<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED March 31, 2000 COMMISSION FILE NUMBER 1-11437
----------------------- --------
LOCKHEED MARTIN CORPORATION
----------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 52-1893632
- ----------------------------------- -------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
6801 ROCKLEDGE DRIVE, BETHESDA, MD 20817
- -------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (301) 897-6000
--------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
------------- -----------
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AS OF April 30, 2000
- ----------------------------- ---------------------------------
COMMON STOCK, $1 PAR VALUE 400,252,924
<PAGE>
LOCKHEED MARTIN CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
____________
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Unaudited Condensed Consolidated Statement of Operations-
Three Months Ended March 31, 2000 and 1999 .................... 3
Unaudited Condensed Consolidated Statement of Cash Flows-
Three Months Ended March 31, 2000 and 1999 .................... 4
Unaudited Condensed Consolidated Balance Sheet-
March 31, 2000 and December 31, 1999 .......................... 5
Notes to Unaudited Condensed Consolidated
Financial Statements .......................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 14
Item 3. Quantitative and Qualitative Disclosure of Market Risk
(included in Item 2. under the caption "Other Matters")
Part II. Other Information
Item 1. Legal Proceedings...................................... 25
Item 4. Submission of Matters to a Vote of Security Holders.... 26
Item 6. Exhibits and Reports on Form 8-K....................... 27
Signatures.......................................................... 29
Exhibit 10 Lockheed Martin Corporation Directors Equity Plan,
as amended May 1, 2000
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges
Exhibit 27 Financial Data Schedule
2
<PAGE>
Lockheed Martin Corporation
Unaudited Condensed Consolidated Statement of Operations
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
-------- --------
(In millions, except per share data)
<S> <C> <C>
Net sales $5,562 $6,188
Cost of sales 5,249 5,701
-------- --------
Earnings from operations 313 487
Other income and expenses, net 13 129
-------- --------
326 616
Interest expense 227 192
-------- --------
Earnings before income taxes and cumulative
effect of change in accounting 99 424
Income tax expense 45 156
-------- --------
Earnings before cumulative effect of change
in accounting 54 268
Cumulative effect of change in accounting -- (355)
-------- --------
Net earnings (loss) $ 54 $ (87)
======== ========
Earnings (loss) per common share:
- ---------------------------------
Basic:
Before cumulative effect of change in accounting $ .14 $ .70
Cumulative effect of change in accounting -- (.93)
-------- --------
$ .14 $ (.23)
======== ========
Diluted:
Before cumulative effect of change in accounting $ .14 $ .70
Cumulative effect of change in accounting -- (.93)
-------- --------
$ .14 $ (.23)
======== ========
Cash dividends declared per common share $ .11 $ .22
======== ========
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
</TABLE>
3
<PAGE>
Lockheed Martin Corporation
Unaudited Condensed Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
-------- --------
(In millions)
<S> <C> <C>
Operating Activities:
Earnings before cumulative effect of change in accounting $ 54 $ 268
Adjustments to reconcile earnings to net cash provided
by operating activities:
Depreciation and amortization 231 230
Changes in operating assets and liabilities 197 (651)
-------- --------
Net cash provided by (used for) operating activities 482 (153)
-------- --------
Investing Activities:
Expenditures for property, plant and equipment (84) (131)
Sale of shares in L-3 Communications -- 182
Other (30) --
-------- --------
Net cash (used for) provided by investing activities (114) 51
-------- --------
Financing Activities:
Net (decrease) increase in short-term borrowings (234) 120
Net repayments related to long-term debt (13) (181)
Issuances of common stock 1 8
Common stock dividends (44) (87)
-------- --------
Net cash used for financing activities (290) (140)
-------- --------
Net increase (decrease) in cash and cash equivalents 78 (242)
Cash and cash equivalents at beginning of period 455 285
-------- --------
Cash and cash equivalents at end of period $ 533 $ 43
======== ========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
4
<PAGE>
Lockheed Martin Corporation
Unaudited Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ---------------
(In millions)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 533 $ 455
Receivables 4,332 4,348
Inventories 3,782 4,051
Deferred income taxes 1,192 1,237
Other current assets 620 605
------------ ---------------
Total current assets 10,459 10,696
Property, plant and equipment 3,586 3,634
Investments in equity securities 2,295 2,210
Intangible assets related to contracts and programs acquired 1,220 1,259
Cost in excess of net assets acquired 9,095 9,162
Other assets 2,948 3,051
------------ ---------------
$29,603 $30,012
============ ===============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 930 $ 1,228
Customer advances and amounts in excess of costs incurred 4,419 4,655
Salaries, benefits and payroll taxes 936 941
Income taxes 40 51
Short-term borrowings 241 475
Current maturities of long-term debt 52 52
Other current liabilities 1,679 1,410
------------ ---------------
Total current liabilities 8,297 8,812
Long-term debt 11,411 11,427
Post-retirement benefit liabilities 1,807 1,805
Other liabilities 1,613 1,607
Stockholders' equity:
Common stock, $1 par value per share 400 398
Additional paid-in capital 266 222
Retained earnings 5,911 5,901
Unearned ESOP shares (142) (150)
Accumulated other comprehensive income (loss) 40 (10)
------------ ---------------
Total stockholders' equity 6,475 6,361
------------ ---------------
$29,603 $30,012
============ ===============
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
5
<PAGE>
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2000
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Lockheed Martin Corporation
(Lockheed Martin or the Corporation) has continued to follow the accounting
policies set forth in the consolidated financial statements included in its 1999
Annual Report on Form 10-K filed with the Securities and Exchange Commission.
In the opinion of management, the interim financial information provided herein
reflects all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of the results of operations for the interim periods. The
results of operations for the three months ended March 31, 2000 are not
necessarily indicative of results to be expected for the full year. Certain
amounts presented for prior periods have been reclassified to conform with the
2000 presentation.
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). Subsequent to obtaining all regulatory approvals necessary for
the first phase of the transaction and approval of the Merger by the
stockholders of COMSAT, the Corporation completed a cash tender offer (the
Tender Offer) on September 18, 1999. 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 Unaudited Condensed Consolidated Balance Sheet at March
31, 2000. 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. Federal
legislation to remove existing restrictions on ownership of COMSAT voting stock
was signed into law on March 17, 2000. In connection with actions necessary to
consummate the second phase of the transaction, the Corporation filed 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) in the first quarter of 2000 regarding the Corporation's
acquisition of minority interests in two businesses held by COMSAT. On April 22,
2000, the waiting period under the HSR Act with respect to these acquisitions
expired.
The Corporation must also obtain certain regulatory approvals from the Federal
Communications Commission (FCC) before the Merger can occur. On March 23, 2000,
the Corporation and COMSAT filed applications with the FCC seeking authority for
the transfer of control of various FCC authorizations held by COMSAT to a
wholly-owned subsidiary of Lockheed Martin. The period for submission of
opposition and other comments (and responses thereto) currently is scheduled to
end on May 26, 2000. There is no set time frame for the FCC to issue its
decision following receipt of comments and there is no assurance as to the
timing or whether the 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
6
<PAGE>
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(continued)
right, or both parties could agree to extend this date. If consummated, the
Merger will be accounted for under the purchase method of accounting. In
addition, the Corporation intends to combine the operations of Lockheed Martin
Global Telecommunications and COMSAT. If the Merger is not consummated, the
Corporation will not be able to achieve all of its objectives with respect to
the COMSAT transaction and will be unable to exercise control over COMSAT.
NOTE 3 --EARNINGS PER SHARE
Basic and diluted earnings (loss) per share were computed based on net
earnings (loss). The weighted average number of common shares outstanding during
the period was used in the calculation of basic earnings (loss) per share, and
this number of shares was increased by the dilutive effect of stock options
based on the treasury stock method in the calculation of diluted earnings (loss)
per share.
The following table sets forth the computations of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------ ------
(In millions, except per share data)
<S> <C> <C>
Net earnings (loss) for basic and diluted earnings per share:
- --------------------------------------------------------------
Earnings before cumulative effect of change in accounting $ 54 $ 268
Cumulative effect of change in accounting -- (355)
------ ------
Net earnings (loss) $ 54 $ (87)
====== ======
Average common shares outstanding:
- ----------------------------------
Average number of common shares outstanding for basic
computations 387.1 380.3
Dilutive stock options based on the treasury stock method .4 2.3
------ ------
Average number of common shares outstanding for diluted
computations 387.5 382.6
====== ======
Earnings (loss) per common share:
- ---------------------------------
Basic:
Before cumulative effect of change in accounting $ .14 $ .70
Cumulative effect of change in accounting -- (.93)
------ ------
$ .14 $ (.23)
====== ======
Diluted:
Before cumulative effect of change in accounting $ .14 $ .70
Cumulative effect of change in accounting -- (.93)
------ ------
$ .14 $ (.23)
====== ======
</TABLE>
7
<PAGE>
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(continued)
NOTE 4 -- INVENTORIES
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------- -------
(In millions)
<S> <C> <C>
Work in process, commercial launch vehicles $ 1,437 $ 1,514
Work in process, primarily related to other long-term
contracts and programs in progress 3,769 3,879
Less customer advances and progress payments (1,846) (1,848)
------- -------
3,360 3,545
Other inventories 422 506
------- -------
$ 3,782 $ 4,051
======= =======
</TABLE>
Commercial launch vehicle inventories at March 31, 2000 and December 31, 1999
included 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 $895 million and $903 million,
respectively, for the manufacture of launch vehicles and related launch
services. Work in process inventories related to commercial launch vehicles
also 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
in progress included unamortized deferred costs for aircraft not under contract
related to the Corporation's C-130J program. Such unamortized deferred costs at
March 31, 2000 and December 31, 1999 were $124 million and $150 million,
respectively.
