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Filed March 9, 2001
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 No.)
6801 Rockledge Drive, Bethesda, Maryland 20817-1877 (301/897-6000)
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
------------------- ---------------------
Common Stock, $1 par value New York Stock Exchange, Inc.
8 1/8% Cumulative Monthly New York Stock Exchange, Inc.
Income Preferred Securities of
COMSAT Capital I, L.P.
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes [x] No [ ]
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 or Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [x]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Approximately $14.9 billion as of January 31, 2001.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. Common Stock, $1 par value,
432,147,713 shares outstanding as of January 31, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Lockheed Martin Corporation's 2001 Definitive Proxy Statement are
incorporated by reference in Part III of this Form 10-K.
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PART I
ITEM 1 BUSINESS
General
Lockheed Martin Corporation is a highly diversified global enterprise that
principally integrates, researches, designs, develops, and manufactures advanced
technology systems, products and services. In March 1995, we were formed by
combining the businesses of Martin Marietta Corporation (Martin Marietta) and
Lockheed Corporation (Lockheed). We are a Maryland corporation.
During 2000, we completed the acquisition of COMSAT Corporation (COMSAT),
which is now reported as part of our Global Telecommunications segment, and
divested two businesses, Aerospace Electronics Systems and Control Systems,
which previously were reported as part of our Systems Integration segment.
Throughout this Form 10-K, we "incorporate by reference" information from
parts of other documents filed with the Securities and Exchange Commission
(SEC). The SEC allows us to disclose important information by referring to it in
this manner and you should review such information.
Our principal executive offices are located at 6801 Rockledge Drive,
Bethesda, Maryland 20817. Our telephone number is (301) 897-6000. Our home page
on the Internet is www.lockheedmartin.com. You can learn more about us by
reviewing our SEC filings on that web site. We are making our web site content
available for your information only. It should not be relied upon for investment
purposes, nor is it incorporated by reference into this Form 10-K.
Business Segments
We operate in five principal business segments: Systems Integration, Space
Systems, Aeronautics, Technology Services and Global Telecommunications. We
report all other activities of the Corporation as part of the Corporate and
Other segment.
In the third quarter of 2000, we began presenting Lockheed Martin Global
Telecommunications (LMGT), which includes the operations of COMSAT and
Integrated Business Solutions (IBS), as a separate segment called Global
Telecommunications. The operations of LMGT, IBS and our then 49% interest in
COMSAT were previously included in the Corporate and Other segment. Earlier in
2000, we reassigned the Management & Data Systems business unit and the Space
Applications Systems line of business from the Systems Integration segment to
the Space Systems segment. All historical financial information has been
adjusted to be consistent with the current segment presentation.
Following is a brief description of the activities of each business
segment:
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Systems Integration - Engaged in the design, development, and integration
of complex systems for global defense, civil government and commercial markets.
Core businesses include undersea warfare, surface warfare and land surveillance
systems; tactical missiles, air defense systems and fire control and sensor
systems; information superiority systems; simulation and training systems; air
traffic management systems; aerospace systems and platform integration; business
system solutions; and distribution technologies, which includes automated
material handling solutions for postal systems and commercial customers.
Space Systems - Engaged in the design, development, engineering and
production of civil, commercial and military space systems. Major product lines
include spacecraft, space launch vehicles and human space systems; their
supporting ground systems and services; and strategic fleet ballistic missiles.
In addition to its consolidated business units, the segment has investments in
joint ventures that are principally engaged in businesses which complement and
enhance other activities of the segment.
Aeronautics - Engaged in the design, research and development, and
production of combat and air mobility aircraft, surveillance/command systems,
reconnaissance systems, platform systems integration and advanced development
programs. Major products and programs include the F-16 multi-role fighter, the
F-22 air-superiority fighter, the C-130J tactical airlift aircraft, support for
the C-5, F-117 and U-2 aircraft, and the Joint Strike Fighter concept
demonstration program.
Technology Services - Provides a wide array of management, engineering,
scientific, logistic and information services to federal agencies and other
customers. Major product lines include e-commerce, enterprise information
services, software modernization and data center management for the Department
of Defense (DoD) and civil government agencies; engineering, science and
information services for the National Aeronautics & Space Administration (NASA);
aircraft and engine maintenance and modification services; operation,
maintenance, training and logistics support for military and civilian systems;
launch, mission and analysis services for military, classified and commercial
satellites; and research, development, engineering and science in support of
nuclear weapons stewardship and naval reactor programs.
Global Telecommunications - Provides communications services and advanced
technology solutions through three lines of business: enterprise solutions,
which provides telecommunications services, managed networks and information
technology solutions in the U.S. and international markets; satellite services,
which provides global fixed and mobile satellite services; and systems and
technology, which designs, builds and integrates satellite gateways and provides
systems integration services for telecommunications networks. In addition to
its consolidated business units, the segment also has investments in ventures
that are principally engaged in businesses which complement and enhance other
activities of the segment.
Corporate and Other - Includes the state and local government services line
of business. In addition, this segment includes the Corporation's properties
line of business as well as various corporate activities.
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Comparative segment revenues, profits and related financial information for
2000, 1999, and 1998 are provided in the table entitled "Selected Financial Data
by Business Segment" in "Note 17-Information on Industry Segments and Major
Customers" on page 81 of this Form 10-K.
Systems Integration
Our Systems Integration segment has several operating units that mainly are
engaged in U.S. defense work. Systems Integration's core businesses are:
. Naval electronics and surveillance systems
. Missiles and fire control systems
. Command, control, communications, computers and intelligence (C4I)
systems
. Platform integration, business solutions and material handling
systems.
Naval Electronics & Surveillance Systems provides shipboard electronics
systems integration, surface ship and submarine combat systems, sensors and
missile launching systems. Missiles and Fire Control produces air and missile
defense systems, tactical battlefield missiles, electro-optical systems, fire
control systems and precision guided weapons and munitions. The C4I (Command,
Control, Communications, Computers and Intelligence) businesses provide
information superiority systems; federal information management solutions such
as automated fingerprint identification systems; and simulation and training
systems and services. C4I also encompasses Air Traffic Management, which
develops and integrates advanced air traffic control systems and implements
advanced capabilities for air traffic communications, navigation and
surveillance. Systems Integration's platform and material handling systems
business, principally located in Owego, New York, integrates mission specific
combat suites and other systems on platforms for anti-submarine warfare,
electronic warfare and surveillance and reconnaissance missions. Systems
Integration-Owego also develops and integrates postal automation and material
handling systems, and provides information technology solutions for government
and commercial business applications.
System Integration's major products and capabilities include surface ship
and submarine combat systems; anti-submarine and undersea warfare systems;
land-, sea- and air-based radars; air and theater missile defense systems; anti-
armor, air-to-surface and surface-to-surface missiles; electro-optical and fire
control systems; avionics and ground combat vehicle integration; command and
control (C2) systems for naval, airborne and ground applications; simulation and
training systems; logistics management; government and commercial information
technology systems; intelligence, surveillance and reconnaissance systems; air
traffic control systems; and postal automation and material handling systems.
Portions of the segment's activities involve classified programs for the U.S.
government.
At December 31, 2000, System Integration's net sales represented 39% of our
total net sales.
During 2000, we divested two of the Systems Integration businesses, Aerospace
Electronics Systems and Control Systems, consistent with a plan announced in
September 1999
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to refine the Corporation's strategic focus. We sold Aerospace Electronics
Systems - comprising the Sanders, Fairchild Systems and Space Electronics &
Communications operations - in November 2000 for $1.67 billion in cash. We also
sold the Control Systems business in September 2000 for $510 million in cash. We
used the proceeds from those transactions to pay down debt.
System Integration's major new business wins during 2000 included the U.S.
Air Force's Integrated Space Command and Control (ISC2) program to modernize and
integrate the nation's air, missile and space command and control systems; a
multi-year contract to provide air crew training and simulation services for all
U.S. Marine Corps fixed- and rotary-wing aircraft; and our selection as warfare
systems integrator for the U.S. Navy's new aircraft carrier, CVN-77. In
addition, a Lockheed Martin-Boeing team was selected by the U.S. Army to develop
and build an advanced forward-looking infrared thermal sensor system for the
Army's fleet of AH-64 Apache helicopters. Internationally, we were selected to
provide the integrated weapons systems for five new frigates for the Royal
Norwegian Navy, and to develop and install a new air traffic management system
at Prestwick in Ayrshire, Scotland.
In support of the United States' air and missile defense initiatives, we
were awarded a U.S. Army contract to advance the Theater High Altitude Area
Defense (THAAD) system into the engineering and manufacturing development phase.
During 2000, we also conducted four additional tests of the Patriot Advanced
Capability-3 (PAC-3) missile against ballistic and cruise missile targets,
extending the program's record to six consecutive successful intercepts and
eight consecutive successful flight tests.
Systems Integration received follow-on orders in 2000 involving a number of
established programs. These include the AEGIS combat system and SQQ-89 sonar
system for the U.S. Navy; avionics upgrades to P-3 maritime patrol aircraft,
also for the U.S. Navy; the U.S. Army's Multiple Launch Rocket System; fixed and
mobile radar system for U.S. and international military customers; and automated
sortation and mail processing equipment for the U.S. Postal Service.
Systems Integration is extending its skills and technologies into adjacent
growth markets. For example, in 2000, the Illinois Department of Transportation
selected Systems Integration to lead its Positive Train Control project. The
project will apply advanced technologies to manage and control passenger
railroad operations, enhancing safety and providing the capability for high-
speed passenger train service. Systems Integration also completed two
transactions that leverage its advanced technologies into the high-growth
telecommunications market. In December 2000, Lockheed Martin Canada completed
the sale of its adaptive notch filter (ANF) business to Illinois Superconductor
Corp. (ISCO) in exchange for shares of ISCO common stock. In November 2000,
Lockheed Martin also obtained an equity position in TeraConnect Inc., which was
formed to produce optical and optoelectronic devices for the high-speed data
transmission communications market, in exchange for technology developed by
Lockheed Martin.
Major program milestones achieved during 2000 include the first two powered
engineering and manufacturing development test flights of the Joint Air-to-
Surface Standoff Missile; delivery of the first of four AEGIS combat systems for
the Spanish Navy's F-100-class
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frigates; completion of a major series of at-sea tests of the U.K. Royal Navy's
new Merlin Mk1 helicopter; and installation of the last of 20 new display system
replacement installations at Federal Aviation Administration (FAA) facilities
across the U.S., ahead of schedule and within budget. In what has been termed
one of the largest, most complex data capture projects in history, Lockheed
Martin's Data Capture System 2000 automatically read nearly 148 million U.S.
census forms, processing the information on time with an accuracy rate of better
than 99 percent.
