the Atlas launch vehicle program based
upon a current evaluation of the program's historical performance. This
change in estimate, net of state income taxes, increased pretax earnings
by $120 million and increased net earnings by $78 million, or $.21 per
diluted share. Net earnings for the third quarter of 1998 include a
nonrecurring and unusual gain related to the Corporation's portfolio
shaping actions which increased net earnings by $12 million, or $.03 per
diluted share.
(g) Net earnings for the fourth quarter of 1998 include an adjustment
resulting from the impact of the restructure of a commercial satellite
program which increased net earnings by approximately $32 million, or $.08
per diluted share. Net earnings for the fourth quarter of 1998 include the
effects of a nonrecurring and unusual after-tax charge of $183 million, or
$.48 per diluted share, related to CalComp, a majority-owned subsidiary of
the Corporation (see Note 4), and a nonrecurring and unusual gain related
to the Corporation's sale of surplus real estate which increased net
income by $23 million, or $.06 per diluted share.
63
<PAGE>
CONSOLIDATED FINANCIAL DATA--TEN YEAR SUMMARY/(a)/
<TABLE>
<CAPTION>
(In millions, except per share data) 1999/(b)/ 1998/(c)/ 1997/(d)/
===============================================================================================================
<S> <C> <C> <C>
Operating Results
Net sales $ 25,530 $ 26,266 $ 28,069
Costs and expenses 23,865 23,914 25,772
- ---------------------------------------------------------------------------------------------------------------
Earnings from operations 1,665 2,352 2,297
Other income and expenses, net 344 170 482
- ---------------------------------------------------------------------------------------------------------------
2,009 2,522 2,779
Interest expense 809 861 842
- ---------------------------------------------------------------------------------------------------------------
Earnings before income taxes and cumulative effect
of changes in accounting 1,200 1,661 1,937
Income tax expense 463 660 637
- ---------------------------------------------------------------------------------------------------------------
Earnings before cumulative effect of changes in accounting 737 1,001 1,300
Cumulative effect of changes in accounting (355) -- --
- ---------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 382 $ 1,001 $ 1,300
- ---------------------------------------------------------------------------------------------------------------
Earnings (Loss) Per Common Share
Basic:
Before cumulative effect of changes in accounting $ 1.93 $ 2.66 $ (1.56)
Cumulative effect of changes in accounting (.93) -- --
- ---------------------------------------------------------------------------------------------------------------
$ 1.00 $ 2.66 $ (1.56)
- ---------------------------------------------------------------------------------------------------------------
Diluted:
Before cumulative effect of changes in accounting $ 1.92 $ 2.63 $ (1.56)
Cumulative effect of changes in accounting (.93) -- --
- ---------------------------------------------------------------------------------------------------------------
$ .99 $ 2.63 $ (1.56)
- ---------------------------------------------------------------------------------------------------------------
Cash dividends $ .88 $ .82 $ .80
- ---------------------------------------------------------------------------------------------------------------
Condensed Balance Sheet Data
Current assets $ 10,696 $ 10,611 $ 10,105
Property, plant and equipment 3,634 3,513 3,669
Intangible assets related to contracts and programs acquired 1,259 1,418 1,566
Cost in excess of net assets acquired 9,162 9,521 9,856
Other assets 5,261 3,681 3,165
- ---------------------------------------------------------------------------------------------------------------
Total $ 30,012 $ 28,744 $ 28,361
- ---------------------------------------------------------------------------------------------------------------
Short-term borrowings $ 475 $ 1,043 $ 494
Current maturities of long-term debt 52 886 876
Other current liabilities 8,285 8,338 7,819
Long-term debt 11,427 8,957 10,528
Post-retirement benefit liabilities 1,805 1,903 1,993
Other liabilities 1,607 1,480 1,475
Stockholders' equity 6,361 6,137 5,176
- ---------------------------------------------------------------------------------------------------------------
Total $ 30,012 $ 28,744 $ 28,361
- ---------------------------------------------------------------------------------------------------------------
Common Shares Outstanding at Year End 397.8 393.3 388.8
===============================================================================================================
</TABLE>
Notes to Ten Year Summary
(a) The Corporation was formed in 1995 from the combination of Lockheed
Corporation and Martin Marietta Corporation. All financial information
prior to 1995 was derived from the financial statements of those companies
under the pooling of interests method of accounting.