NOTE 5 -- 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
8
<PAGE>
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(continued)
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 ultimately expected to assume responsibility for the
operations of the Glendale treatment plant. Under an agreement reached with the
U.S. Government and filed with the U.S. District Court in January 2000 (the
Agreement), the Corporation was reimbursed approximately $100 million in the
first quarter of 2000 for past expenditures for certain remediation activities
related to the Burbank and Glendale properties. Also under the Agreement, an
amount equal to approximately 50 percent of future expenditures for certain
remediation activities will be reimbursed by the U.S. Government as a
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act (CERCLA). 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, net of the effects of the Agreement, will be
approximately $50 million.
The Corporation is involved in other proceedings and potential proceedings
relating to environmental matters, including disposal of hazardous wastes and
soil and water contamination. The extent of the Corporation's financial
exposure cannot in all cases be reasonably estimated at this time. In addition
to the amounts with respect to the 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.
Currently, Lockheed Martin is in
9
<PAGE>
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(continued)
discussions with the U.S. Government regarding the Corporation's October 4, 1999
request for the issuance of a final decision regarding the propriety of the
Corporation's U.S. Government accounting practices for the treatment of
environmental costs.
The Corporation has recorded an asset for the portion of environmental costs
that are probable of future recovery in pricing of the Corporation's products
and services for U.S. Government business. The portion that is expected to be
allocated to commercial business has been reflected in cost of sales. The
recorded amounts do not reflect the possible future recovery of portions of the
environmental costs through insurance policy coverage or from other potentially
responsible parties, which the Corporation is pursuing as required by agreement
and U.S. Government regulation. Any such recoveries, when received, would
reduce the 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 in March 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.
In June 1998, the DOE, through Lockheed Martin Idaho Technologies Company
(LMITCO), its management contractor, terminated the Pit 9 contract for default.
On the 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, in July 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. In August 1998, LMITCO, at the
DOE's direction, filed suit against the Corporation in U.S. District Court in
Boise, Idaho, seeking, among other things, recovery of approximately $54 million
previously paid by LMITCO to the Corporation under the Pit 9 contract. The
Corporation is defending this action while continuing to pursue its certified
REA. Discovery has been ongoing since August 2, 1999. In October 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.
NOTE 6 -- INFORMATION ON BUSINESS SEGMENTS
The Corporation 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 include Systems Integration,
Space Systems, Aeronautical Systems and
10
<PAGE>
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(continued)
Technology Services. All other activities of the Corporation fall within the
Corporate and Other segment. Additionally, the Corporation announced on April
24, 2000 the reassignment of the Management & Data Systems business unit from
the Systems Integration segment to the Space Systems segment. Prior period
amounts have been adjusted to conform with the above changes in organizational
structure.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------ ------
Selected Financial Data by Business Segment (In millions)
<S> <C> <C>
Net sales
- ---------
Systems Integration $2,099 $2,264
Space Systems 1,644 1,858
Aeronautical Systems 1,036 1,420
Technology Services 464 448
Corporate and Other 319 198
------ ------
$5,562 $6,188
====== ======
Operating profit (loss)
- -----------------------
Systems Integration $ 171 $ 170
Space Systems 82 162
Aeronautical Systems 79 164
Technology Services 26 32
Corporate and Other (32) 88
------ ------
$ 326 $ 616
====== ======
Intersegment revenue(a)
- -----------------------
Systems Integration $ 111 $ 121
Space Systems 27 26
Aeronautical Systems 18 21
Technology Services 166 152
Corporate and Other 15 15
------ ------
$ 337 $ 335
====== ======
(a) Intercompany transactions between segments are eliminated in consolidation, and excluded from
the net sales and operating profit (loss) amounts presented above.
</TABLE>
NOTE 7 -- OTHER
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. Effective March 31, 2000, the
Corporation exercised its right to convert the Preferred Stock. Its ownership
of 45.9 million shares of Loral Space common stock represents an approximate 16
percent interest in Loral Space, or 13 percent on a diluted basis. Subsequent
to conversion, the Corporation began accounting for its investment as an
available-for-sale investment. Accordingly, as of March 31, 2000, the
investment in Loral Space was adjusted to reflect its current market value, and
an
11
<PAGE>
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(continued)
unrealized gain, net of income taxes, of approximately $54 million was included
in stockholders' equity as a component of other comprehensive income.
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. In connection with
this agreement, in April 2000, Loral Space filed a registration statement with
the Securities and Exchange Commission to register for sale the common shares
owned by the Corporation. Loral Space has advised the Corporation that such
registration statement will become effective in May 2000.
In February 1999, the Corporation sold 4.5 million of its shares in L-3
Communications Holdings, Inc. (L-3) as part of a secondary public offering by L-
3. This transaction resulted in a reduction in the Corporation's ownership to
approximately seven percent and the recognition of a pretax gain of $114 million
which is reflected in other income and expenses. 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. Accordingly, as of March 31, 1999, the
investment in L-3 was adjusted to reflect its current market value, and an
unrealized gain, net of income taxes, of approximately $42 million was included
in stockholders' equity as a component of other comprehensive income. In
October 1999, the Corporation sold its remaining interest in L-3 and
reclassified to net earnings $30 million of unrealized gains previously recorded
as comprehensive income.
The components of comprehensive income for the three months ended March 31,
2000 and 1999 consisted of the following:
Three Months Ended
March 31,
2000 1999
-------- -------
(In millions)
Net earnings (loss) $ 54 $ (87)
Other comprehensive income:
Net foreign currency translation adjustments -- 7
Net unrealized gain 50 42
-------- -------
50 49
-------- -------
Comprehensive income $ 104 $ (38)
======== =======
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.
Approximately 10 percent of the original charge was reversed in 1999. As of
March 31, 2000, 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. While
uncertainty remains concerning the resolution of matters in dispute or
litigation, management believes that the remaining amount recorded is adequate
to provide for resolution of these matters and to complete the dissolution
process.
12
<PAGE>
Lockheed Martin Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(continued)
The Corporation's total interest payments were $94 million and $99 million for
the three months ended March 31, 2000 and 1999, respectively.
The Corporation received net federal and foreign income tax refunds of $25
million and made net federal and foreign income tax payments of $63 million in
the three months ended March 31, 2000 and 1999, respectively.
New accounting pronouncements adopted -- Effective January 1, 1999, the
Corporation adopted the American Institute of Certified Public Accountants'
Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up
Activities." This SOP requires that, at the effective date of adoption, costs of
start-up activities previously capitalized be expensed and reported as a
cumulative effect of a change in accounting principle, and further requires that
such costs subsequent to adoption be expensed as incurred. The adoption of SOP
No. 98-5 resulted in the recognition of a cumulative effect adjustment which
reduced net earnings for the first quarter of 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.
New accounting pronouncement to be adopted -- In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
(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 8 -- SUBSEQUENT EVENT
On April 27, 2000, the Corporation announced that it had reached a definitive
agreement to sell Lockheed Martin Control Systems to BAE SYSTEMS North America
for $510 million in cash. Consummation of the transaction is conditioned upon
regulatory review under the HSR Act and other antitrust laws, and by the
Committee on Foreign Investment in the U.S. under the Defense Production Act of
1950. If consummated, this transaction is expected to close in the second or
third quarter of 2000 and result in a pretax gain of $300 million to $350
million, or $150 million to $200 million on an after-tax basis.
13
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations
March 31, 2000
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 6 -- Information on Business Segments" of the
Notes to Unaudited Condensed Consolidated Financial Statements), 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.
In connection with its decision to evaluate the divestiture of certain non-
core business units, the Corporation announced on April 27, 2000 that it had
reached a definitive agreement to sell Lockheed Martin Control Systems (Control
Systems) to BAE SYSTEMS North America for $510 million in cash. Consummation of
the transaction is conditioned upon regulatory review under the Hart-Scott-
Rodino Antitrust Improvement Act (HSR Act) and other antitrust laws, and by the
Committee on Foreign Investment in the U.S. under the Defense Production Act of
1950. If consummated, this transaction is expected to close in the second or
third quarter of 2000 and result in a pretax gain of $300 million to $350
million, or $150 million to $200 million on an after tax basis. The transaction
is also expected to generate net proceeds of $325 million to $375 million after
related transaction costs and tax payments.