The segment is heavily dependent on both military and civilian agencies as
customers. In 2000, U.S. government customers accounted for approximately 71%
of the segment's total net sales.
Space Systems
In 2000, our Space Systems segment consolidated its operations into a
single operating unit named the Lockheed Martin Space Systems Company with
headquarters in Denver, Colorado. Space Systems' principal business areas are:
. Astronautics Operations
. Missiles and Space Operations
. Management & Data Systems
. Michoud Operations
. Special Programs
. International Launch Services
. Commercial Space Systems
A substantial portion of the segment's activities involves classified programs
for the U.S. Government.
At December 31, 2000, Space System's net sales represented 28% of our total
net sales.
Astronautics Operations, based in Denver, Colorado, designs, develops,
manufactures and integrates advanced technology systems for space and defense.
Principal products include the Titan and Atlas families of launch vehicles.
Missiles & Space Operations designs, develops, manufactures and integrates
strategic missiles and spacecraft for communications, Earth observation,
scientific and navigation missions for military and civilian government agencies
and commercial customers. Principal products include the Trident II submarine-
launched fleet ballistic missile and the MILSTAR defense communications
satellites. The unit also plays a role in NASA's International Space Station
program and markets communications spacecraft to commercial telecommunications
customers, including some customers in which we have an ownership interest.
Management & Data Systems (M&DS) is a leader in technically advanced system
engineering, information technology, sensor processing, and communications
systems. This unit
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provides complex, innovative solutions for intelligence, surveillance, and
reconnaissance programs for diverse government, commercial, and international
customers.
Michoud Operations manufactures the Super Lightweight Tank, the latest
iteration of the Space Shuttle External Tank for NASA. This unit also designs,
develops and manufactures, for government and commercial customers, large
aluminum and composite structures (including fuel tanks for space vehicles),
cryogenic propellant feed systems and thermal protection systems for cryogenic
structures.
Since 1996, we have been working with NASA to develop the X-33, a sub-scale
technology demonstrator of a reusable launch vehicle. In 1998, we completed
final design review of the X-33. After a failure of a composite liquid hydrogen
(LH2) tank in November 1999, we adjusted our plan to allow for the manufacture
of a metallic LH2 tank. Design, production and testing on the replacement tanks
was delayed to permit NASA to secure additional funding. In March 2001, NASA
announced that it was halting development of the X-33 program.
Special Programs is a program management organization formed to assist
classified customers with the management of Lockheed Martin contracts.
International Launch Services (ILS) is the marketing and mission management
division for the Atlas and Proton launch vehicles. Commercial Space, located in
Sunnyvale, California, designs, builds, markets and operates turnkey satellite
systems for the space-based telecommunications and remote sensing markets, and
provides space-based solutions for other applications.
United Space Alliance, LLC, which we jointly own with The Boeing Company,
is responsible for the day-to-day operation and management of the Space Shuttle
fleet for NASA. It also performs the modification, testing and checkout
operations required to prepare space shuttles for launch.
We also own 46% of Space Imaging LLC, a supplier of satellite images,
satellite imaging access, and related products and services. Space Imaging
launched the world's first one-meter resolution, commercial imaging satellite,
called the IKONOS satellite, in September 1999. The spacecraft and the Athena
launch vehicle used to launch the IKONOS satellite were built by the segment's
Missiles and Space and Astronautics Operations units.
The segment is heavily dependent on both military and civilian agencies of
the U.S. Government as customers. In 2000, U.S. Government customers accounted
for 82% of the segment's net sales.
Aeronautics
In 2000, our Aeronautics segment consolidated into one operating unit re-
named the Lockheed Martin Aeronautics Company with headquarters in Fort Worth,
Texas. Aeronautics' major lines of business are combat aircraft, air mobility,
and aeronautical research and development. Aeronautics has operations in Fort
Worth, Texas; Marietta, Georgia; Palmdale, California; and plants in Clarksburg,
West Virginia; Johnstown, Pennsylvania; Meridian,
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Mississippi; and Pinellas, Florida. Portions of the segment's activities involve
classified programs for the U.S. Government, particularly at Palmdale.
In 2000, Aeronautics' net sales represented 19% of our total net sales.
Aeronautics designs, develops, integrates, produces and supports advanced
military fighter and airlift aircraft, and related technologies. Aeronautics
is involved in numerous large defense programs, including:
. F-22 air-superiority fighter - with significantly improved capabilities
over current U.S. Air Force aircraft;
. F-16 multi-role fighter - presently the world's premier, low-cost,
multi-role fighter;
. Joint Strike Fighter - currently in the concept demonstration phase,
potentially leading to the next generation, multi-role fighter with the
possibility of being the largest future combat aircraft program
currently envisioned; and
. C-130J transport - latest generation of C-130 Hercules tactical
transport Aircraft.
Aeronautics is the team leader for the F-22 "Raptor" air-superiority
fighter aircraft program. The F-22 is the latest generation of fighter aircraft
and continues to proceed through its engineering and manufacturing development
phase. In 2000, the F-22 program progressed through the production release
criteria set by the DoD completing 9 out of the 11 Defense Acquisition Board
(DAB) test criteria required for full contract award for Production Lot 1 (10
aircraft) and long lead procurement authorization for Production Lot 2.
Aeronautics completed the final two DAB criteria on February 5, 2001. With the
DAB criteria completed, we are currently awaiting further direction from the
U.S. Air Force and the Office of the Secretary of Defense regarding
authorization to begin initial Lot 1 production. We believe that the F-22
program remains a high priority for the DoD and the armed services, and expect
that the program will continue to receive a high level of focus from Congress
and the new administration during 2001 as all major defense procurements are re-
assessed. For additional information related to the F-22 program, see
"Management's Discussion & Analysis - Industry Considerations" on page 39
through page 42 of this Form 10-K.
Aeronautics is also the prime contractor on the F-16 "Fighting Falcon"
tactical fighter aircraft and continues to provide upgrades for the U.S. Air
Force and our international customers. To date, over 4,200 of these aircraft
have been ordered. During 2000, we recorded orders valued at over $10.6 billion
for 234 F-16 aircraft and associated support. In 2000, major F-16 orders
included 80 aircraft for the United Arab Emirates (UAE), 50 aircraft for Israel,
50 aircraft for Greece, 20 aircraft for the Republic of Korea, 20 aircraft for
Singapore, and 14 aircraft for the U.S. Air Force. In December 2000, the
Government of Chile selected the F-16 for its new fighter procurement.
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For the next generation Joint Strike Fighter (JSF), various branches of the
U.S. military and other countries' militaries are working together on a set of
requirements that should allow a near-common design for this aircraft. In 2000,
we completed flight tests of the conventional take-off and landing (CTOL)
version of our concept demonstration aircraft. The flight test of the carrier
varient (CV) also began in 2000. Aeronautics is one of the two remaining
competitors for the program down-select award. The down-select decision is
currently planned for late 2001, subject to review by Congress and the new
administration. For additional information related to the JSF program, see
"Management's Discussion & Analysis - Industry Considerations" on page 39
through page 42 of this Form 10-K.
The C-130J is an advanced technology tactical transport aircraft offering
improved performance with reliability and reduced operating and support cost
over prior C-130 models. The "J" model incorporates state-of-the-art cockpit
and avionics, a more powerful and efficient propulsion system and numerous
manufacturing innovations into a proven, mission-tested airframe. In 2000, we
delivered 20 C-130J aircraft. In 1999, we ceased booking profit on the C-130J
program until such time as orders have been obtained to ensure absorption of
nonrecurring costs and a build rate which substantiates that a profitable
production rate can be attained. In 2000, orders were received for 19 C-130J
aircraft. These orders included 14 aircraft for the U.S., 3 aircraft for
Denmark and 2 aircraft for Italy.
Aeronautics also is involved in other programs such as the joint
Japanese/U.S. production of the F-2 combat aircraft. We also provide sustaining
engineering, modifications and upgrades for existing aircraft, including the U-2
reconnaissance aircraft, earlier model C-130s, and F-117 Total Systems
Performance Responsibility (TSPR) with the U.S. Air Force, a logistics support
system that includes the role of sustainment, integration, modification, depot
support and system upgrades.
The segment is dependent on the U.S. military and international governments
as customers. In 2000, U.S. Government customers accounted for over half of the
segment's net sales.
Technology Services
The Technology Services segment provides a wide array of management,
engineering, scientific, logistic, and information services to government
agencies. Principal customers include the DoD, Department of Energy (DoE), NASA,
FAA, Health and Human Services, Environmental Protection Agency (EPA) and other
agencies of the federal government. Technology Services has eight operating
units:
. Aircraft and Logistics Centers
. Information Support Services
. Space Operations
. Systems Support and Training Services
. Technical Operations
. Knolls Atomic Power Laboratory
. Sandia National Laboratories
. Energy Programs
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In 2000, Technology Services' net sales of $2.3 billion represented 9% of
our total net sales. Also, the segment's energy units had an additional $2.7
billion in operational activity not reported as sales. Those units are engaged
in work for the DoE that is performed under contracts where we receive a fee for
performing management services and are reimbursed for the cost of operations
(known as "Government-Owned, Contractor-Operated" or GOCO). Only the fee is
recorded in net sales. In addition, Technology Services had $0.7 billion of
intercompany revenue from value-added services to other components of Lockheed
Martin. Inclusive of this activity, Technology Services had $5.7 billion in
equivalent sales in 2000.
Aircraft and Logistics Centers provides aircraft maintenance and
modification services and contractor logistics support for defense and
commercial customers around the world. Its core competencies include government
privatization projects in the U.S. and overseas, depot-level and field
maintenance services, aircraft avionics upgrades, engineering support, engine
maintenance and overhaul services, customer site support, and logistic services.
The unit also operates and manages international aircraft depots and
manufacturing facilities in Saudi Arabia and Argentina and is responsible for
managing a joint venture in China for aircraft maintenance engineering. In 2000,
Aircraft and Logistics Centers was re-selected by Naval Air Systems Command for
a $350 million, seven-year contract to perform depot level maintenance for the
C-9 aircraft fleets of the U.S. Navy, Air Force, and Marine Corps. In 2000,
Aircraft and Logistics Centers also won a 10-year, $1.1 billion C-5 Virtual
Prime Vendor contract with the Defense Logistics Agency to manage aircraft parts
support.