(b) Includes the effects of nonrecurring and unusual items which, on a
combined basis, increased pretax earnings by $249 million, $162 million
after tax, or $.42 per diluted share. Also includes a cumulative effect
adjustment relating to the adoption of SOP No. 98-5 regarding costs for
start-up activities which resulted in a nonrecurring and unusual charge
that reduced net earnings by $355 million, or $.93 per diluted share.
(c) Includes the effects of nonrecurring and unusual items which, on a
combined basis, decreased pretax earnings by $162 million, $136 million
after tax, or $.36 per diluted share.
(d) Includes the effects of a nonrecurring and unusual tax-free gain of $311
million and the aggregate effects of other nonrecurring and unusual items
which decreased pretax earnings by $369 million, $245 million after tax.
On a combined basis, these items decreased diluted loss per share by $.15.
Loss per share also includes the effects of the deemed preferred stock
dividend resulting from the GE Transaction which reduced the basic and
diluted per share amounts by $4.93.
64
<PAGE>
Lockheed Martin Corporation
<TABLE>
<CAPTION>
1996/(e)/ 1995/(f)/ 1994/(g)/ 1993/(h)/ 1992/(i)/ 1991 1990
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
$ 26,875 $ 22,853 $ 22,906 $ 22,397 $ 16,030 $ 15,871 $ 16,089
24,594 21,571 21,127 20,857 14,891 14,767 15,178
- --------------------------------------------------------------------------------------------------------------
2,281 1,282 1,779 1,540 1,139 1,104 911
452 95 200 44 42 (49) 34
- --------------------------------------------------------------------------------------------------------------
2,733 1,377 1,979 1,584 1,181 1,055 945
700 288 304 278 177 176 180
- --------------------------------------------------------------------------------------------------------------
2,033 1,089 1,675 1,306 1,004 879 765
686 407 620 477 355 261 161
- --------------------------------------------------------------------------------------------------------------
1,347 682 1,055 829 649 618 604
-- -- (37) -- (1,010) -- --
- --------------------------------------------------------------------------------------------------------------
$ 1,347 $ 682 $ 1,018 $ 829 $ (361) $ 618 $ 604
- --------------------------------------------------------------------------------------------------------------
$ 3.40 $ 1.64 $ 2.66 $ 2.00 $ 1.66 $ 1.53 $ 1.48
-- -- (.10) -- (2.58) -- --
- --------------------------------------------------------------------------------------------------------------
$ 3.40 $ 1.64 $ 2.56 $ 2.00 $ (.92) $ 1.53 $ 1.48
- --------------------------------------------------------------------------------------------------------------
$ 3.04 $ 1.54 $ 2.43 $ 1.88 $ 1.65 $ 1.52 $ 1.48
-- -- (.09) -- (2.57) -- --
- --------------------------------------------------------------------------------------------------------------
$ 3.04 $ 1.54 $ 2.34 $ 1.88 $ (.92) $ 1.52 $ 1.48
- --------------------------------------------------------------------------------------------------------------
$ .80 $ .67 $ .57 $ .55 $ .52 $ .49 $ .45
- --------------------------------------------------------------------------------------------------------------
$ 10,346 $ 8,208 $ 8,143 $ 6,961 $ 5,157 $ 5,553 $ 5,442
3,721 3,134 3,455 3,643 3,139 3,155 3,200
1,767 1,553 1,696 1,832 42 52 59
10,394 2,794 2,831 2,697 841 864 882
3,312 1,869 1,854 1,949 1,648 895 883
- --------------------------------------------------------------------------------------------------------------
$ 29,540 $ 17,558 $ 17,979 $ 17,082 $ 10,827 $ 10,519 $ 10,466
- --------------------------------------------------------------------------------------------------------------
$ 1,110 $ -- $ -- $ -- $ -- $ -- $ --