The Corporation is continuing its evaluation of the divestiture, subject to
appropriate valuation, negotiation and approval, of certain other business units
in the aerospace electronics, environmental management, and state and local
government services lines of business. On a combined basis, net sales in the
first quarter of 2000 related to Control Systems and the other business units
being evaluated for divestiture totaled $367 million. Based on preliminary
data, including Control Systems and assuming that the remaining potential
divestiture transactions are approved by the Corporation's Board of Directors
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 net 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 reduce debt. Financial effects
that may result, if any, would be recorded when the transactions are consummated
or when losses can be estimated. Other than the Control Systems transaction
discussed above, 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
14
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
within each segment. Management expects these actions to result in future cost
savings for the Corporation.
In line with our continuing efforts to strategically align the Corporation's
businesses and core competencies, the Corporation announced on April 24, 2000
the reassignment of the Management & Data Systems business unit from the Systems
Integration segment to the Space Systems segment. This move is intended to
enable the Corporation to take advantage of synergies within Space Systems to
meet the needs of its Department of Defense and intelligence community
customers.
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 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). Subsequent to obtaining all regulatory approvals necessary for the
first phase of the transaction and approval of the Merger by the stockholders of
COMSAT, the Corporation completed a cash tender offer (the Tender Offer) on
September 18, 1999. 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
Unaudited Condensed Consolidated Balance Sheet at March 31, 2000. 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. Federal
legislation to remove existing restrictions on ownership of COMSAT voting stock
was signed into law on March 17, 2000. In connection with actions necessary to
consummate the second phase of the transaction, the Corporation filed separate
notification and report forms under the HSR Act with the Federal Trade
Commission (FTC) and the U.S. Department of Justice (DOJ) in the first quarter
of 2000 regarding the Corporation's acquisition of minority interests in two
businesses held by COMSAT. On April 22, 2000, the waiting period under the HSR
Act with respect to these acquisitions expired.
The Corporation must also obtain certain regulatory approvals from the Federal
Communications Commission (FCC) before the Merger can occur. On March 23, 2000,
the Corporation and COMSAT filed applications with the FCC seeking authority for
the transfer of control of various FCC authorizations held by COMSAT to a
wholly-owned subsidiary of Lockheed Martin. The period for submission of
opposition and other comments (and responses thereto) currently is scheduled to
end on May 26, 2000. There is no set time frame for the FCC to issue its
decision following receipt of comments and there is no assurance as to the
timing or whether the 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
both parties could agree to extend this date. If consummated, the Merger will be
15
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
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 March 31, 2000
was approximately $535 million based on the closing price of its shares on the
New York Stock Exchange on that date. 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.
The Corporation intends to combine the operations of Lockheed Martin Global
Telecommunications (LMGT) and COMSAT upon consummation of the Merger. Given the
substantial investment necessary for the growth of the global telecommunications
services business, support from strategic partners for LMGT may be sought and
public equity markets may be accessed to raise capital, although the Corporation
cannot predict the outcome of these efforts.
RESULTS OF OPERATIONS
Consolidated Results of Operations
The Corporation's operating cycle is long-term and involves many types of
production contracts with varying production delivery schedules. Accordingly,
results of a particular quarter, or quarter-to-quarter comparisons of recorded
sales and profits, may not be indicative of future operating results. The
following comparative analysis should be viewed in this context.
The Corporation's consolidated net sales for the first quarter of 2000 were
$5.6 billion, a decrease of ten percent from the $6.2 billion recorded for the
comparable period in 1999. The net sales increases in the Technology Services
and Corporate and Other segments were more than offset by decreases in the
remaining segments. The Corporation's operating profit (earnings before interest
and taxes) for the first quarter 2000 was approximately $326 million, a decrease
of 47 percent from the $616 million recorded in the comparable 1999 period. The
reported amounts for the two 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 first quarter 2000 would have decreased by 37 percent
compared to first quarter 1999. Operating profit in all segments, except Systems
Integration, declined in the first quarter of 2000 as compared to the first
quarter of 1999. For a more detailed discussion of the operating results of the
business segments, see "Discussion of Business Segments" below.
Operating profit in the first quarter of 2000 included the effects of
nonrecurring and unusual items which on a combined basis, net of state income
taxes, increased operating profit by $10 million. These items included a net
gain of $16 million associated with the sale of surplus real estate and losses
of $6 million associated with other portfolio shaping actions. Operating profit
in the first quarter of 1999 included the effect of a nonrecurring and unusual
item which, net of state income taxes, increased operating profit by $114
million. This item resulted from the sale of 4.5 million shares of stock in L-3
Communications Holdings, Inc. (L-3) in a secondary offering of L-3's common
stock.
16
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
The Corporation's reported net earnings for the first quarter of 2000 were $54
million as compared to the first quarter 1999 net loss of $87 million. The
combined after-tax effects of the first quarter of 2000 nonrecurring and unusual
items discussed above included $10 million related to net gains on the sale of
surplus real estate and $4 million in losses associated with other portfolio
shaping actions. On a combined basis, these nonrecurring and unusual items
increased first quarter 2000 net earnings by $6 million, or $.02 per diluted
share. The after-tax effects of the nonrecurring and unusual items in the first
quarter of 1999 discussed above included $74 million related to the gain on the
sale of the Corporation's remaining interest in L-3. Nonrecurring and unusual
items for 1999 also included 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 net earnings by $355 million. On a combined
basis, these nonrecurring and unusual items decreased first quarter 1999 net
earnings by $281 million, or $.74 per diluted share.
The Corporation reported diluted earnings (loss) per share of $.14 and $(.23)
for the first quarter of 2000 and 1999, respectively. If the nonrecurring and
unusual items described above were excluded from the calculation of earnings per
share, diluted earnings per share for the first quarter of 2000 and 1999 would
have been $.12 and $.51, respectively.
The Corporation's backlog of undelivered orders was approximately $46.6
billion at March 31, 2000 as compared to $45.9 billion reported at December 31,
1999. The Corporation received orders for approximately $6.3 billion in new and
follow-on business during the first quarter of 2000 that were substantially
offset by sales during the period. Significant new orders received during the
quarter principally related to a $1.3 billion Israeli F-16 fighter aircraft
contract award and an order for two Italian C-130J airlift aircraft. However,
several significant orders received by the Corporation are not included in the
first quarter 2000 ending backlog. These include the F-16 fighter aircraft
orders for the United Arab Emirates (UAE) and Greece, worth approximately $6.4
billion and $1.6 billion, respectively, as well as two recently announced U.S.
C-130J airlift aircraft orders. The aforementioned orders are expected to be
recorded later in 2000, pending various governmental approvals.
In connection with the UAE's order for F-16 fighter aircraft discussed above,
the Corporation is in the process of establishing a letter of credit related to
advance payments to be received under the contract. The Corporation expects the
letter of credit to be in place in the second quarter of 2000.
Discussion of Business Segments
As discussed previously, 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. Additionally, the Corporation announced on April 24, 2000 the
reassignment of the Management & Data Systems business unit from the Systems
Integration segment to the Space Systems segment. The following discussion of
the results of operations of the Corporation's business segments reflects the
new organizational structure based on information in "Note 6 -- Information on
Business Segments" of the Notes to Unaudited
17
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
Condensed Consolidated Financial Statements included in this Form 10-Q,
including the financial data in the tables under the headings "Net sales" and
"Operating profit (loss )."
In addition, 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 two periods presented:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
----- -----
(In millions)
<S> <C> <C>
Nonrecurring and Unusual Items Profit (Loss):
Consolidated Effects
Sales of surplus real estate $ 16 $ --
Divestitures and other portfolio shaping items (6) --
Sale of remaining interest in L-3 -- 114
----- -----
$ 10 $114
===== =====
Segment Effects
Systems Integration $ -- $ --
Space Systems 17 --
Aeronautical Systems -- --
Technology Services (6) --
Corporate and Other (1) 114
----- -----
$ 10 $114
===== =====
</TABLE>
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 decreased by seven percent in
first quarter 2000 compared to the first quarter 1999. Approximately 55 percent
of the decrease in 2000 was attributable to reduced volume in postal systems
activities. Net sales also decreased $55 million due to a decline in volume on
the segment's aerospace electronic systems businesses. The remaining decrease is
primarily attributable to timing of revenue related to tactical training systems
in the United Kingdom.
Operating profit for the segment increased by one percent in the first quarter
of 2000 compared to the same period in 1999. The first quarter 2000 increase is
mainly attributable to the absence in 2000 of $35 million in charges related to
the Theater High Altitude Area Defense (THAAD) missile program incurred in the
first quarter of 1999. These charges included a $15 million performance penalty
for the failure to intercept the target during a test firing as well as a $20
million provision for further potential exposure related to this program. These
increases were
18
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
partially offset by an approximate $34 million decrease related to the volume
declines in postal systems and aerospace electronics activities discussed in the
preceding paragraph as well declines in certain missile defense programs due to
performance issues.