Information Support Services provides a full spectrum of information
technology (IT) support to federal, state, and local government agencies.
Principal customers include the Social Security Administration, Patent and
Trademark Office, EPA, DoD, DoE, and the Departments of Justice and Health and
Human Services. Specific types of information technology support include
software design, development, and maintenance; e-commerce; telecommunications;
supercomputing; network management; data center operations; seat management;
information technology outsourcing; and information security. Much of the work
performed by Information Support Services is contracted through task order
vehicles or a Government Services Administration (GSA) schedule. In 2000,
Information Support Services received four major awards totaling $728 million
from the Network Infrastructure Services Agency in support of the Pentagon, the
FBI's Criminal Justice Information System, the National Imagery and Mapping
Agency, and the Office of the Secretary of Defense.
Space Operations provides engineering, science and information services at
eight NASA centers and other government and commercial locations across the
country. Core competencies include mission operations; flight hardware and
payload development and integration; propulsion testing; engineering and
technical support for life sciences; software design, development, and process
control; and information technology engineering design and support services.
Space Operations' major revenue generator is the Consolidated Space Operations
Contract, which is a major initiative that seeks to save NASA hundreds of
millions of dollars over the next nine years through re-engineering and
commercializing NASA's space operations architecture and through increased
efficiencies in operation, maintenance, and sustaining engineering.
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Systems Support and Training Services provides a wide range of professional
and technical support services. Services for the DoD include operation,
maintenance, logistics, and engineering services for weapons systems and
training ranges; instructor services and flight-simulator engineering support
for aircrew training; and assembly, installation, integration, upgrade, and
repair services for a variety of computer, communications, command and control,
radar, target, and surveillance systems. Systems Support and Training Services
also provides logistic and engineering services for the FAA's National Airspace
System. In 2000, we received $155 million in orders for the Rapid Response for
Critical Systems Requirements program, under which we provide support to ensure
that critical defense systems maintain full functionality.
Technical Operations performs a complete set of space and space-related
services for DoD, classified, and other federal agencies and commercial
customers. These services include requirements analysis, architecture trade
studies, systems integration, operation and maintenance, sustainment, system
enhancement, and life-cycle support. They are performed in the functional areas
of space launches, space missions, and information analysis. In 2000, Technical
Operations won the $100 million Genesis program to provide technical,
engineering, and logistics support to the U.S. Army Intelligence and Security
Command in the United States and overseas.
Knolls Atomic Power Laboratory designs nuclear reactors for the U.S. Navy.
It also supports the existing fleet of nuclear powered ships and trains the Navy
personnel who operate those ships. In 2000, Technology Services won the 10-year,
$3.8 billion recompetition of this GOCO contract.
Sandia National Laboratories supports the stewardship of the U.S. nuclear
weapon stockpile, developing sophisticated research and technology in the areas
of engineering sciences, materials, and processes; pulsed power;
microelectronics and photonics; and computational and information sciences. In
2000, DoE selected Lockheed Martin as its contractor of the year for its work at
Sandia National Laboratories.
Energy Programs supports the nuclear energy defense programs of both the
United States and the United Kingdom. Its largest program, a joint venture with
two British firms, manages and operates the Atomic Weapons Establishment for the
United Kingdom Ministry of Defense. In 2000, the re-competition of the DoE Y-12
contract in Oak Ridge, Tennessee was awarded to a competitor.
The segment is heavily dependent on both military and civilian agencies as
customers. In 2000, U.S. Government customers accounted for approximately 91%
of the segment's total net sales.
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Global Telecommunications
Beginning in the third quarter of 2000, we began reporting Lockheed Martin
Global Telecommunications (LMGT) as a separate operating segment. LMGT provides
communications services and advanced technology solutions to commercial and
government customers worldwide. LMGT provides its services through three
operating units:
. Enterprise Solutions
. Systems and Technology
. Satellite Services
LMGT is headquartered in Bethesda, Maryland, has major domestic operations in
Valley Forge, Pennsylvania, Clarksburg, Maryland and Orlando, Florida, and has
international operations in 21 foreign countries.
In 2000, LMGT's net sales represented 3% of our net sales.
Enterprise Solutions provides telecommunications services, managed networks
and information technology (IT) solutions in the U.S. and international markets.
Enterprise Solutions includes Integrated Business Solutions (IBS), a business
unit serving commercial information technology markets, and the COMSAT
International business. Capabilities include transport and access services,
network integration, IT integration, network and IT management and application
management solutions. Enterprise Solutions currently offers services in 20
foreign countries. Offerings include point-to-point connectivity between
customer sites; operation and management of data, voice and Internet traffic
among multiple sites; value-added network services; and leading-edge IT and e-
Business technology solutions.
Systems and Technology provides systems engineering and integration
services to offer value-added solutions for customers in such areas as network
design, communications, network security, Internet Protocol multi-casting and
Internet backbone connectivity. Systems and Technology includes the former
COMSAT Laboratories, which focuses on advanced satellite communications
technologies and wireless networking products for commercial and government
customers worldwide. Systems and Technology also provides telecommunications
consulting services.
Satellite Services includes the assets of COMSAT and LMGT's investments in
various satellite ventures. Satellite Services provides telecommunications,
broadcast and digital networking services between the U.S. and other countries
via the global, 17-satellite INTELSAT system, and maritime, aeronautical and
land-mobile communications services worldwide via the nine-satellite Inmarsat
system and a global earth station network.
LMGT is a 22.5% shareholder in INTELSAT, which in 2000 announced a final
privatization date of July 18, 2001. Subsequent to that privatization, and
consistent with the Orbit Act of 2000, INTELSAT has plans to complete an initial
public offering. LMGT is currently a 14% owner of Inmarsat, a global maritime,
aeronautical and land mobile satellite
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services system. In September of 2000, LMGT sold an 8% interest in Inmarsat for
pretax proceeds of $164 million. Inmarsat privatized in 1999 and also plans to
access the public equity markets in the future. LMGT also is a 14% shareholder
in New Skies Satellites, N.V., a global fixed satellite service provider that is
a spin-off from INTELSAT. New Skies completed its initial public offering in
October 2000.
Satellite Services also provides or is planning to provide transponder
leasing and mobile network services through several ventures, including Lockheed
Martin Intersputnik, Ltd.; Americom Asia-Pacific, a 50-50 joint venture with GE
Americom; Astrolink International LLC, a joint venture between LMGT, TRW,
Telespazio and Liberty Media; and ACeS International, an equity partnership with
Indonesia's Pasifik Satelit Nusantara, Thailand's Jasmine International Overseas
Company, Ltd., and the Philippines Long Distance Telephone Company.
LMGT owns 31% of Astrolink, a next-generation global Ka-band fixed
satellite system. The system is in an advanced stage of construction, with an
initial launch scheduled for late 2002. Shareholders have committed $1.3
billion of equity to date. Astrolink plans to seek to raise an additional $2.3
billion through a combination of debt and equity funding, subject to market
conditions.
LMGT owns 33% of ACeS International, Ltd. (ACeS), a geostationary satellite
system which commenced commercial operations in the fourth quarter of 2000 and
now offers mobile services to Southeast Asia. We recorded a nonrecurring and
unusual charge in the fourth quarter of 2000 related to an anomaly with the ACeS
satellite and to overall market conditions. For additional information related
to this charge, see "Note 9 - Investments in Equity Securities" on page 70 of
this Form 10-K. In 2000, LMGT also restructured its Lockheed Martin Intersputnik
venture such that LMGT now owns 100% of the common equity of the venture.
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Corporate and Other
All other operations and investments of the Corporation comprise the
Corporate and Other segment. This segment includes:
. Enterprise Information Systems (EIS)
. Information Management Systems (IMS)
. Investment holdings and real estate
. Research and development efforts.
The Corporation reviews its businesses, on an ongoing basis, to identify
ways to improve organizational effectiveness and performance, and to clarify and
focus on its core business strategy. The Corporation is continuing to explore
the sale of various investment holdings and surplus real estate. If the
Corporation were to decide to sell any investment holdings or surplus real
estate, the financial gains that may result, if any, would be recorded when the
transactions are consummated and losses, if any, would be recorded when
estimable. Management cannot predict the timing of these potential divestitures,
the amount of proceeds that may ultimately be realized or whether any or all of
the potential transactions will take place.
IMS's state and local services businesses are distinct from our core
business segments and will require additional capital to maximize their
potential growth and value. We may seek support through strategic partners,
joint ventures, divestiture, or by accessing the public equity markets. The
outcome of those efforts cannot be predicted.
In the third quarter of 2000, the Corporation completed its evaluation of
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. In October 2000, we combined the
operations of one of those units, Integrated Business Solutions (IBS), with the
operations of Global Telecommunications. The remaining business unit, EIS -
which provides Lockheed Martin's internal information technology needs, will
continue to be operated as part of Lockheed Martin's Corporate and Other
segment, consistent with prior periods.
In 2000, we converted 45.9 million shares of Loral Space & Communications,
Ltd. (Loral Space) Series A Preferred Stock into an equal number of shares of
Loral Space common stock. At December 31, 2000, we owned approximately 15% of
Loral Space's outstanding common stock. Subsequent to conversion, we began
accounting for our investment in Loral Space as an available-for-sale
investment.
We also run research laboratories, own real estate and conduct other
miscellaneous activities in the Corporate and Other segment. The Corporate and
Other segment includes the Corporation's ownership interest in Exostar(TM), a
business-to-business exchange for the defense and aerospace industry, and
corporate shared services which supports all of our business areas.
In 2000, Corporate and Other's net sales represented 2% of our total net
sales.
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Patents
We own numerous patents and patent applications, some of which, together
with licenses under patents owned by others, are utilized in our operations.
Although these patents and licenses are, in the aggregate, important to the
operation of our business, no existing patent, license or other similar
intellectual property right is of such importance that its loss or termination
would, in the opinion of management, materially affect our business.
Raw Materials and Seasonality
Although certain aspects of our business require relatively scarce raw
materials, we have not experienced difficulty in our ability to obtain raw
materials and other supplies needed in our manufacturing processes, nor do we
expect this to be an issue in the future. No material portion of our business
is considered to be seasonal.
Competition and Risk
We compete with numerous other contractors on the basis of price, as well
as technical and managerial capability. Our ability to successfully compete for
and retain such business is highly dependent on technical excellence, management
proficiency, strategic alliances, cost-effective performance and the ability to
recruit and retain key personnel.