180 722 285 346 327 298 30
7,382 4,462 5,177 4,690 3,176 3,833 4,235
10,188 3,010 3,594 4,026 1,803 1,997 2,392
2,077 1,795 1,859 1,848 1,579 54 --
1,747 1,136 978 971 460 112 38
6,856 6,433 6,086 5,201 3,482 4,225 3,771
- --------------------------------------------------------------------------------------------------------------
$ 29,540 $ 17,558 $ 17,979 $ 17,082 $ 10,827 $ 10,519 $ 10,466
- --------------------------------------------------------------------------------------------------------------
385.5 397.2 398.3 395.8 388.1 402.7 401.4
==============================================================================================================
</TABLE>
(e) Reflects the business combination with Loral Corporation effective April
1996. Includes the effects of a nonrecurring and unusual pretax gain of
$365 million, $351 million after tax, and nonrecurring and unusual pretax
charges of $307 million, $209 million after tax which, on a combined
basis, increased diluted earnings per share by $.32.
(f) Includes the effects of nonrecurring and unusual charges for merger
related and consolidation expenses totaling $690 million, $436 million
after tax, or $.99 per diluted share.
(g) Reflects the acquisition of General Dynamics Space Systems Division
effective May 1994.
(h) Reflects the acquisition of General Dynamics Fort Worth Division effective
February 1993 and the acquisition of GE Aerospace effective April 1993.
(i) Reflects the Corporation's adoption of SFAS No. 106, "Employers'
Accounting for Post-retirement Benefits Other Than Pensions" and SFAS No.
112, "Employers' Accounting for Postemployment Benefits."
65
<PAGE>
Exhibit 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Lockheed Martin Corporation of our report dated January 21, 2000, included in
the 1999 Annual Report to Shareholders of Lockheed Martin Corporation.
We also consent to the incorporation by reference in the following Registration
Statements of Lockheed Martin Corporation:
(1) Registration Statement Number 33-58067 on Form S-3, dated March 14, 1995;
(2) Registration Statement Numbers: 33-58073, 33-58075, 33-58077, 33-58079, 33-
58081, 33-58085, 33-58089 and 33-58097 on Form S-8, each dated March 15,
1995;
(3) Post-Effective Amendment No. 1 on Form S-8 to the Registration Statement
(Form S-4 No. 33-57645), dated March 15, 1995;
(4) Registration Statement Number 33-63155 on Form S-8, dated October 3, 1995;
(5) Post-Effective Amendment No. 1 on Form S-8 to the Registration Statement
Number 33-58083, dated January 22, 1997;
(6) Registration Statement Number 333-06255 on Form S-8, dated June 19, 1996;
(7) Registration Statement Numbers: 333-20117 and 333-20139 on Form S-8, each
dated January 22, 1997;
(8) Registration Statement Number 333-27309 on Form S-8, dated May 16, 1997;
(9) Registration Statement Number 333-37069 on Form S-8, dated October 2, 1997;
(10) Registration Statement Number 333-40997 on Form S-8, dated November 25,
1997;
(11) Registration Statement Number 333-58069 on Form S-8, dated June 30, 1998;
(12) Post-Effective Amendment No. 1 on Form S-8 to the Registration Statement
Numbers: 333-06479, 333-06481, 333-06483, 333-06487, 333-06515 and 333-
06517, each dated June 30, 1998;
(13) Registration Statement Number 333-69295 on Form S-8, dated December 18,
1998;
<PAGE>
(14) Registration Statement Number 333-92197 on Form S-8, dated December 6,
1999; and
(15) Registration Statement Numbers 333-92363 and 333-92321 on Form S-8, each
dated December 8, 1999
of our report dated January 21, 2000, with respect to the consolidated financial
statements of Lockheed Martin Corporation incorporated by reference in the
Annual Report (Form 10-K) for the year ended December 31, 1999.