Space Systems
Net sales of the Space Systems segment decreased by 12 percent in the first
quarter of 2000 compared to the first quarter 1999. Approximately 67 percent of
the 2000 decline in sales was attributable to a reduction in launch vehicle
activity. Declines in the Proton commercial launch vehicle program were due to
the timing of launches, which more than offset increases in the Atlas commercial
launch vehicle program. A decline in volume related to military satellites,
classified programs, and reconnaissance system activities, partially offset by
increased activities in commercial satellites, contributed another $60 million
to the current year decline.
Operating profit for the segment decreased by 60 percent in the first quarter
of 2000 from the comparable 1999 period. Approximately 45 percent of the
segment's 2000 operating profit decrease resulted from lower volume in military
satellites and classified activities as well as decreased commercial satellite
performance. Additionally, approximately $35 million of the decrease was due to
market and pricing pressures related to the Atlas program. An adjustment related
to a more conservative assessment of future program performance on the Titan IV
program and expensing of start-up costs associated with the EELV program, offset
by increases in Atlas launch volume, comprised the remainder of the first
quarter 2000 decline.
Aeronautical Systems
Net sales of the Aeronautical Systems segment decreased by 27 percent in the
first quarter of 2000 from the comparable period in 1999. An approximate 50
percent reduction in sales and deliveries of F-16 fighter aircraft and C-130J
airlift aircraft accounted for approximately $380 million of the current year
decline in net sales. Reduction in sales on other tactical aircraft programs
comprised the remainder of the first quarter 2000 decline.
Operating profit for the segment decreased by 52 percent in the first quarter
of 2000 from the comparable 1999 period. Approximately 50 percent of the 2000
decline in operating profit was attributable to the Corporation's fourth quarter
1999 decision not to record profit on C-130J airlift aircraft deliveries, as a
result of changes in estimates due to cost growth and reduced production rates,
until further favorable progress occurs in terms of orders and cost. The
aforementioned reductions in F-16 fighter aircraft deliveries and declines in
volume on other tactical aircraft programs contributed approximately $35 million
to the decrease in first quarter 2000 operating profit, with the remainder of
the decrease caused by reduced activities on various other military aircraft
programs.
Technology Services
Net sales of the Technology Services segment increased by four percent in the
first quarter of 2000 from the comparable 1999 period. Approximately $15 million
of the increase in the first quarter 2000 net sales resulted from increased
volume on various federal technology services programs, primarily the
Consolidated Space Operations Contract. Increased net sales in the segment's
aircraft maintenance and logistics lines of business were offset by a decline in
volume on certain energy related contracts due to program maturity.
19
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
Operating profit for the segment remained consistent in the first quarter of
2000 from the first quarter of 1999. In the first quarter of 2000, an increase
of approximately $8 million in operating profits on various federal technology
services programs as well as from the segment's aircraft maintenance and
logistics lines of business was entirely offset by lower profit on certain
energy-related contracts and the effects of the divestiture of Lockheed Martin
Hanford Company in the fourth quarter of 1999.
Corporate and Other
Net sales of the Corporate and Other segment increased by 61 percent in the
first quarter of 2000 compared to the first quarter of 1999. Approximately 70
percent of the 2000 increase in net sales is attributable to the operations of
LMGT and was primarily associated with the recognition of revenue on a Proton
launch vehicle, which successfully launched the ACeS 1 satellite in the first
quarter of 2000. Additionally, increased volume related to state and municipal
services and information technology outsourcing programs contributed
approximately $30 million to the first quarter increase in net sales, with the
remainder of the increase due to certain international services activities. The
absence in 2000 of sales attributable to Lockheed Martin Information Management
Systems' Communications Industry Services line of business and the Corporation's
commercial graphics company, Real 3D, which were divested in the fourth quarter
of 1999, had negligible effects on the change in first quarter 2000 net sales.
Operating profit for the first quarter 2000 decreased $5 million from the
comparable 1999 period. Operating profit for 2000 was adversely affected by
approximately $15 million of negative adjustments, primarily related to
performance on an information technology-outsourcing contract and a state and
municipal services contract. These decreases were partially offset by lower
start-up and other operating expenses for LMGT. The absence in first quarter
2000 of losses associated with the Real 3D operating unit were offset by the
absence in the first quarter 2000 of a favorable adjustment recorded by the
segment's Communications Industry Services line of business in the first quarter
of 1999.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 2000, $482 million of cash was provided by
operating activities, compared to $153 million used for operating activities
during the first quarter of 1999. This fluctuation was primarily attributable
to accelerated payments received in the first quarter of 2000 on certain
aircraft and space systems programs as a result of exceeding performance
expectations, and reimbursements in connection with the remediation agreement
related to the Burbank and Glendale properties discussed in "Note 5--
Commitments and Contingencies." Net cash used for investing activities during
the first quarter of 2000 was $114 million as compared to $51 million provided
by investing activities during the first quarter of 1999. The 2000 amount
includes approximately $84 million in cash used for additions to property, plant
and equipment and approximately $30 million of net cash used for additional
investments in Astrolink International, LLC and other acquisition and
divestiture activities. The 1999 amount includes the receipt of $182 million of
proceeds from the sale of L-3 common stock mentioned previously, which was
partially offset by $131 million used for additions to property, plant and
equipment. Net cash used for financing activities in the first quarter of 2000
was $290 million as compared to $140 million during first quarter 1999. The
variance between periods was primarily due to an approximate $250 million
decrease in the Corporation's total debt position, net of acquired debt,
20
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
during the first quarter of 2000 versus a decrease in total debt of $61 million
during the first quarter of 1999.
Total debt, including short-term borrowings, decreased by approximately $250
million during the first quarter of 2000 from approximately $12 billion at
December 31, 1999. This decrease was primarily attributable to net repayments of
short-term debt of approximately $234 million. The Corporation's long-term debt
is primarily in the form of publicly issued, fixed-rate notes and debentures. At
the end of the first quarter of 2000, the Corporation held cash and cash
equivalents of $533 million, a portion of which were used to pay down its
commercial paper borrowings in April 2000. Total stockholders' equity was $6.5
billion at March 31, 2000, an increase of approximately $114 million from the
December 31, 1999 balance. This increase resulted from 2000 net earnings of $54
million, employee stock option and ESOP activities of $54 million, and other
comprehensive income of $50 million, partially offset by payment of dividends of
$44 million. As a result of the above factors, the Corporation's debt to total
capitalization ratio decreased from 65 percent at December 31, 1999 to 64
percent at March 31, 2000.
Commercial paper borrowings outstanding at March 31, 2000 were approximately
$241 million and are supported by a short-term revolving credit facility in the
amount of $1 billion which expires on May 28, 2000, and a long-term revolving
credit facility in the amount of $3.5 billion which expires on December 20,
2001. No borrowings were outstanding under these credit facilities at March 31,
2000. Following the Corporation's issuance of $3 billion in long-term debt
securities in the fourth quarter of 1999 and based on a current assessment of
its available financial resources, the Corporation has determined not to renew
its $1 billion short-term revolving credit facility and may terminate this
credit facility in advance of its expiration. The Corporation will establish
a letter of credit related to the sale of F-16 fighter aircraft to the UAE
discussed previously.
In March 2000, the Corporation filed a shelf registration with the Securities
and Exchange Commission to provide for the issuance of up to $1 billion in debt
securities. The registration statement was declared effective on April 14, 2000.
Were the Corporation to issue debt securities under this shelf registration, it
would expect to use the net proceeds for general corporate purposes. These
purposes may include repayment of debt, working capital needs, capital
expenditures, acquisitions and any other general corporate purpose.
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
reduce debt and invest in its core businesses, 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.
21
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
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. Effective March 31, 2000, the
Corporation exercised its right to convert the Preferred Stock. Its ownership
of 45.9 million shares of Loral Space common stock represents an approximate 16
percent interest in Loral Space, or 13 percent on a diluted basis.
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. In connection with
this agreement, in April 2000, Loral Space filed a registration statement with
the Securities and Exchange Commission to register for possible sale the common
shares owned by the Corporation. Loral Space has advised the Corporation that
such registration statement will become effective in May 2000. The Corporation
expects to divest its shares of Loral Space; however, the timing of such
divestitures and the related amount of cash received will depend on market
conditions.
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 March 31, 2000.
Based on its portfolio of variable rate short-term debt and fixed rate long-term
debt outstanding at March 31, 2000, 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 March 31, 2000, the amounts of forward exchange
contracts outstanding, as well as the amounts of gains and losses recorded
during the first quarter of 2000, 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 more fully described in "Note 5 - Commitments and Contingencies" of the
Notes to Unaudited Condensed Consolidated Financial Statements, the Corporation
is continuing to pursue recovery of a significant portion of the unanticipated
costs incurred in connection with the $180 million fixed price contract with the
U.S. Department of Energy (DOE) for the remediation of waste found in Pit 9.
The Corporation has been unsuccessful to date in reaching any agreements with
the DOE on cost recovery or other contract restructuring matters. In 1998, the
management contractor for the project, a wholly-owned subsidiary of the
Corporation, at the DOE's direction, terminated the Pit 9 contract for default.