During the past year, competition in some markets has intensified. For
example, the Space Systems segment has experienced increased competition,
particularly in its launch vehicles and commercial satellite businesses.
Consolidation of the U.S. and global defense and space industries has
intensified competition. Consolidation among U.S. defense, space and aerospace
companies has resulted in a reduction of the number of principal prime
contractors for the DoD and NASA. As a result of this consolidation, we
frequently partner on various programs with our major suppliers, some of which
are, from time to time, our competitors on other programs. We are required to
generate working capital and invest in fixed assets to maintain and expand our
government business. Winning the competition for a contract is often the
determinant of whether a competitor is able to remain in that line of business.
U.S. Government programs are also subject to uncertain future funding
levels, which can result in the extension or termination of programs. Our
business is also highly sensitive to changes in national and international
priorities and U.S. Government budgets. For most of the last decade, we have
been adversely impacted by U.S. Government budgetary and policy constraints that
led to fewer available contracts.
The Bush Administration has announced plans for a wide-ranging review of
funding requirements for major acquisition programs of the DoD. The outcome of
that review and its impact on the Corporation cannot be predicted. There can be
no assurance that these announced plans will result in increased hardware or
services procurements or increased research and development spending, or that we
would win any contracts funded by any budgetary increases.
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In 2000, approximately 70% of our net sales were made to the U.S.
Government, either as a prime contractor or as a subcontractor; approximately
18% of our net sales were made to other types of government entities; and
approximately 12% of our net sales were made to commercial customers (mainly
launch services, satellites and information technology services). Accordingly, a
substantial portion of our sales are subject to inherent risks, including
uncertainty of economic conditions, changes in government policies and
requirements that may reflect rapidly changing military and political
developments and the availability of funds. Other characteristics of the
industry are complexity of designs, the difficulty of forecasting costs and
schedules when bidding on developmental and highly sophisticated technical work,
and the rapidity with which product lines become obsolete due to technological
advances and other factors characteristic of the industry. Certain risks
inherent in the current aerospace and defense business environment are discussed
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Industry Considerations" on page 39 through page 42 of this Form
10-K.
At December 31, 2000, our backlog included both cost reimbursement and
fixed price contracts. Cost reimbursement contracts generally have lower profit
margins than fixed price contracts. Production contracts are mainly fixed-price
contracts, and developmental contracts are nearly all cost reimbursement
contracts. Earnings may vary materially depending on the types of long-term
government contracts undertaken, the costs incurred in their performance, the
achievement of other performance objectives and the stage of performance at
which the right to receive fees, particularly under incentive and award fee
contracts, is finally determined.
Our international business (mainly foreign military sales to various
governments in Europe, Asia and Middle East) tends to have more risk than our
domestic business due to the greater potential for changes in foreign economic
and political environments. Our business is also highly sensitive to changes in
foreign national priorities and government budgets. International transactions
frequently involve increased financial and legal risks arising from stringent
contractual terms and conditions and the widely differing legal systems and
customs in foreign countries.
Our Global Telecommunications segment is subject to increasing competition
on a variety of fronts. There has been a significant increase in the number of
competing satellite systems and other telecommunications services providers in
recent years, and many of those companies have plans to substantially increase
capacity.
Government Contracts and Regulation
Our businesses are heavily regulated in most of our markets. We deal with
numerous U.S. Government agencies and entities, including all of the branches of
the U.S. military, NASA and the DoE. Similar government authorities exist in
our international markets.
The U.S. Government, and other governments, may terminate any of our
government contracts and, in general, subcontracts, at their convenience as well
as for default based on performance. If any of our government contracts were to
be terminated for convenience, we
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Page 17
generally would be entitled to receive payment for work completed and allowable
termination or cancellation costs.
Upon termination for convenience of a fixed-price type contract, we
normally are entitled, to the extent of available funding, to receive the
purchase price for delivered items, reimbursement for allowable costs for work-
in-process and an allowance for profit on the contract or adjustment for loss if
completion of performance would have resulted in a loss. Upon termination for
convenience of a cost reimbursement contract, we normally are entitled, to the
extent of available funding, to reimbursement of allowable costs plus a portion
of the fee. The amount of the fee recovered, if any, is related to the portion
of the work accomplished prior to termination and is determined by negotiation.
U.S. Government contracts also are conditioned upon the continuing
availability of Congressional appropriations. Long-term government contracts
and related orders are subject to cancellation if appropriations for subsequent
performance periods become unavailable. Congress usually appropriates funds on
a fiscal-year basis even though contract performance may extend over many years.
Consequently, at the outset of a program, the contract is usually partially
funded and Congress annually determines if additional funds are to be
appropriated to the contract.
A portion of our business is classified by the government and cannot be
specifically described. The operating results of these classified programs are
included in our consolidated financial statements. The business risks associated
with classified programs do not differ materially from those of our other
government programs and products.
LMGT is subject to regulation by the Federal Communications Commission
(FCC) with respect to various aspects of the telecommunications services it
provides. FCC decisions and policies have had and may continue to have a
significant impact on LMGT. In March 2000, Congress passed the ORBIT Act, which
amended the Communications Satellite Act and permitted the Corporation to
complete its acquisition of COMSAT. The ORBIT Act also establishes deadlines
for the privatization of INTELSAT and the completion of initial public offerings
by INTELSAT and Inmarsat, as well as specific criteria for determining whether
the privatizations of those entities are pro-competitive. If those criteria are
not met, the FCC may limit access by U.S. users to the satellite capacity of the
privatized entities for certain services. If this were to occur, the value of
the Corporation's investment in those entities could be adversely affected.
In addition, LMGT operates in various developing countries and is subject
to regulation by the local telecommunications regulatory authorities in those
countries. Because the regulatory environment in those countries is rapidly
evolving as the local economies develop, LMGT may face increasing business and
regulatory uncertainties with respect to its international operations.
Backlog
At December 31, 2000, our total negotiated backlog was $56.4 billion
compared with $45.9 billion at the end of 1999. The total negotiated backlog of
each of our segments at
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December 31, 2000, was as follows: Systems Integration - $16.7 billion, Space
Systems - $15.0 billion, Aeronautics - $17.6 billion, Technology Services - $4.4
billion, LMGT - $1.6 billion and Corporate and Other - $1.2 billion. Of our
total 2000 year-end backlog, approximately $40.7 billion, or 72%, is not
expected to be filled within one year.
These amounts include both unfilled firm orders for our products for which
funding has been both authorized and appropriated by the customer (Congress in
the case of U.S. Government agencies) and firm orders for which funding has not
been appropriated.
Environmental Regulation
Our operations are subject to and affected by a variety of federal, state
and local environmental protection laws and regulations. We are involved in
environmental responses at some of our facilities and former facilities, and at
third-party sites not owned by us where we have been designated a "Potentially
Responsible Party" (PRP) by the EPA or by a state agency.
At these third-party sites, the EPA or a state agency has identified the
site as requiring remedial action under the federal "Superfund" or other related
federal or state laws governing the remediation of hazardous materials.
Generally, PRPs that are ultimately determined to be "responsible parties" are
strictly liable for site clean-ups and usually agree among themselves to share,
on an allocated basis, in the costs and expenses for investigation and
remediation of the hazardous materials. Under existing environmental laws,
however, responsible parties are jointly and severally liable and, therefore, we
are potentially liable to government environmental agencies for the full cost of
funding such remediation. In the unlikely event that we were required to fund
the entire cost of such remediation, the statutory framework provides that we
may pursue rights of contribution from the other PRPs.
At third-party sites, we continue to pursue a course of action designed to
minimize and mitigate our potential liability through assessing the legal basis
for our involvement, including an analysis of such factors as (i) the amount and
nature of materials disposed of by us, (ii) the allocation process, if any, used
to assign costs to all involved parties, and (iii) the scope of the response
action that is or may reasonably be required. We also continue to pursue active
participation in steering committees, consent orders and other appropriate and
available avenues. Management believes that this approach should minimize our
proportionate share of liability at third-party sites where other PRPs share
liability.
In addition, we manage various government-owned facilities on behalf of the
government. At such facilities, environmental compliance and remediation costs
have historically been the responsibility of the government and we relied (and
continue to rely with respect to past practices) upon government funding to pay
such costs. While the government remains responsible for capital and operating
costs associated with environmental compliance, responsibility for fines and
penalties associated with environmental noncompliance, in certain instances, is
being shifted from the government to the contractor with fines and penalties no
longer constituting allowable costs under the contracts pursuant to which such
facilities are managed.
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Description of Certain Environmental Matters
We are responding to three administrative orders issued by the California
Regional Water Quality Control Board (Regional Board) in connection with our
former Lockheed Propulsion Company facilities in Redlands, California. Under the
orders, we are investigating the impact and potential remediation of regional
groundwater contamination by perchlorates and chlorinated solvents. The
Regional Board has approved our plan to maintain public water supplies with
respect to chlorinated solvents during this investigation, and we continue to
negotiate with local water purveyors to implement this plan, as well as to
address water supply concerns relative to perchlorate contamination. We
estimate that expenditures required to implement work currently approved will be
approximately $90 million. We also are coordinating with the U.S. Air Force,
which is working with industry to conduct preliminary studies of the potential
health effects of perchlorate exposure in connection with several sites across
the country, including the Redlands site. The results of these studies will
assist state and federal regulators in setting appropriate action levels for
perchlorates in groundwater, which in turn will determine the extent of our
ultimate clean-up obligation with respect to perchlorates, if any.
For many years, we have been responding to soil and regional groundwater
contamination in the San Fernando Valley associated with our former operations
in Burbank, California. Although we will continue to be financially responsible
for soil and groundwater treatment facilities constructed in Burbank and
Glendale, and will remain potentially liable for any new remediation
requirements that may arise in the future, the bulk of the work to be done in
this area has been completed. Our remaining obligations, as they currently
exist, are estimated to be approximately $45 million. A Consent Decree entered
by the U.S. under the federal Superfund law on behalf of the DoD on January 20,
2000 commits the U.S. to contribute 50% of all of our future remediation costs
associated with the former Burbank operations.
We are involved in proceedings and potential proceedings relating to
environmental matters at other facilities, including disposal of hazardous
wastes and soil and water contamination. The extent of our financial exposure
cannot in all cases be reasonably estimated at this time. In addition to the
amounts with respect to the Redlands, Burbank and Glendale properties described
above, a liability of approximately $190 million for the other cases in which an
estimate of financial exposure can be determined has been recorded.