Washington, D.C.
March 7, 2000
<PAGE>
Exhibit 24
POWER OF ATTORNEY
LOCKHEED MARTIN CORPORATION
The undersigned hereby constitutes Marian S. Block and Broc Romanek,
and each of them, jointly and severally, his or her lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, including, but not
limited to, that listed below, to execute and file, or cause to be filed, with
exhibits thereto and other documents in connection therewith, the Lockheed
Martin Corporation Annual Report on Form 10-K for the fiscal year ended December
31, 1999 ("Form 10-K"), with the Securities and Exchange Commission
("Commission") under the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") and amendments thereto and all matters required by the
Commission in connection with such Form 10-K, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, and each of them, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
/s/ Vance D. Coffman February 24, 2000
- --------------------------------------
Vance D. Coffman
Chairman, Chief Executive Officer and
President
1
<PAGE>
POWER OF ATTORNEY
LOCKHEED MARTIN CORPORATION
The undersigned hereby constitutes Marian S. Block and Broc Romanek,
and each of them, jointly and severally, his or her lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, including, but not
limited to, that listed below, to execute and file, or cause to be filed, with
exhibits thereto and other documents in connection therewith, the Lockheed
Martin Corporation Annual Report on Form 10-K for the fiscal year ended December
31, 1999 ("Form 10-K"), with the Securities and Exchange Commission
("Commission") under the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") and amendments thereto and all matters required by the
Commission in connection with such Form 10-K, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, and each of them, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
/s/ Norman R. Augustine February 24, 2000
- ----------------------
Norman R. Augustine
Director
2
<PAGE>
POWER OF ATTORNEY
LOCKHEED MARTIN CORPORATION
The undersigned hereby constitutes Marian S. Block and Broc Romanek,
and each of them, jointly and severally, his or her lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, including, but not
limited to, that listed below, to execute and file, or cause to be filed, with
exhibits thereto and other documents in connection therewith, the Lockheed
Martin Corporation Annual Report on Form 10-K for the fiscal year ended December
31, 1999 ("Form 10-K"), with the Securities and Exchange Commission
("Commission") under the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") and amendments thereto and all matters required by the
Commission in connection with such Form 10-K, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, and each of them, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
/s/ Marcus C. Bennett February 24, 2000
- ---------------------
Marcus C. Bennett
Director
3
<PAGE>
POWER OF ATTORNEY
LOCKHEED MARTIN CORPORATION
The undersigned hereby constitutes Marian S. Block and Broc Romanek,
and each of them, jointly and severally, his or her lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, including, but not
limited to, that listed below, to execute and file, or cause to be filed, with
exhibits thereto and other documents in connection therewith, the Lockheed
Martin Corporation Annual Report on Form 10-K for the fiscal year ended December
31, 1999 ("Form 10-K"), with the Securities and Exchange Commission
("Commission") under the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") and amendments thereto and all matters required by the
Commission in connection with such Form 10-K, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, and each of them, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
/s/ Lynne V. Cheney February 24, 2000
- -----------------------
Lynne V. Cheney
Director
4
<PAGE>
POWER OF ATTORNEY
LOCKHEED MARTIN CORPORATION
The undersigned hereby constitutes Marian S. Block and Broc Romanek,
and each of them, jointly and severally, his or her lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, including, but not
limited to, that listed below, to execute and file, or cause to be filed, with
exhibits thereto and other documents in connection therewith, the Lockheed
Martin Corporation Annual Report on Form 10-K for the fiscal year ended December
31, 1999 ("Form 10-K"), with the Securities and Exchange Commission
("Commission") under the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") and amendments thereto and all matters required by the
Commission in connection with such Form 10-K, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, and each of them, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
/s/ Houston I. Flournoy March 3, 2000
- --------------------------
Houston I. Flournoy
Director
5
<PAGE>
POWER OF ATTORNEY