At the same time, the Corporation filed a lawsuit seeking to overturn the
default termination. Subsequently, the Corporation took actions to raise the
status of its request for equitable adjustment to a formal claim. Also in 1998,
the management contractor, again at the DOE's direction, filed suit against the
Corporation seeking recovery of approximately $54 million previously paid to the
Corporation under the Pit 9
22
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
contract. The Corporation is defending this action in which discovery has been
pending since August 1999. In October 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.
As more fully described in Management's Discussion and Analysis in Lockheed
Martin's 1999 Annual Report on Form 10-K, the Corporation is involved in two
joint ventures with Russian government-owned space firms. The operations of
these joint ventures include marketing Proton launch services, which are subject
to a U.S.-imposed quota on the number of Russian launches of U.S. built
satellites into certain orbits. The majority of customer advances received for
Proton launch vehicle services is forwarded to a launch vehicle manufacturer in
Russia. Significant portions of these advances would be required to be refunded
to customers if launch services were not provided within the contracted time
frame. At March 31, 2000, approximately $698 million related to launches not
yet provided was included in customer advances and amounts in excess of costs
incurred, and approximately $851 million of payments to the Russian manufacturer
for launches not yet provided was included in inventories. At March 31, 2000, no
portion of the customer advances was associated with launches in excess of the
quota, and approximately $254 million of the $851 million of payments to the
aforementioned Russian manufacturer were associated with launches in excess of
the number currently allowed under the quota. Through March 31, 2000, launch
services provided through these joint ventures have been in accordance with
contract terms. With respect to the quota, the Corporation's ability to achieve
certain of its business objectives related to launch services, satellite
manufacture and telecommunications market penetration could be impaired if the
limit on the number of launches imposed by the quota is not raised or
eliminated. Management is working to achieve a favorable resolution to raise or
eliminate the limitation on the number of Russian launches covered by the quota.
Also as more fully described in Management's Discussion and Analysis in its
Form 10-K, the Corporation is involved in agreements with RD AMROSS, a Russian
manufacturer of booster engines, for the development and purchase, subject to
certain conditions, of up to 101 RD-180 booster engines for use in two models of
the Corporation's Atlas launch vehicles. Terms of the agreements call for
payments to be made to RD AMROSS upon the achievement of certain milestones in
the development and manufacturing processes. Included in inventories at March
31, 2000 and December 31, 1999 were payments made under these agreements of
approximately $44 million and $55 million, respectively.
FORWARD LOOKING STATEMENTS
This Form 10-Q contains statements which, to the extent that they are not
recitations of historical fact, constitute "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act"). The words "estimate," "anticipate," "project," "intend,"
"expect," and similar expressions are intended to identify forward looking
statements. All forward looking statements involve risks and uncertainties,
including, without limitation, statements and assumptions with respect to future
revenues, program performance and cash flows, the outcome of contingencies
including litigation and environmental remediation, and
23
<PAGE>
Lockheed Martin Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
anticipated costs of capital investments and planned dispositions. Our
operations are necessarily subject to various risks and uncertainties and,
therefore, actual outcomes are dependent upon many factors, including, without
limitation, our successful performance of internal plans and reorganization
efforts; the timely outcome of agency actions required in order to consummate
the transaction with COMSAT; government customers' budgetary constraints and the
timing of awards and contracts; customer changes in short-range and long-range
plans; domestic and international competition in the defense, space and
commercial areas; continued development and acceptance of new products; timing
and customer acceptance of product delivery and launches; product performance;
performance issues with the U.S. Government, key suppliers and subcontractors;
government import and export policies; termination of government contracts; the
outcome of political and legal processes; the outcome of contingencies,
including completion of acquisitions and divestitures, litigation and
environmental remediation; legal, financial, and governmental risks related to
international transactions and global needs for military and commercial aircraft
and electronic systems and support; as well as other economic, political and
technological risks and uncertainties. Readers are cautioned not to place undue
reliance on these forward looking statements which speak only as of the date of
this Form 10-Q. The Corporation does not undertake any obligation to publicly
release any revisions to these forward looking statements to reflect events,
circumstances or changes in expectations after the date of this Form 10-Q, or to
reflect the occurrence of unanticipated events. The forward looking statements
in this document are intended to be subject to the safe harbor protection
provided by Sections 27A of the Securities Act and 21E of the Exchange Act.
For a discussion identifying some important factors that could cause actual
results to vary materially from those anticipated in the forward looking
statements, see the Corporation's Securities and Exchange Commission filings
including, but not limited to, the discussion of the "Transaction Agreement with
COMSAT Corporation", the discussion of "Competition and Risk" and the discussion
of "Government Contracts and Regulations" on pages 3 through 6, pages 23 through
26 and pages 26 through 28, respectively, of the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999 (Form 10-K); "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 14 through 24 of this Form 10-Q; and "Note 2 -- Transaction Agreement with
COMSAT Corporation," "Note 5 -- Commitments and Contingencies," "Note 7 --
Other" and "Note 8 -- Subsequent Event" of the Notes to Unaudited Condensed
Consolidated Financial Statements on pages 6 through 7, pages 8 through 10,
pages 11 through 13 and page 13, respectively, of the Unaudited Condensed
Consolidated Financial Statements included in this Form 10-Q.
24
<PAGE>
Lockheed Martin Corporation
Part II - Other Information
Item 1. Legal Proceedings
The Corporation is a party to or has property subject to litigation and other
proceedings, including matters arising under provisions relating to the
protection of the environment, both as specifically described below and in the
Corporation's 1999 Annual Report on Form 10-K (Form 10-K), or arising in the
ordinary course of business. In the opinion of management, the probability is
remote that the outcome of any such litigation or other proceedings will have a
material adverse effect on the Corporation's results of operations or financial
position.
The Corporation is primarily engaged in providing products and services under
contracts with the U.S. Government and, to a lesser degree, under direct foreign
sales contracts, some of which are funded by the U.S. Government. These
contracts are subject to extensive legal and regulatory requirements and, from
time to time, agencies of the U.S. Government investigate whether the
Corporation's operations are being conducted in accordance with these
requirements. U.S. Government investigations of the Corporation, whether
relating to these contracts or conducted for other reasons, could result in
administrative, civil or criminal liabilities, including repayments, fines or
penalties being imposed upon the Corporation, or could lead to suspension or
debarment from future U.S. Government contracting. U.S. Government
investigations often take years to complete and many result in no adverse action
against the Corporation. For the U.S. Government investigations described in
the Corporation's Form 10-K, it is too early for Lockheed Martin to determine
whether adverse decisions relating to these investigations could ultimately have
a material adverse effect on its results of operations or financial condition.
The following describes new matters not previously disclosed as well as
developments of previously reported matters that have occurred since filing of
the Corporation's Form 10-K. See the "Legal Proceedings" section of the Form
10-K for a description of previously reported matters.
On February 1, 2000, the Corporation received notice that the U.S.
Environmental Protection Agency (EPA) had filed a civil enforcement action
alleging violations of the federal Toxic Substances Control Act (TSCA) at the
Idaho National Engineering and Environmental Laboratory. The complaint, which
seeks a civil penalty of approximately $188 thousand, alleges that Lockheed
Martin Idaho Technologies Company (a wholly-owned subsidiary of the Corporation)
violated provisions of the PCB (polychlorinated biphenyl) Regulations
promulgated by the EPA and TSCA. The Corporation is negotiating this matter
with the EPA.
The Corporation has been cited by the California South Coast Air Quality
Management District (SCAQMD) for allegedly mishandling asbestos-containing
demolition debris at the Corporation's former aircraft manufacturing facilities
in Burbank, California. In a letter dated February 10, 2000, the SCAQMD offered
to settle the Notices of Violation in exchange for a civil penalty of $315
thousand. The Corporation's demolition contractor, who was responsible for the
work, was also cited and has agreed to honor its contractual indemnity to the
Corporation for any penalty ultimately assessed by the SCAQMD.
25
<PAGE>
Lockheed Martin Corporation
Part II - Other Information (continued)
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders on April 27, 2000, the stockholders of
Lockheed Martin Corporation:
. Elected the following individuals to the Board of Directors to serve as
directors until the Annual Meeting of Stockholders in 2001 and until their
successors have been duly elected and qualified:
Votes Cast For Votes Withheld
-------------- --------------
Norman R. Augustine 341,556,635 15,412,144
Marcus C. Bennett 342,362,606 14,606,173
Lynne V. Cheney 342,984,894 13,983,885
Vance D. Coffman 339,050,523 17,918,256
James F. Gibbons 343,486,720 13,482,059
Edward E. Hood, Jr. 343,133,851 13,834,928
Caleb B. Hurtt 343,130,265 13,838,514
Gwendolyn S. King 343,006,583 13,962,196
Eugene F. Murphy 343,307,443 13,661,336
Frank Savage 333,363,362 23,605,417
James R. Ukropina 343,367,707 13,601,072
Douglas C. Yearley 343,388,069 13,580,710
. Ratified the appointment of Ernst & Young LLP, independent auditors, to audit
the consolidated financial statements of the Corporation as of and for the
fiscal year ending December 31, 2000. There were 350,675,809 votes for the
appointment, 4,233,773 votes against the appointment, and 2,059,197
abstentions.