Under agreements reached with the U.S. Government in 1990 and 2000,
environmental remediation costs at sites of discontinued operations, including
the Burbank and Redlands expenditures referenced above, are being allocated to
our operations as general and administrative costs and, under existing
government regulations, these and other environmental expenditures related to
U.S. Government business, after deducting any recoveries from insurance or other
potentially responsible parties, are allowable in establishing the prices of our
products and services. As a result, a substantial portion of the expenditures
are being reflected in our sales and cost of sales pursuant to U.S. Government
agreement or regulation.
We have recorded an asset for the portion of environmental costs that are
probable of future recovery in pricing of our products and services for U.S.
Government business. The portion that is expected to be allocated to commercial
business has been reflected in cost of sales.
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The recorded amounts do not reflect the possible future recoveries of portions
of the environmental costs through insurance policy coverage or from other
potentially responsible parties, which we are pursuing as required by agreement
and U.S. Government regulation. Any such recoveries, when received, would reduce
the allocated amounts to be included in our U.S. Government sales and cost of
sales.
Research and Development
We conduct research and development activities under customer contract
funding and with Independent Research and Development (IR&D) funds. IR&D efforts
consist of projects involving basic research, applied research, development, and
systems and other concept formulation studies. In 2000, we spent approximately
$850 million of IR&D and bid and proposal funds, a substantial portion of which
was included in general and administrative costs allocable to U.S. Government
contracts.
During 2000, we did not undertake the development of a new product or line of
business requiring the investment of a material amount of our total assets,
other than increasing investments in the development or improvement of launch
vehicles.
See "Research and development and similar costs" in "Note 1-- Summary of
Significant Accounting Policies" of the "Notes to Consolidated Financial
Statements" on page 64 of this Form 10-K.
Employees
At December 31, 2000, we had approximately 126,000 employees, the majority
of whom were located in the U.S. We have a continuing need for numerous skilled
and professional personnel to meet contract schedules and obtain new and ongoing
orders for our products. Approximately one-fifth of our employees are covered by
over a hundred separate collective bargaining agreements with various
international and local unions. Management considers employee relations
generally to be good.
Forward-Looking Statements - Safe Harbor Provisions
This report contains, is based on or incorporates by reference statements
which constitute "forward-looking statements" within the meaning of the
Securities Act of 1933 and the Securities Exchange Act of 1934. The words
"believe," "estimate," "anticipate," "project," "intend," "expect" and similar
expressions are intended to identify forward-looking statements.
All forward looking statements involve risks and uncertainties, including,
without limitation, statements and assumptions with respect to future revenues,
program performance and cash flows, the outcome of contingencies including
litigation and environmental remediation, and anticipated costs of capital
investments and planned dispositions. Our operations are necessarily subject to
various risks and uncertainties and, therefore, actual outcomes are dependent
upon many factors, including, without limitation:
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Page 21
. the ability to achieve or quantify savings for our customers or ourselves
through business area streamlining, staff reductions, our global cost-
cutting program, reorganization efforts and other financial management
programs;
. the ability to obtain or the timing of obtaining future government awards
and contracts;
. the availability of government funding, government budgetary constraints
and customer requirements;
. changes in government requirements and priorities due to program reviews or
revisions to strategic objectives;
. changes in the short-range and long-range plans of our customers;
. difficulties in developing and making operational advanced technology
systems;
. successful program performance and performance of our internal plans;
. increased domestic and international competition in the defense, space,
commercial and telecommunications areas;
. continued development and acceptance of new products, and the timing and
customer acceptance of product deliveries and launches;
. product performance, including performance issues with the U.S. Government,
key suppliers and subcontractors;
. termination of government contracts;
. the outcome of political and legal processes;
. the outcome of contingencies (including, completion of 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;
. domestic and international regulatory developments, including government
import and export policies;
. market conditions and other factors affecting the value of our equity
investments; and
. economic, political and technological risks and uncertainties.
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For a discussion identifying some additional important factors that could cause
actual results to vary materially from those anticipated in the forward-looking
statements, see the discussion of "Industry Considerations" on page 39 through
page 42, "Competition and Risk" on page 16 through page 17, "Government
Contracts and Regulation" on page 17 through page 18, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on page 37
through page 55, "Note 1 - Summary of Significant Accounting Policies" on page
62 through page 65, "Note 3 - Divestiture Activities" on page 66 through page
67, "Note 4 - Restructuring and Other Charges" on page 67 through page 68, and
"Note 16 - Commitments and Contingencies" on page 77 through page 79 of this
Form 10-K. These are only some of the numerous factors which may affect our
forward-looking statements.
You should not place undue reliance on forward-looking statements. The
forward-looking statements contained in this report speak only as of the date of
this report. We do not undertake any obligation to update or publicly release
any revisions to forward-looking statements to reflect events or circumstances
or changes in expectations after the date of this report or to reflect the
occurrence of unanticipated events. The forward-looking statements in (or
incorporated by reference in) this document are intended to be subject to the
safe harbor protection provided by the federal securities laws.
ITEM 2. PROPERTIES
At December 31, 2000, we operated in 475 offices, facilities, manufacturing
plants, warehouses, service centers and laboratories throughout the United
States and internationally. Of these, we owned floor space at 57 locations
aggregating approximately 35 million square feet and we leased space at 418
locations aggregating approximately 23 million square feet. At December 31,
2000, we managed and/or occupied various major government-owned facilities. The
U.S. Government also furnishes certain equipment used by us.
The above figures reflect the identification of changes to the
Corporation's core facilities from the previous year's report due to certain
asset divestitures and purchases by the Corporation involving real property
interests. On September 25, 2000, we sold our Control Systems business. In
connection with that transaction, we assigned our leasehold interest in the
properties located in Fort Wayne, Indiana and Johnson, City, New York. In
addition, on November 27, 2000, we sold our Aerospace Electronics Systems
businesses. In connection with that transaction, we sold certain land and
improvements, including those located in Manchester, Merrimack and Nashua, New
Hampshire and Syosset, New York, assigned certain leasehold interests, and
leased certain facilities owned and maintained by the Corporation, including
approximately 240,000 square feet in our facility located in Manassas, Virginia.
On August 3, 2000, we completed our acquisition of COMSAT. We acquired
certain land and improvements held by COMSAT, and assumed all leasehold
interests of COMSAT throughout the United States and internationally totaling
approximately 1.1 million square feet, including an approximate 200,000 square
foot lease in Bethesda, Maryland and approximately 400,000 square feet leased in
Clarksburg, Maryland.
At December 31, 2000, our core operating units had major operations at the
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following locations:
. Systems Integration - Camden, Arkansas; San Jose, California; Colorado
Springs, Colorado; Orlando, Florida; Gaithersburg, Middle River and
Rockville, Maryland; Eagan, Minnesota; Moorestown/Mt. Laurel, New Jersey;
Owego and Syracuse, New York; Akron, Ohio; Grand Prairie, Texas; and
Manassas, Virginia.
. Space Systems - Goodyear, Arizona; Sunnyvale and Palo Alto, California;
Littleton, Colorado; New Orleans, Louisiana; Valley Forge and Newtown,
Pennsylvania; and Reston and Fairfax, Virginia.
. Aeronautics - Palmdale, California; Marietta, Georgia; and Fort Worth, Texas.
. Technology Services - Sunnyvale, California; Cherry Hill, New Jersey;
Albuquerque, New Mexico; Niskayuna, New York; Greenville, South Carolina;
Houston and San Antonio, Texas; and Washington, D.C.
. Global Telecommunications - Bethesda and Clarksburg, Maryland; Valley Forge,
Pennsylvania; and Orlando, Florida.
. Corporate and Other - Bethesda and Rockville, Maryland; Teaneck, New Jersey;
and Arlington (Crystal City), Virginia.
At December 31, 2000, a summary of our floor space by core operating unit
consisted of:
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(Square feet in millions)
---------------------------------------------------------------
Government
Leased Owned Owned Total
------ -------- ---------- ------
---------------------------------------------------------------
Systems Integration 9.1 13.7 0.2 23.0
---------------------------------------------------------------
Space Systems 3.7 13.5 5.1 22.3
---------------------------------------------------------------
Aeronautics 0.9 5.1 14.6 20.6
---------------------------------------------------------------
Technology Services 5.3 0.1 6.1 11.5
---------------------------------------------------------------
Global Telecommunications 1.3 0.2 0.0 1.5
---------------------------------------------------------------
Corporate & Other 2.6 2.7 0.0 5.3
---------------------------------------------------------------
Total 22.9 35.3 26.0 84.2
---------------------------------------------------------------
At December 31, 2000, we owned various large tracts of land which are
available for sale or development. The location and approximate size of these
tracts include:
---------------------------------------------------------
Location Acreage
-------- -------
---------------------------------------------------------
Beaumont, California 11,900
---------------------------------------------------------
Orlando, Florida 750
---------------------------------------------------------
Palmdale, California 650
---------------------------------------------------------
Austin, Texas 250
---------------------------------------------------------
A portion of our activity is related to engineering and research and
development, which is not susceptible to productive capacity analysis. In the
area of manufacturing, most of the operations are of a job-order nature, rather
than an assembly line process, and productive equipment has multiple uses for
multiple products. Management believes that all of our major physical
facilities are in good condition and are adequate for their intended use.
ITEM 3. LEGAL PROCEEDINGS
We are parties or have property subject to litigation and other
proceedings, including matters arising under provisions relating to the
protection of the environment, both as specifically described below or arising
in the ordinary course of our business. In the opinion of management, the
probability is remote that the outcome of any such litigation or other
proceedings, will have a material adverse effect on our results of operations or
financial position.
We are primarily engaged in providing products and services under contracts
with the U.S. Government and, to a lesser degree, under direct foreign sales
contracts, some of which are funded by the U.S. Government. These contracts are
subject to extensive legal and regulatory requirements and, from time to time,
agencies of the U.S. Government investigate whether our operations are being
conducted in accordance with these requirements. U.S. Government investigations
of us, whether relating to these contracts or conducted for other reasons, could
result in administrative, civil or criminal liabilities, including repayments,
fines or penalties
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Page 25
being imposed upon us, or could lead to suspension or debarment from future U.S.