LOCKHEED MARTIN CORPORATION
The undersigned hereby constitutes Marian S. Block and Broc Romanek,
and each of them, jointly and severally, his or her lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, including, but not
limited to, that listed below, to execute and file, or cause to be filed, with
exhibits thereto and other documents in connection therewith, the Lockheed
Martin Corporation Annual Report on Form 10-K for the fiscal year ended December
31, 1999 ("Form 10-K"), with the Securities and Exchange Commission
("Commission") under the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") and amendments thereto and all matters required by the
Commission in connection with such Form 10-K, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, and each of them, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
/s/ James F. Gibbons February 24, 2000
- ------------------------
James F. Gibbons
Director
6
<PAGE>
POWER OF ATTORNEY
LOCKHEED MARTIN CORPORATION
The undersigned hereby constitutes Marian S. Block and Broc Romanek,
and each of them, jointly and severally, his or her lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, including, but not
limited to, that listed below, to execute and file, or cause to be filed, with
exhibits thereto and other documents in connection therewith, the Lockheed
Martin Corporation Annual Report on Form 10-K for the fiscal year ended December
31, 1999 ("Form 10-K"), with the Securities and Exchange Commission
("Commission") under the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") and amendments thereto and all matters required by the
Commission in connection with such Form 10-K, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, and each of them, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
/s/ Edward E. Hood, Jr. February 24, 2000
- --------------------------
Edward E. Hood, Jr.
Director
7
<PAGE>
POWER OF ATTORNEY
LOCKHEED MARTIN CORPORATION
The undersigned hereby constitutes Marian S. Block and Broc Romanek,
and each of them, jointly and severally, his or her lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, including, but not
limited to, that listed below, to execute and file, or cause to be filed, with
exhibits thereto and other documents in connection therewith, the Lockheed
Martin Corporation Annual Report on Form 10-K for the fiscal year ended December
31, 1999 ("Form 10-K"), with the Securities and Exchange Commission
("Commission") under the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") and amendments thereto and all matters required by the
Commission in connection with such Form 10-K, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, and each of them, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
/s/ Caleb B. Hurtt February 24, 2000
- ---------------------
Caleb B. Hurtt
Director
8
<PAGE>
POWER OF ATTORNEY
LOCKHEED MARTIN CORPORATION
The undersigned hereby constitutes Marian S. Block and Broc Romanek,
and each of them, jointly and severally, his or her lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, including, but not
limited to, that listed below, to execute and file, or cause to be filed, with
exhibits thereto and other documents in connection therewith, the Lockheed
Martin Corporation Annual Report on Form 10-K for the fiscal year ended December
31, 1999 ("Form 10-K"), with the Securities and Exchange Commission
("Commission") under the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") and amendments thereto and all matters required by the
Commission in connection with such Form 10-K, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, and each of them, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
/s/ Gwendolyn S. King February 24, 2000
- -------------------------
Gwendolyn S. King
Director
9
<PAGE>
POWER OF ATTORNEY
LOCKHEED MARTIN CORPORATION
The undersigned hereby constitutes Marian S. Block and Broc Romanek,
and each of them, jointly and severally, his or her lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, including, but not
limited to, that listed below, to execute and file, or cause to be filed, with
exhibits thereto and other documents in connection therewith, the Lockheed
Martin Corporation Annual Report on Form 10-K for the fiscal year ended December
31, 1999 ("Form 10-K"), with the Securities and Exchange Commission
("Commission") under the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") and amendments thereto and all matters required by the
Commission in connection with such Form 10-K, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, and each of them, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
/s/ Eugene F. Murphy February 24, 2000
- -----------------------
Eugene F. Murphy
Director
10
<PAGE>
POWER OF ATTORNEY
LOCKHEED MARTIN CORPORATION
The undersigned hereby constitutes Marian S. Block and Broc Romanek,