. Ratified a proposal to re-approve performance-based goals under the Lockheed
Martin Corporation 1995 Omnibus Performance Award Plan. There were 334,706,822
votes for the proposal, 18,670,567 votes against the proposal, and 3,591,390
abstentions.
. Rejected a stockholder proposal which recommended that the Board of Directors
take necessary actions to ensure that future outside directors not serve for
more than six years. There were 21,886,313 votes for the proposal, 284,940,927
votes against the proposal, 4,613,833 abstentions and 45,527,706 non-votes.
. Rejected a stockholder proposal which recommended that the Board of Directors
establish a committee to research and develop criteria for the bidding,
acceptance and implementation of military contracts, and to report the results
of its study to shareholders at the 2001 Annual Meeting of Stockholders. There
were 15,628,573 votes for the proposal, 275,908,898 votes against the
proposal, 19,903,602 abstentions and 45,527,706 non-votes.
26
<PAGE>
Lockheed Martin Corporation
Part II - Other Information (continued)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1. Exhibit 10. Lockheed Martin Corporation Directors Equity Plan, as
amended May 1, 2000.
2. Exhibit 12. Lockheed Martin Corporation Computation of Ratio of
Earnings to Fixed Charges for the three months ended
March 31, 2000.
3. Exhibit 27. Financial Data Schedule for the three months ended March
31, 2000.
(b) Reports on Form 8-K filed in the first quarter of 2000.
1. Current report on Form 8-K filed on January 31, 2000.
Item 5. Other Events
The Corporation filed information contained in its press
releases dated January 27, 2000 and January 28, 2000. The
January 27, 2000 press release relates to the Corporation's
decision to streamline certain activities in two business
areas. The January 28, 2000 press release relates to the
Corporation's financial performance for fiscal year ended
December 31, 1999 and a reduction in its dividend rate.
Item 7. Financial Statements and Exhibits
Lockheed Martin Corporation Press Release dated January 27,
2000.
Lockheed Martin Corporation Press Release dated January
28, 2000.
(c) Reports on Form 8-K filed subsequent to the first quarter of 2000.
1. Current report on Form 8-K filed on April 4, 2000.
Item 5. Other Events
The Corporation filed information contained in its press
release dated March 10, 2000 regarding the passage of
Congressional legislation related to the proposed merger with
COMSAT Corporation.
Item 7. Financial Statements and Exhibits
Lockheed Martin Corporation Press Release dated March 10,
2000.
2. Current report on Form 8-K filed on April 5, 2000.
Item 5. Other Events
27
<PAGE>
Lockheed Martin Corporation
Part II - Other Information (continued)
The Corporation filed information contained in its press
release dated April 3, 2000 which announces the selection of
Louis R. Hughes as President and Chief Operating Officer,
effective April 27, 2000.
Item 7. Financial Statements and Exhibits
Lockheed Martin Press Release dated April 3, 2000.
3. Current report on Form 8-K filed on April 28, 1999.
Item 5. Other Events
The Corporation filed information contained in its press
release dated April 25, 2000 concerning its results of
operations for the quarter ended March 31, 2000.
Item 7. Financial Statements and Exhibits
Lockheed Martin Corporation Press Release dated April 25,
2000.
28
<PAGE>
LOCKHEED MARTIN CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LOCKHEED MARTIN CORPORATION
---------------------------
(Registrant)
Date: May 5, 2000 by: /s/Christopher E. Kubasik
--------------------------- --------------------------
Christopher E. Kubasik
Vice President and Controller
(Chief Accounting Officer)
29
<PAGE>
Exhibit 10
DIRECTORS EQUITY PLAN
As Amended May 1, 2000
<PAGE>
TABLE OF CONTENTS
ARTICLE I
TITLE, PURPOSE AND AUTHORIZED SHARES
ARTICLE II
DEFINITIONS
ARTICLE III
PARTICIPATION
3.1. Award.................................................................A-3
3.2. Election..............................................................A-3
ARTICLE IV
STOCK UNITS
4.1. Stock Unit Account...................................................A-3
4.2. Dividend Equivalents; Dividend Equivalent Stock Account..............A-3
4.3. Vesting of Stock Unit Account and Dividend Equivalent Stock Account..A-3
4.4. Distribution of Benefits.............................................A-4
4.5. Limitations on Rights Associated with Units..........................A-4
ARTICLE V
STOCK OPTIONS
5.1. Exercise Price.......................................................A-5
5.2. Non-transferability of Options.......................................A-5
5.3. Vesting; Term of Options.............................................A-5
5.4. Payment of Exercise Price............................................A-5
5.5. Rights as Stockholder................................................A-5
ARTICLE VI
ADMINISTRATION
6.1. Administration.......................................................A-5
6.2. Decisions Final; Delegation; Reliance; and Limitation on Liability...A-5
i
<PAGE>
ARTICLE VII
PLAN CHANGES AND TERMINATION
7.1. Adjustments upon Changes in Common Stock............................A-6
7.2. Amendments..........................................................A-6
7.3. Term................................................................A-6
7.4. Distribution of Shares..............................................A-6
ARTICLE VIII
MISCELLANEOUS
8.1. Limitation on Directors' Rights......................................A-6
8.2. Beneficiaries........................................................A-6
8.3. Corporation's Right to Withhold......................................A-6
8.4. Benefits Not Assignable; Obligations Binding Upon Successors.........A-7
8.5. Governing Law; Severability..........................................A-7
8.6. Compliance With Laws.................................................A-7
8.7. Plan Construction....................................................A-7
8.8. Headings Not Part of Plan............................................A-7
ii
<PAGE>
LOCKHEED MARTIN CORPORATION
DIRECTORS EQUITY PLAN
May 1, 1999
As Amended May 1, 2000
ARTICLE I
TITLE, PURPOSE AND AUTHORIZED SHARES
This Plan shall be known as "Lockheed Martin Corporation Directors
Equity Plan" and shall become effective on May 1, 1999. The purpose of this
Plan is to attract, motivate and retain experienced and knowledgeable directors
for the Corporation and to further align their economic interests with the
interests of stockholders generally. The total number of shares of Common Stock
that may be delivered pursuant to awards under this Plan is 1,000,000, subject
to adjustments contemplated by Section 7.1. Shares of Common Stock subject to
an Option terminating or expiring for any reason prior to its exercise, and
Units and Dividend Equivalents that are forfeited pursuant to the Plan, shall be
available for Awards to be granted during the term of the Plan.
ARTICLE II
DEFINITIONS
The following terms shall have the meaning specified below unless the
context clearly indicates otherwise:
Accounts means a Director's Stock Unit Account and Dividend
Equivalent Stock Account.
Award means an award granted pursuant to Section 3.1.
Award Date means May 1 of each year, commencing in 1999 (or if
May 1 falls on a weekend or holiday, the next following business day).
Beneficiary shall have the meaning specified in Section 8.2(b).
Board of Directors or Board means the Board of Directors of the
Corporation.
Change in Control means:
1) A tender offer or exchange offer is consummated for the
ownership of securities of the Corporation representing 25% or
more of the combined voting power of the Corporation's then
outstanding voting securities entitled to vote in the election of
directors of the Corporation.
2) The Corporation 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 Corporation (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 Corporation
A-1
<PAGE>
representing 25% or more of the combined voting power of the
Corporation's then outstanding securities entitled to vote in the
election of directors of the Corporation.
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).
5) The stockholders of the Corporation approve a plan of
liquidation and dissolution or the sale or transfer of
substantially all of the Corporation's business and/or assets as
an entirety to an entity that is not a Subsidiary.
Code means the Internal Revenue Code of 1986, as amended.
Common Stock or Stock means shares of Common Stock of the
Corporation, par value $1.00 per share, subject to adjustments made
under Section 7.1 or by operation of law.
Corporation means Lockheed Martin Corporation, a Maryland
corporation, and its successors and assigns.
Director means a member of the Board of Directors of the
Corporation who is not an officer or employee of the Corporation or any
of its subsidiaries.
Disability means a "permanent and total disability" within the
meaning of Section 22(e)(3) of the Code.
Dividend Equivalent means the amount of cash dividends or other
cash distributions that would have been paid by the Corporation on Stock
Units then credited to a Director's Stock Unit Account had those Stock
Units been shares of common stock.
Dividend Equivalent Stock Account means the bookkeeping account
maintained by the Corporation on behalf of a Director which is credited
with Dividend Equivalents in the form of Stock Units in accordance with
Section 4.2.
Effective Date means May 1, 1999.
Exchange Act means the Securities Exchange Act of 1934, as
amended from time to time.