Government contracting. U.S. Government investigations often take years to
complete and many result in no adverse action against us. For the U.S.
government investigations noted below, it is too early for us to determine
whether adverse decisions relating to these investigations could ultimately have
a material adverse effect on our results of operations or financial condition.
The following describes previously reported matters (including one reopened
government investigation), including any developments of these matters, and one
new matter.
Two consolidated class action complaints have been filed against the
Corporation and certain of its officers and directors in the United States
District Court for the Central District of California, In re Lockheed Martin
Corp. Securities Litigation, CV99-00372-MRP, and Kops et al. v. Lockheed Martin
Corporation et al., CV99-6171-MRP. The complaints allege that the defendants
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 in that
they or persons they controlled allegedly (a) employed devices, schemes and
artifices to defraud; (b) made untrue statements of material facts or omitted to
state material facts necessary in order to make statements, in light of the
circumstances under which they were made, not misleading; or (c) engaged in
acts, practices and a course of business that operated as a fraud or deceit upon
class members in connection with their purchases of our common stock. According
to the complaints, class members were damaged as, in reliance on the integrity
of the market, they paid artificially inflated prices for our stock. Plaintiffs
seek judgments awarding (a) damages and costs; (b) equitable or injunctive
relief, including the imposition of a constructive trust upon defendants'
alleged insider-trading proceeds; and (c) other just and proper relief.
The Securities Litigation complaint alleges claims on behalf of a putative
class of shareholders who purchased stock between August 13, 1998 and December
23, 1998. The defendants in these actions are the Corporation, Vance D. Coffman,
Marcus C. Bennett, James A. Blackwell, Jr., Thomas A. Corcoran, Vincent N.
Marafino and Norman R. Augustine. The Kops complaint alleges claims on behalf
of a putative class of shareholders who purchased Lockheed Martin stock between
January 28, 1999 and June 9, 1999. The defendants in these actions are the
Corporation, Vance D. Coffman, Marcus C. Bennett, Philip J. Duke, and Thomas A.
Corcoran.
On October 2, 2000, the district court dismissed, with leave to amend, all
of the plaintiffs allegations in the Kops complaint, with the exception of an
allegation that the Corporation improperly recognized revenue related to a
government contact in the first quarter of 1999. On October 4, 2000, the
district court dismissed with prejudice plaintiffs' allegations in the
Securities Litigation complaint relating to the Corporation's alleged failure to
disclose properly accounting adjustments related to its CalComp subsidiary and
the reversal of a reserve on the Atlas program. The district court also
dismissed the remainder of the allegations with leave to amend. On December 14,
2000, the plaintiffs filed amended consolidated complaints which were
substantially similar to the dismissed complaints. The Corporation is preparing
to file motions to dismiss the complaints for a second time. We believe that
the allegations are without merit and intend vigorously to defend these actions.
In 1994, we were awarded a $180 million fixed price contract by the DoE for
the Phase II design, construction and limited test of remediation facilities,
and the Phase III full remediation
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of waste found in Pit 9, located on the Idaho National Engineering and
Environmental Laboratory reservation. We incurred significant unanticipated
costs and scheduling issues due to complex technical and contractual matters
which threatened the viability of the overall Pit 9 program. Based on an
investigation by management to identify and quantify the overall effect of these
matters, we submitted a request for equitable adjustment (REA) to the DoE on
March 31, 1997 that sought, among other things, the recovery of a portion of
unanticipated costs incurred by us and the restructuring of the contract to
provide for a more equitable sharing of the risks associated with the Pit 9
project. We have been unsuccessful in reaching any agreements with the DoE on
cost recovery or other contract restructuring matters.
On June 1, 1998, the DoE, through Lockheed Martin Idaho Technologies
Company (LMITCO), its management contractor, terminated the Pit 9 contract for
default. On that same date, we filed a lawsuit against the DoE in the U.S.
Court of Federal Claims in Washington, D.C., challenging and seeking to overturn
the default termination. In addition, on July 21, 1998, we withdrew the REA
previously submitted to the DoE and replaced it with a certified REA. The
certified REA is similar in substance to the REA previously submitted, but its
certification, based upon more detailed factual and contractual analysis, raises
its status to that of a formal claim. On August 11, 1998, LMITCO, at the DoE's
direction, filed suit against us in the U.S. District Court in Idaho, seeking,
among other things, recovery of approximately $54 million previously paid by
LMITCO to us under the Pit 9 contract. We are defending this action while
continuing to pursue our certified REA. Discovery has been ongoing since August
2, 1999. In the U.S. Court of Federal Claims, on October 1, 1999, the Court
stayed DoE's Motion to Dismiss our lawsuit, finding that the Court has
jurisdiction. The Court ordered discovery to commence and gave leave to the DoE
to convert its motion to dismiss to a motion for summary judgment if supported
by discovery. In January 2001, the DoE filed a motion for summary judgment,
which we plan to oppose. We continue to assert our position in the litigation
while continuing our efforts to resolve the dispute through non-litigation
means.
We have been served with grand jury subpoenas issued by the U.S. District
Court for the Eastern District of New York seeking documents related to the
performance of various government contracts by the former Unisys Corporation
Defense Systems facility at Great Neck, New York. We acquired the facility when
we acquired Loral Corporation in April 1996. Loral Corporation acquired the
facility from Unisys Corporation. We are cooperating with the government's
continuing investigation of this matter.
On February 21, 2000, and thereafter, we were served with a grand jury
subpoena issued by the United States District Court for the Southern District of
Texas in Houston seeking documents related to cost accounting issues in
connection with NASA service and support contracts performed by Lockheed
Engineering & Sciences Company and its successors, Lockheed Martin Engineering &
Sciences Services and Lockheed Martin Space Operations. We have been advised
that the United States Attorney's Office for the Southern District of Texas has
reopened the investigation, after previously having advised us in 1997, that the
grand jury's investigation was closed.
We have been served, along with a number of our current and former
employees, with grand jury subpoenas issued by the U.S. District Court for the
Middle District of Florida and
- --------------------------------------------------------------------------------
Page 27
subpoenas issued by the Department of Defense Inspector General relating to the
LANTIRN program. The U.S. Attorney's Office for the Middle District of Florida
has advised us that the grand jury is investigating allegations of fraud in
connection with certain LANTIRN program contracts. These allegations, in part,
were first made in qui tam complaints filed against us and unsealed on July 16,
1996. We are cooperating with the government's continuing investigation of this
matter.
Since July 15, 1999, the Corporation and several of its current and former
employees have been served with a grand jury subpoenas issued by the United
States District Court for the Central District of California. The subpoenas
sought documents and testimony relating to the 1990 international sale of area
defense radar systems by the predecessor of the Corporation's former subsidiary,
Lockheed Martin Sanders, and the compensation of an international sales
consultant in connection with that sale. We are cooperating with the
government's continuing investigation of this matter.
For the past few years, we have been in litigation with residents in the
cities of Burbank and Redlands in California regarding allegations of personal
injury, property damage, and other tort claims on behalf of individuals and
putative classes of individuals arising from our alleged contribution to
regional groundwater contamination. With regard to state court claims in
Burbank, which originally numbered 3,400 individual claimants, we expect final
entry of a settlement agreement during the first quarter of 2001 that will
dispose of this matter for $5 million. In federal court, we have defeated all
class allegations and have secured dismissals against all but a handful of
individual cases at the trial court level. We intend to continue to vigorously
defend the remaining individual claims. With regard to claims in the Redlands
matter, the trial court certified both a punitive damages and a medical
monitoring class. The California Court of Appeals reversed this ruling,
however, and de-certified the classes. This issue is now on appeal before the
California Supreme Court. Trial preparations continue with respect to the 800
individual claimants in Redlands, but the first trial on the merits is not
expected until sometime in 2002. We intend to continue to vigorously defend
these claims.
We are subject to federal and state requirements for protection of the
environment, including those for discharge of hazardous materials and
remediation of contaminated sites. As a result, we are a party to or have our
property subject to various other lawsuits or proceedings involving
environmental protection matters. Due in part to their complexity and
pervasiveness, such requirements have resulted in us being involved with related
legal proceedings, claims and remediation obligations. See "Environmental
Regulation" and "Description of Certain Environmental Matters" on page 19
through page 21 of this Form 10-K.
On December 20, 2000, the United States Department of Justice filed a
complaint in intervention in a lawsuit filed by former employees of
Electromechanical Systems, Inc. (EMS) under the qui tam provisions of the Civil
False Claims Act, in the United States District Court for the Middle District of
Florida. The complaint names as corporate defendants EMS, COMSAT, and LMGT.
EMS is a subsidiary of COMSAT that became part of the LMGT business segment as a
result of the Corporation's acquisition of COMSAT. The complaint alleges
fraudulent activity by EMS employees between 1982 and February 1999, including
falsification of actual costs associated with work performed for the United
States Navy on radar pedestals and efforts by EMS employees to conceal that
activity. On December 6, 2000, EMS was proposed for
- --------------------------------------------------------------------------------
Page 28
debarment by the United States Navy. EMS has filed a detailed submission with
the Navy demonstrating its present responsibility as a government contractor and
seeking to have the proposed debarment withdrawn.
On May 10, 2000, two purported class action lawsuits alleging race
discrimination were filed against the Corporation in the United States District
Court for the Northern District of Georgia in Atlanta. One lawsuit, Melvin Reid
et al. v. Lockheed Martin Corporation et al., was filed on behalf of salaried
employees and the other, Farris Yarbrough et al. v. Lockheed Martin Corporation
et al., was filed on behalf of hourly employees. The individually-named
plaintiffs in the complaints are current and former employees of the
Corporation's Aeronautics Company - Marietta Operations located in Marietta,
Georgia. The plaintiffs allege race discrimination in connection with
promotions, training opportunities, and compensation, the existence of a hostile
work environment, and retaliation, on behalf of African American employees
employed by the Corporation at Marietta and elsewhere from 1996 to the present.
The plaintiffs seek compensatory and punitive damages and injunctive relief.
The Corporation has denied the allegations in the plaintiffs' complaints and
plans to vigorously defend the lawsuits in court.
On December 5, 2000, the United States Equal Employment Opportunity
Commission (EEOC) filed a motion to intervene as a party plaintiff in the Reid
and Yarbrough actions. The Corporation opposed the EEOC's motion due to the
EEOC's failure to comply with certain statutory requirements prior to filing
suit. On January 29, 2001, the District Court denied the EEOC's motion to
intervene.