and each of them, jointly and severally, his or her lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, including, but not
limited to, that listed below, to execute and file, or cause to be filed, with
exhibits thereto and other documents in connection therewith, the Lockheed
Martin Corporation Annual Report on Form 10-K for the fiscal year ended December
31, 1999 ("Form 10-K"), with the Securities and Exchange Commission
("Commission") under the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") and amendments thereto and all matters required by the
Commission in connection with such Form 10-K, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, and each of them, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
/s/ Frank Savage February 24, 2000
- -------------------
Frank Savage
Director
11
<PAGE>
POWER OF ATTORNEY
LOCKHEED MARTIN CORPORATION
The undersigned hereby constitutes Marian S. Block and Broc Romanek,
and each of them, jointly and severally, his or her lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, including, but not
limited to, that listed below, to execute and file, or cause to be filed, with
exhibits thereto and other documents in connection therewith, the Lockheed
Martin Corporation Annual Report on Form 10-K for the fiscal year ended December
31, 1999 ("Form 10-K"), with the Securities and Exchange Commission
("Commission") under the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") and amendments thereto and all matters required by the
Commission in connection with such Form 10-K, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, and each of them, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
/s/ James R. Ukropina February 24, 2000
- -----------------------
James R. Ukropina
Director
12
<PAGE>
POWER OF ATTORNEY
LOCKHEED MARTIN CORPORATION
The undersigned hereby constitutes Marian S. Block and Broc Romanek,
and each of them, jointly and severally, his or her lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, including, but not
limited to, that listed below, to execute and file, or cause to be filed, with
exhibits thereto and other documents in connection therewith, the Lockheed
Martin Corporation Annual Report on Form 10-K for the fiscal year ended December
31, 1999 ("Form 10-K"), with the Securities and Exchange Commission
("Commission") under the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") and amendments thereto and all matters required by the
Commission in connection with such Form 10-K, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, and each of them, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
/s/ Douglas C. Yearley February 24, 2000
- ----------------------
Douglas C. Yearley
Director
13
<PAGE>
POWER OF ATTORNEY
LOCKHEED MARTIN CORPORATION
The undersigned hereby constitutes Marian S. Block and Broc Romanek,
and each of them, jointly and severally, his or her lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, including, but not
limited to, that listed below, to execute and file, or cause to be filed, with
exhibits thereto and other documents in connection therewith, the Lockheed
Martin Corporation Annual Report on Form 10-K for the fiscal year ended December
31, 1999 ("Form 10-K"), with the Securities and Exchange Commission
("Commission") under the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") and amendments thereto and all matters required by the
Commission in connection with such Form 10-K, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, and each of them, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
/s/ Robert J. Stevens March 1, 2000
- ---------------------------------------
Robert J. Stevens
Executive Vice President-Finance and
Chief Financial Officer
14
<PAGE>
POWER OF ATTORNEY
LOCKHEED MARTIN CORPORATION
The undersigned hereby constitutes Marian S. Block and Broc Romanek,
and each of them, jointly and severally, his or her lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, including, but not
limited to, that listed below, to execute and file, or cause to be filed, with
exhibits thereto and other documents in connection therewith, the Lockheed
Martin Corporation Annual Report on Form 10-K for the fiscal year ended December
31, 1999 ("Form 10-K"), with the Securities and Exchange Commission
("Commission") under the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") and amendments thereto and all matters required by the
Commission in connection with such Form 10-K, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, and each of them, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
/s/ Christopher E. Kubasik February 29, 2000
- -------------------------------
Christopher E. Kubasik
Vice President and Controller
15
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<PERIOD-START> JAN-01-1999
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0
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