Fair Market Value means in the case of a Stock Unit the closing
price of the Stock as reported on the composite tape of New York Stock
Exchange issues on the relevant date, or, if no sale of Stock is
reported for that date, the next preceding day for which there is a
reported sale and in the case of an Option shall mean the fair market
value of an option to buy Stock granted on the relevant day as
determined using the Black Scholes option pricing methodology.
Option means a Nonqualified Stock Option to purchase shares of
Common Stock with the terms and conditions as described in Article V.
Plan means the Lockheed Martin Corporation Directors Equity
Plan.
Retirement means retirement from the Corporation at the
expiration of a Director's term.
A-2
<PAGE>
Stock Unit or Unit means a non-voting unit of measurement that is
deemed for bookkeeping purposes to be equivalent to an outstanding share
of Common Stock of the Corporation.
Stock Unit Account means the bookkeeping account maintained by
the Corporation on behalf of each Director which is credited with Stock
Units in accordance with Section 4.1.
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 corporations), is owned or controlled (directly or
indirectly) by that entity, or by one or more of the Subsidiaries of
that entity, or by a combination thereof.
ARTICLE III
PARTICIPATION
3.1. Award. Commencing on May 1, 2000, and on each Award Date thereafter
during the term of this Plan, each Director shall be granted, in the form
elected by the Director pursuant to Section 3.2, one of the following Awards:
(a) Units with a Fair Market Value of $60,000 credited to the
-------
Director's Stock Unit Account;
(b) Units credited to the Director's Stock Unit Account with a
Fair Market Value of $30,000 and Options to purchase shares
-------
of Stock with a Fair Market Value of $30,000; or
-------
(c) Options to purchase shares of Stock with a Fair Market Value
of $60,000.
-------
For purposes of this Section 3.1, Fair Market Value shall be determined
on the Award Date.
3.2. Election. Prior to the Corporation's Annual Meeting of Stockholders
or, in the case of a new Director, before the commencement of the Director's
term of office, a Director must file an election form, as provided by the
Corporation, with the Secretary of the Corporation specifying the form of the
Award the Director elects to receive pursuant to Section 3.1. A Director's
election shall remain in effect for Awards made in each subsequent calendar
year, unless the Director files a revised election form or written revocation of
the election with the Secretary of the Corporation before the subsequent Annual
Meeting of Stockholders. A Director's election shall be irrevocable after the
Award for a particular year is made.
ARTICLE IV
STOCK UNITS
4.1. Stock Unit Account. If a Director elects the Award described in
either Section 3.1(a) or 3.1(b), the Stock Unit Account of such Director shall
be credited on the Award Date with either (i) Units determined pursuant to
Section 3.1(a) or (ii) Units determined pursuant to Section 3.1(b).
4.2. Dividend Equivalents; Dividend Equivalent Stock Account.
(a) Allocation of Dividend Equivalents. Each Director shall be
entitled to receive Dividend Equivalents on the Units credited to his or her
Stock Unit Account and Dividend Equivalent Stock Account, both before and after
a termination of service. The Dividend Equivalents shall be credited to the
Director's Dividend Equivalent Stock Account in accordance with Section 4.2(b)
below.
(b) Dividend Equivalent Stock Account. The Director's Dividend
Equivalent Stock Account shall be credited with an additional number of Units
determined by dividing the amount of Dividend Equivalents by the Fair Market
Value of a share of Common Stock as of the date on which the dividend is paid.
The Units credited to a
A-3
<PAGE>
Director's Dividend Equivalent Stock Account shall be allocated (for purposes of
distribution) in accordance with Section 4.4(b) and shall be subject to
adjustment in accordance with Section 7.1.
4.3. Vesting of Stock Unit Account and Dividend Equivalent Stock
Account. A Director's Units held in his or her Stock Unit Account shall vest on
the first anniversary of the Award Date for such Units. A Director's Units held
in his or her Dividend Equivalent Stock Account shall vest when the underlying
Units in the Stock Unit Account vest. If a Director's service as a Director
terminates for any reason, all nonvested Units and related Dividend Equivalents
shall be forfeited. Notwithstanding the provisions of this Section 4.3, all
nonvested Units and related Dividend Equivalents granted to a Director shall
vest upon a Change in Control or in the event of such Director's Retirement,
death or Disability.
4.4. Distribution of Benefits.
(a) Commencement of Benefits Distribution. Subject to the terms of
Section 4.3 and this Section 4.4, each Director shall be entitled to receive a
distribution of his or her Accounts upon a termination of service (including but
not limited to a retirement or resignation) as a director of the Corporation.
Benefits shall be distributed at the time or times set forth in this Section
4.4.
(b) Manner of Distribution. The benefits payable under this Section
shall be distributed to the Director in a lump sum, unless the Director elects
in writing (on forms provided by the Corporation) on or before the Award Date on
which the Units are granted to receive a distribution of benefits in
approximately equal annual installments for up to ten years. Elections with
respect to any Units in the Stock Unit Account shall apply to all Dividend
Equivalent Units attributable to those Stock Units, and to all Dividend
Equivalent Units. Installment payments shall commence as of the date the
Accounts become distributable under Section 4.4(a). The amount of each
installment shall be equal to (i) the Fair Market Value of the Units allocated
to Director's Stock Unit Account and Dividend Equivalent Account, on the day
immediately preceding the date of payment, divided by (ii) the number of
installments yet to be paid. Notwithstanding the foregoing, if the vested
balance remaining in a Director's Stock Unit Account and Dividend Equivalent
Stock Account is less than 50 Units, then the remaining balance shall be
distributed in a lump sum in the form of cash or Stock, as previously elected by
the Director. In the event of a Change in Control or a Director's termination of
services as a result of death or Disability, either prior to or after the
Director has terminated service, the benefits payable under this Section shall
be distributed in a lump sum in cash.
(c) Form of Distribution. Stock Units shall be paid and distributed
by means of a distribution of (i) an equivalent whole number of shares of Common
Stock or (ii) cash in an amount equal to the Fair Market Value of an equivalent
number of shares of Common Stock as of the business day immediately preceding
the distribution. Any fractional interest in a Unit shall be paid in cash on
final distribution. In the event of a termination of service, a Director may
elect to have Stock Units credited to the Director's Stock Unit Account and
Dividend Equivalent Stock Account paid and distributed in the form of cash or a
combination of whole shares of Common Stock and cash by making a written
election (on forms provided by the Corporation) at least six months prior to
receipt by a Director of any distribution as to the percentage the Director
elects to receive in the form of cash and the percentage the Director elects to
receive in whole shares of Common Stock.
(d) Sub-Accounts. The Administrator shall retain sub-accounts of a
Director's Accounts as may be necessary to determine which Units are subject to
any distribution elections under Section 4.4(b).
(e) Limitations of Distributions. Notwithstanding anything herein
to the contrary, no Units may be distributed prior to the six month anniversary
of the crediting of such Units to the Director's Stock Unit Account.
4.5. Limitations on Rights Associated with Units. A Director's Accounts
shall be memorandum accounts on the books of the Corporation. The Units
credited to a Director's Accounts shall be used solely as a device for the
determination of the number of shares of Common Stock to be distributed to such
Director in accordance with this Plan. The Units shall not be treated as
property or as a trust fund of any kind, and shall not create a security
interest in any property although the Corporation shall reserve shares of Common
Stock to satisfy its obligations under this Plan. All shares of Common Stock or
other amounts attributed to the Units shall be and
A-4
<PAGE>
remain the sole property of the Corporation, and each Director's rights in the
Units is limited to the right to receive shares of Common Stock or cash in the
future, in accordance with the Plan. No Director shall be entitled to any voting
or other stockholder rights with respect to Units granted under this Plan. The
number of Units credited under this Article shall be subject to adjustment in
accordance with Section 7.1.
A-5
<PAGE>
ARTICLE V
STOCK OPTIONS
All Options granted pursuant to the Plan shall be subject to the
following terms and conditions:
5.1. Exercise Price. The exercise price of an Option shall be equal to
100% of the Fair Market Value of the Stock on the day of the grant of the
Option.
5.2. Non-transferability of Options. Options shall not be assignable nor
transferable by the Director otherwise than by bequest or by the laws of
descent. Options shall be exercisable during the Director's lifetime only by the
Director or by his or her guardian or legal representative. The designation of a
Beneficiary is not a prohibited transfer.
5.3. Vesting; Term of Options. Options shall become exercisable on the
day following the first anniversary of the date the Options are granted and,
subject to Section 5.3, shall expire on the tenth anniversary of the date the
Options are granted. Notwithstanding the provisions of this Section 5.3, upon a
Change in Control or in the event a Director's service as director terminates by
reason of such Director's Retirement, death or Disability, all options shall
become exercisable.
5.4. Payment of Exercise Price. The Option's exercise price shall be
paid in cash at the time of exercise, except that in lieu of all or part of the
cash, the Director may tender Stock to the Corporation having a Fair Market
Value equal to the exercise price, (less any cash paid). The Fair Market Value
of tendered Stock shall be determined as of the close of the business day
immediately preceding the day on which the Options are exercised.