On November 17, 2000, the Securities and Exchange Commission (SEC) served
an administrative subpoena on the Corporation. The subpoena seeks documents
relating to the proposed merger between the Corporation and Northrop Grumman
Corporation, which was announced on July 3, 1997. The Corporation is
cooperating with the SEC's investigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 2000.
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ITEM 4(a). EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers are listed below. There were no family relationships
among any of our executive officers and directors. All officers serve at the
pleasure of the Board of Directors.
Name Principal Occupation and
(Age at Positions and Business Experience
12/31/00) Offices Held (Past Five Years)
- -------------- -------------------- -----------------------------------
Vance D. Chairman of the Chairman of the Board since April
Coffman (56) Board and Chief 1998, Chief Executive Officer
Executive Officer since August 1997 and Board member
since 1996; Vice Chairman of the
Board from August 1997 to April
1998; President from June 1996 to
July 1997 and from October 1999 to
April 2000; Chief Operating
Officer from January 1996 to July
1997; Executive Vice President
from January to June 1996;
President and Chief Operating
Officer, Space & Strategic
Missiles Sector from March 1995 to
December 1995; previously served
as Executive Vice President of
Lockheed from 1992 to 1995; and
President of Lockheed Space
Systems Division from 1988 to 1992.
Robert J. President and Chief President and Chief Operating
Stevens (49) Operating Officer Officer since October 2000;
Executive Vice President and Chief
Financial Officer since October
1999; Vice President of Strategic
Development from November 1998
through September 1999; President
and Chief Operating Officer,
Energy & Environment Sector from
January 1998 to June 1999;
President, Air Traffic Management
Division from June 1996 through
January 1998; Executive Vice
President and Senior Vice
President and Chief Financial
Officer of Air Traffic Management
from December 1993; previously
served as an executive employee of
Loral Corporation from August 1987.
- -------------------------------------------------------------------------------
Page 30
Name Principal Occupation and
(Age at Positions and Business Experience
12/31/00) Offices Held (Past Five Years)
- -------------- -------------------- -----------------------------------
Michael F. Executive Vice Executive Vice President -
Camardo (58) President - Technology Services since October
Technology Services 1999; President, Lockheed Martin
Technology Services Group from
March 1995 through September 1999;
President, Martin Marietta
Services Group from April 1993 to
March 1995.
Robert B. Executive Vice Executive Vice President - Systems
Coutts (50) President - Systems Integration since October 1999;
Integration President and Chief Operating
Officer, Electronics Sector from
October 1998 through September
1999; President, Lockheed Martin
Government Electronics Systems
from January 1997 until September
1998; President Lockheed Martin
Aero and Naval Systems from
September 1994 to December 1996;
previously served as Vice
President, Sourcing for the Martin
Marietta Corporation.
Philip J. Executive Vice Executive Vice President- Shared
Duke (55) President - Shared Services since October 1999; Vice
Services President and Chief Financial
Officer from February 1999 through
September 1999; Vice President
Finance from July 1996 to January
1999; Vice President Finance,
Space & Strategic Missiles Sector
from March 1995 to July 1996;
previously served as Vice
President Finance, Martin Marietta
from 1994 to 1995.
Dain M. Executive Vice Executive Vice President -
Hancock (59) President - Aeronautics since November 1999
Aeronautics and President of the Lockheed
Martin Aeronautics Company since
January 2000; President of
Lockheed Martin Tactical Aircraft
Systems from March 1995 to
November 1999; Vice President of
Lockheed Corporation from March
1993 to March 1995.
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Page 31
Name Principal Occupation and
(Age at Positions and Business Experience
12/31/00) Offices Held (Past Five Years)
- -------------- -------------------- -----------------------------------
Arthur E. Vice President - Vice President - Strategic
Johnson (53) Strategic Development since October 1999;
Development President and Chief Operating
Officer, Information & Services
Sector from August 1997 through
September 1999; President,
Lockheed Martin Systems
Integration Group from January
1997 to August 1997; President,
Lockheed Martin Federal Systems
Group from January 1996 to January
1997; and President, Loral Federal
Systems Group from January 1994 to
January 1996.
Christopher Vice President and Vice President and Chief Financial
E. Kubasik Chief Financial Officer since February 2001; Vice
(39) Officer; Acting President and Controller since
Controller November 1999; prior to joining
Lockheed Martin, with Ernst &
Young LLP since 1983, partner
since 1996.
Frank H. Senior Vice Senior Vice President and General
Menaker, Jr. President and Counsel since July 1996; Vice
(60) General Counsel President and General Counsel for
Lockheed Martin Corporation from
March 1995 to July 1996, having
served in the same capacity for
Martin Marietta Corporation from
1981 until March 1995.
Janet L. Vice President and Vice President and Treasurer since
McGregor (46) Treasurer May 1999; Vice President-Finance
for Electronics Sector from August
1996 to May 1999; Vice President
and Assistant Treasurer from March
1995 to August 1996; previously
served as Treasurer of Martin
Marietta Corporation from 1992
until March 1995.
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Page 32
Name Principal Occupation and
(Age at Positions and Business Experience
12/31/00) Offices Held (Past Five Years)
- -------------- -------------------- -----------------------------------
Albert E. Executive Vice Executive Vice President - Space
Smith (51) President - Space Systems since October 1999 and
Systems President of Lockheed Martin Space
Systems Company since January
2000; President, Lockheed Martin
Missiles & Space from June through
September 1999; President,
Lockheed Martin Aerospace
Electronic Systems from December
1998 to June 1999; President
Sanders, a Lockheed Martin
Company, from February to December
1998; President, Harris
Corporation, a supplier of
electronic components, from April
1996 to February 1998; Executive
Vice President, Lockheed Martin
Missiles & Space from January 1996
to April 1996; Vice President and
Assistant General
Manager-Commercial, Lockheed
Martin Space Systems Division from
1993 to January 1996.
John V. Chief Executive Chief Executive Officer of LMGT
Sponyoe (61) Officer of LMGT since August 1998; President of
Lockheed Martin's Electronics
Platform Integration (EPI) Group
from April 1997 to August 1998;
Corporate Vice President, from
January 1997 to present;
President, Federal Systems Owego
from 1994 until April 1997.
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Page 33
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
At January 31, 2001, we had approximately 68,000 holders of record of
our Common Stock, $1 par value. In January 2000, we announced that we reduced
our dividend rate to $0.11 per quarter. The decreased dividend was effective for
dividends declared in the first quarter of 2000. Our Common Stock is traded on
the New York Stock Exchange, Inc. under the symbol "LMT". Information
concerning stock prices and dividends paid during the past two years is as
follows:
Common Stock -- Dividends Paid and Market Prices
--------------------------------------------------------------------------
Quarter Dividends Paid Market Prices (High-Low)
--------------------------------------------------------------------------
2000 1999 2000 1999
--------------------------------------------------------------------------
First $0.11 $0.22 $22.31 - 16.50 $43.00 - 34.63
--------------------------------------------------------------------------
Second 0.11 0.22 27.31 - 19.81 46.00 - 33.75
--------------------------------------------------------------------------
Third 0.11 0.22 33.60 - 24.06 39.94 - 30.19
--------------------------------------------------------------------------
Fourth 0.11 0.22 37.58 - 30.06 33.38 - 16.38
--------------------------------------------------------------------------
Year $0.44 $0.88 $37.58 - 16.50 $46.00 - 16.38
--------------------------------------------------------------------------
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Page 34
ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED FINANCIAL DATA - FIVE YEAR SUMMARY
Lockheed Martin Corporation
- --------------------------------------------------------------------------------
(In millions, except per share data) 2000/(a)/ 1999/(b)/ 1998/(c)/ 1997/(d)/ 1996/(e)/
- ---------------------------------------------------------------------------------------------------------------------------
Operating Results
Net sales $ 25,329 $ 25,530 $ 26,266 $ 28,069 $ 26,875
Cost of sales 23,715 23,865 23,914 25,772 24,594
- ---------------------------------------------------------------------------------------------------------------------------
Earnings from operations 1,614 1,665 2,352 2,297 2,281
Other income and expenses, net (409) 344 170 482 452
- ---------------------------------------------------------------------------------------------------------------------------
1,205 2,009 2,522 2,779 2,733
Interest expense 919 809 861 842 700
- ---------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes, extraordinary item
and cumulative effect of change in accounting 286 1,200 1,661 1,937 2,033
Income tax expense 710 463 660 637 686
- --------------------------------------------------------------------------------------------------------------------------
(Loss) earnings before extraordinary item and
cumulative effect of change in accounting (424) 737 1,001 1,300 1,347
Extraordinary item (95) -- -- -- --
Cumulative effect of change in accounting -- (355) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net (loss) earnings $ (519) $ 382 $ 1,001 $ 1,300 $ 1,347
- ---------------------------------------------------------------------------------------------------------------------------
(Loss) Earnings Per Common Share
Basic:
Before extraordinary item and cumulative effect of
change in accounting $ (1.05) $ 1.93 $ 2.66 $ (1.56) $ 3.40
Extraordinary item (.24) -- -- -- --
Cumulative effect of change in accounting -- (.93) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
$ (1.29) $ 1.00 $ 2.66 $ (1.56) $ 3.40
- ---------------------------------------------------------------------------------------------------------------------------
Diluted:
Before extraordinary item and cumulative effect of
change in accounting $ (1.05) $ 1.92 $ 2.63 $ (1.56) $ 3.04
Extraordinary item (.24) -- -- -- --
Cumulative effect of change in accounting -- (.93) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
$ (1.29) $ .99 $ 2.63 $ (1.56) $ 3.04
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends $ .44 $ .88 $ .82 $ .80 $ .80
- ---------------------------------------------------------------------------------------------------------------------------
Condensed Balance Sheet Data
Current assets $ 11,259 $ 10,696 $ 10,611 $ 10,105 $ 10,346
Property, plant and equipment 3,446 3,634 3,513 3,669 3,721
Intangible assets related to contracts and programs acquired 1,088 1,259 1,418 1,566 1,767
Cost in excess of net assets acquired 8,855 9,162 9,521 9,856 10,394
Other assets 5,701 5,510 3,681 3,165 3,312
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 30,349 $ 30,261 $ 28,744 $ 28,361 $ 29,540
===========================================================================================================================
Short-term borrowings $ 12 $ 475 $ 1,043 $ 494 $ 1,110
Current maturities of long-term debt 882 52 886 876 180
Other current liabilities 9,281 8,285 8,338 7,819 7,382
Long-term debt 9,065 11,427 8,957 10,528 10,188
Post-retirement benefit liabilities 1,647 1,805 1,903 1,993 2,077
Other liabilities 2,302 1,856 1,480 1,475 1,747
Stockholders' equity 7,160 6,361 6,137 5,176 6,856
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 30,349 $ 30,261 $ 28,744 $ 28,361 $ 29,540
===========================================================================================================================
Common shares outstanding at year end 431.4 397.8 393.3 388.8 385.5
- ---------------------------------------------------------------------------------------------------------------------------
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Page 35
CONSOLIDATED FINANCIAL DATA - FIVE YEAR SUMMARY
Lockheed Martin Corporation
- --------------------------------------------------------------------------------
Notes to Five Year Summary
/(a)/ Reflects the business combination with COMSAT Corporation effective
August 2000. Includes the effects of nonrecurring and unusual items
which, on a combined basis, decreased pretax earnings by $539 million,
$856 million after tax, or $2.12 per diluted share. Also includes an
extraordinary loss on the early extinguishment of debt which resulted in
a nonrecurring and unusual charge that reduced net earnings by $95
million, or $.24 per diluted share .