5.5 Rights as Stockholder. A Director shall have no rights as a Common
Stockholder with respect to any unissued shares of Common Stock covered by an
Option until the date the Director exercises the Options and becomes the holder
of record of those shares of Common Stock. Except as provided in Section 7.1, no
adjustment or other provision shall be made for dividends or other stockholder
rights.
ARTICLE VI
ADMINISTRATION
6.1. Administration. This Plan shall be self-executing and operated as a
formula plan. To the extent necessary for the operation of the Plan, it shall be
construed, interpreted and administered by the Board or a committee appointed by
the Board to act on its behalf under this Plan. Notwithstanding the foregoing,
but subject to Section 7.2 hereof, the Board shall have no discretionary
authority with respect to the amount or price of any Award granted under this
Plan and no Director shall participate in any decision relating solely to his or
her benefits (other than approval of the Award).
6.2. Decisions Final; Delegation; Reliance; and Limitation on Liability.
Any determination of the Board or committee made in good faith shall be
conclusive. In performing its duties, the Board or the committee shall be
entitled to rely on public records and on information, opinions, reports or
statements prepared or presented by officers or employees of the Corporation or
other experts believed to be reliable and competent. The Board or the committee
may delegate ministerial, bookkeeping and other non-discretionary functions to
individuals who are officers or employees of the Corporation.
Neither the Corporation nor any member of the Board, nor any other
person participating in any determination of any question under this Plan, or in
the interpretation, administration or application of this Plan, shall have any
liability to any party for any action taken or not taken in good faith under
this Plan or for the failure of an Award (or action or payment in respect of an
Award) to satisfy Code requirements for realization of intended tax
consequences, to qualify for exemption or relief under Rule 16b-3, or to comply
with any other law, compliance with which is not required by the Corporation.
A-6
<PAGE>
ARTICLE VII
PLAN CHANGES AND TERMINATION
7.1. Adjustments upon Changes in Common Stock. Upon the Corporation's
recapitalization, stock split (including a stock split in the form of a stock
dividend), reverse stock split, merger, combination, consolidation, or other
reorganization or any extraordinary dividend or other extraordinary distribution
in respect of the Stock (whether in the form of cash, Stock or other property),
or any split-up, spin-off, extraordinary redemption, or exchange of outstanding
Stock, or there shall occur any other similar corporate transaction or event in
respect of the Stock, or a sale of substantially all the assets of the
Corporation as an entirety, the Committee shall make a proportionate and
equitable adjustment consistent with the effect of any such event on
stockholders generally (but without duplication if Dividend Equivalents are
credited) in the maximum number of shares of Common Stock reserved under the
Plan, in the number of Units granted under the Plan, and in the number, kind and
exercise price of Options granted under the Plan to prevent dilution or
enlargement of the rights of Directors under the Plan and outstanding Options.
7.2. Amendments. The Board of Directors shall have the right to amend
this Plan in whole or in part or to suspend or terminate this Plan. No
amendment, suspension, or termination, however, may cancel or otherwise
adversely affect in any way, without written consent, any Director's rights with
respect to (i) Stock Units and Dividend Equivalents credited to his or her Stock
Unit Account or Dividend Equivalent Stock Account or (ii) Options awarded prior
to the effective date of the amendment, suspension or termination.
7.3. Term. This Plan shall remain in effect for a period of 10 years
from the Effective Date, but continuance of this Plan is not a contractual
obligation of the Corporation. In the event that the Board of Directors decides
to terminate this Plan, it shall notify the Directors of its action in writing,
and this Plan shall be terminated at the time set by the Board of Directors.
7.4. Distribution of Shares. If this Plan terminates pursuant to Section
7.2, the distribution of the Accounts of a Director shall be made at the time
provided in Section 4.4 and in a manner consistent with the elections made
pursuant to Section 4.4 if any.
ARTICLE VIII
MISCELLANEOUS
8.1. Limitation on Directors' Rights. Participation in this Plan shall
not give any Director the right to continue to serve as a member of the Board or
any rights or interests other than as provided in this Plan. No Director shall
have any right to any payment or benefit except to the extent provided in this
Plan. This Plan shall create only a contractual obligation of the Corporation to
provide the benefits described in the Plan and shall not be construed as
creating a trust. This Plan has no assets. Directors shall only have rights as
general unsecured creditors of the Corporation for any amounts credited or
vested and benefits payable under this Plan.
8.2. Beneficiaries.
(a) Beneficiary Designation. Upon forms provided and in accordance
with procedures established by the Corporation, each Director may designate in
writing (and change a designation of) the Beneficiary or Beneficiaries (as
defined in Section 8.2(b)) that the Director chooses to receive the Common Stock
payable under this Plan after his or her death, subject to applicable laws
(including any applicable community property and probate laws).
(b) Definition of Beneficiary. A Director's "Beneficiary" or
"Beneficiaries" shall be the person or persons, including a trust or trusts,
validly designated by the Director or, in the absence of a valid designation,
entitled by will or the laws of descent and distribution to receive the
Director's benefits under this Plan in the event of the Director's death.
8.3. Corporation's Right to Withhold. The Corporation shall satisfy
state or federal income tax withholding obligations, if any, arising upon
distribution of a Director's Account or of shares of Stock upon the exercise of
Options by reducing the number of shares of Common Stock otherwise deliverable
to the Director by the
A-7
<PAGE>
appropriate number of shares (based on the Fair Market Value on the day
immediately preceding the payment) required to satisfy such tax withholding
obligation. If the Corporation, for any reason, cannot satisfy the withholding
obligation in accordance with the preceding sentence, the Director shall pay or
provide for payment in cash of the amount of any taxes which the Corporation may
be required to withhold with respect to the benefits hereunder.
8.4. Benefits Not Assignable; Obligations Binding Upon Successors.
Benefits of a Director under this Plan shall not be assignable or transferable
and any purported transfer, assignment, pledge or other encumbrance or
attachment of any payments or benefits under this Plan, or any interest therein,
other than pursuant to Section 8.2, shall not be permitted or recognized.
Obligations of the Corporation under this Plan shall be binding upon successors
of the Corporation.
8.5. Governing Law; Severability. The validity of this Plan or any of
its provisions shall be construed, administered and governed in all respects
under and by the laws of the State of Maryland. 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.
8.6. Compliance With Laws. This Plan and the offer, issuance and
delivery of shares of Common Stock and/or the payment and deferral of
compensation under this Plan are subject to compliance with all applicable
federal and state laws, rules and regulations (including but not limited to
state and federal reporting, registration, insider trading and other securities
laws) and to such approvals by any listing agency or any regulatory or
governmental authority as may, in the opinion of counsel for the Corporation, be
necessary or advisable in connection therewith. Any securities delivered under
this Plan shall be subject to such restrictions, and the person acquiring the
securities shall, if requested by the Corporation, provide such assurances and
representations to the Corporation as the Corporation may deem necessary or
desirable to assure compliance with all applicable legal requirements.
8.7. Plan Construction. It is the intent of the Corporation that this
Plan satisfy and be interpreted in a manner that satisfies the applicable
requirements of Rule 16b-3 so that Directors will be entitled to the benefits of
Rule 16b-3 or other exemptive rules under Section 16 of the Exchange Act and
will not be subjected to liability thereunder. Any contrary interpretation shall
be avoided.
8.8. Headings Not Part of Plan. Headings and subheadings in this Plan
are inserted for reference only and are not to be considered in the construction
of this Plan.
A-8
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12
Lockheed Martin Corporation
Computation of Ratio of Earnings to Fixed Charges
for the Three Months Ended March 31, 2000
(In millions, except ratio)
Earnings
<S> <C>
Earnings from continuing operations before income taxes $ 99
Interest expense 227
Amortization of debt premium and discount, net --
Portion of rents representative of an interest factor 17
Losses and undistributed earnings of 50% and less than 50%
owned companies, net 19
----
Adjusted earnings from continuing operations before income taxes $362
====
Fixed Charges
Interest expense $227
Amortization of debt premium and discount, net --
Portion of rents representative of an interest factor 17
Capitalized interest --
----
Total fixed charges $244
====
Ratio of Earnings to Fixed Charges 1.5
====
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheet and Consolidated Statement of Operations and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 533
<SECURITIES> 0
<RECEIVABLES> 4,332
<ALLOWANCES> 0
<INVENTORY> 3,782
<CURRENT-ASSETS> 10,459
<PP&E> 8,958
<DEPRECIATION> 5,372
<TOTAL-ASSETS> 29,603
<CURRENT-LIABILITIES> 8,297
<BONDS> 11,411
0
0
<COMMON> 400
<OTHER-SE> 6,075
<TOTAL-LIABILITY-AND-EQUITY> 29,603
<SALES> 5,562
<TOTAL-REVENUES> 5,562
<CGS> 5,249
<TOTAL-COSTS> 5,249
<OTHER-EXPENSES> 13
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 227
<INCOME-PRETAX> 99
<INCOME-TAX> 45
<INCOME-CONTINUING> 54
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54
<EPS-BASIC> .14
<EPS-DILUTED> .14
</TABLE>