/(b)/ Includes the effects of nonrecurring and unusual items which, on a
combined basis, increased pretax earnings by $249 million, $162 million
after tax, or $.42 per diluted share. Also includes a cumulative effect
adjustment relating to the adoption of SOP No. 98-5 regarding costs for
start-up activities which resulted in a nonrecurring and unusual charge
that reduced net earnings by $355 million, or $.93 per diluted share.
/(c)/ Includes the effects of nonrecurring and unusual items which, on a
combined basis, decreased pretax earnings by $162 million, $136 million
after tax, or $.36 per diluted share.
/(d)/ Includes the effects of a nonrecurring and unusual tax-free gain of $311
million and the aggregate effects of other nonrecurring and unusual items
which decreased pretax earnings by $369 million, $245 million after tax.
On a combined basis, these items decreased diluted loss per share by
$.15. The loss per share also includes the effects of a deemed preferred
stock dividend resulting from a transaction with GE which reduced the
basic and diluted per share amounts by $4.93.
/(e)/ Reflects the business combination with Loral Corporation effective April
1996. Includes the effects of a nonrecurring and unusual pretax gain of
$365 million, $351 million after tax, and nonrecurring and unusual pretax
charges of $307 million, $209 million after tax which, on a combined
basis, increased diluted earnings per share by $.32.
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Page 36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Lockheed Martin Corporation
- --------------------------------------------------------------------------------
December 31, 2000
Lockheed Martin Corporation (Lockheed Martin or the Corporation) is engaged in
the conception, research, design, development, manufacture, integration and
operation of advanced technology systems, products and services. The Corporation
serves customers in both domestic and international defense and commercial
markets, with its principal customers being agencies of the U.S. Government. The
following discussion should be read in conjunction with the audited consolidated
financial statements included herein.
Strategic and Organizational Review
In September 1999, as part of a strategic and organizational review, the
Corporation announced plans to evaluate the divestiture of certain non-core
business units and the repositioning of certain businesses to maximize their
value and growth potential.
In connection with its decision to evaluate the divestiture of certain
non-core business units, the Corporation completed the sale of its Aerospace
Electronics Systems (AES) businesses to BAE SYSTEMS, North America Inc. (BAE
SYSTEMS) in November 2000. In addition, in September 2000, the Corporation
completed the sale of Lockheed Martin Control Systems (Control Systems) to BAE
SYSTEMS. These transactions are discussed in more detail under the caption
"Divestiture Activities" below.
In January 2001, the Corporation completed the divestiture of two business
units in the environmental management line of business. The impact of these
divestitures was not material to the Corporation's consolidated results of
operations, cash flows or financial position due to the effects of nonrecurring
and unusual impairment losses recorded in 2000 and 1999 related to these
business units. These losses were included in other portfolio shaping
activities. The Corporation is continuing to evaluate alternatives relative to
the disposition of all or a portion of its investment in a business unit in the
state and municipal services line of business, subject to appropriate valuation,
negotiation and approval. Net sales for the year ended December 31, 2000 related
to this business unit were $564 million. Management cannot predict whether or
when a potential divestiture will take place or the amount of proceeds that may
ultimately be realized.
In addition, on an ongoing basis, the Corporation will continue to explore
the sale of various investment holdings and surplus real estate. If the
Corporation were to decide to sell any of its investment holdings or surplus
real estate, the resulting gains, if any, would be recorded when the
transactions are consummated and losses, if any, would be recorded when they are
estimable. The Corporation will also continue to review its businesses on an
ongoing basis to identify ways to improve organizational effectiveness and
performance, and to clarify and focus on its core business strategy.
In the third quarter of 2000, the Corporation completed its evaluation of
alternatives relative to maximizing the value of two business units that serve
the commercial information technology markets. In October 2000, the operations
of one of the two business units, Integrated Business Solutions (IBS), were
combined with the operations of Lockheed Martin Global Telecommunications
(LMGT), a wholly-owned subsidiary of the Corporation. The remaining business
unit, which provides Lockheed Martin's internal information technology needs,
will continue to be operated as part of Lockheed Martin's Corporate and Other
segment, consistent with prior periods.
Business Combination 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 (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 for 49 percent of the outstanding
stock of COMSAT (the Tender Offer) on September 18, 1999. The total value of
this phase of the transaction was $1.2 billion, and such amount was included in
investments in equity securities in the consolidated balance sheet prior to
consummation of the Merger as discussed below. The Corporation accounted for its
49 percent investment in COMSAT under the equity method of accounting.
- --------------------------------------------------------------------------------
Page 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Lockheed Martin Corporation
- --------------------------------------------------------------------------------
December 31, 2000
On August 3, 2000, pursuant to the terms of the Merger Agreement, the
second phase of the transaction was accomplished and the Merger was consummated.
On that date, each share of COMSAT common stock outstanding immediately prior to
the effective time of the Merger (other than shares held by the Corporation) was
converted into the right to receive one share of Lockheed Martin common stock.
The total amount recorded related to this phase of the transaction was
approximately $1.3 billion based on the Corporation's issuance of approximately
27.5 million shares of its common stock at a price of $49 per share. This price
per share represents the average of the price of Lockheed Martin's common stock
a few days before and after the announcement of the transaction in September
1998.
The total purchase price for COMSAT, including transaction costs and
amounts related to Lockheed Martin's assumption of COMSAT stock options, was
approximately $2.6 billion, net of cash balances acquired. The COMSAT
transaction was accounted for using the purchase method of accounting. Purchase
accounting adjustments were recorded in 2000 to allocate the purchase price to
assets acquired and liabilities assumed based on their fair values. These
adjustments included certain amounts totaling approximately $2.1 billion,
composed of adjustments to record investments in equity securities acquired at
their fair values and cost in excess of net assets acquired, which will be
amortized over an estimated life of 30 years.
The operations of COMSAT have been consolidated with the results of
operations of LMGT since August 1, 2000. Given the substantial investment
necessary for the growth of the global telecommunications services business,
support from strategic partners for the Corporation's global telecommunications
business area may be sought and public equity markets may be accessed to raise
capital, although the Corporation cannot predict the timing or the outcome of
these efforts.
Divestiture Activities
In connection with its strategic and organizational review, the Corporation
decided in July 2000 to sell its AES businesses to BAE SYSTEMS for $1.67 billion
in cash (the AES Transaction). The AES Transaction closed in November 2000. The
Corporation recorded a nonrecurring and unusual loss, including state income
taxes, of $598 million related to this transaction which is included in other
income and expenses. The loss negatively impacted the net loss for 2000 by $878
million, or $2.18 per diluted share. Although the AES Transaction resulted in
the Corporation recording a pretax loss, it resulted in a gain for tax purposes
primarily because cost in excess of net assets acquired (goodwill) is not
deductible for tax purposes and therefore was not included in the tax basis of
the net assets of AES. Accordingly, the Corporation is required to make state
and federal income tax payments associated with the divestiture. The AES
Transaction is expected to generate net cash proceeds of approximately $1.2
billion after related transaction costs and federal and state income taxes which
are expected to be paid in 2001. Net sales included in the year 2000 related to
the AES businesses totaled approximately $655 million, excluding intercompany
sales.
In September 2000, the Corporation completed the sale of Control Systems to
BAE SYSTEMS for $510 million in cash. This transaction resulted in the
recognition of a nonrecurring and unusual gain, net of state income taxes, of
$302 million which is reflected in other income and expenses. The gain favorably
impacted the net loss for the year ended December 31, 2000 by $180 million, or
$.45 per diluted share. Net sales for the first nine months of 2000 related to
Control Systems totaled approximately $215 million, excluding intercompany
sales. This transaction generated net cash proceeds of $350 million after
related transaction costs and federal and state income tax payments.
In September 2000, the Corporation completed the sale of approximately
one-third of its interest in Inmarsat Ventures Limited (Inmarsat) for $164
million. The investment in Inmarsat was acquired as part of COMSAT in
conjunction with the Merger. As a result of the transaction, the Corporation's
interest in Inmarsat was reduced from approximately 22% to 14%. The sale of
shares in Inmarsat did not impact the Corporation's results of operations. The
transaction generated net cash proceeds of approximately
- --------------------------------------------------------------------------------
Page 38
- --------------------------------------------------------------------------------
(Continued)
$115 million after transaction costs and federal and state income tax payments.
In 1997, the Corporation repositioned 10 of its non-core business units as
a new independent company, L-3 Communications Holdings, Inc. (L-3), in which
the Corporation retained an approximate 35 percent ownership interest at
closing. The Corporation's ownership percentage was reduced to approximately 25
percent in the second quarter of 1998 as a result of an initial public offering
of L-3's common stock. This transaction resulted in the recognition of a
nonrecurring and unusual gain, net of state income taxes, of $18 million, and
increased 1998 net earnings by $12 million, or $.03 per diluted share. In 1999,
the Corporation sold its remaining shares of L-3 in two separate transactions.
On a combined basis, these two transactions resulted in a nonrecurring and
unusual gain, net of state income taxes, of $155 million, and increased 1999 net
earnings by $101 million, or $.26 per diluted share.
In September 1999, the Corporation sold its interest in Airport Group
International Holdings, LLC which resulted in a nonrecurring and unusual gain,
net of state income taxes, of $33 million. In October 1999, the Corporation
exited its commercial 3D graphics business through a series of transactions
which resulted in the sale of its interest in Real 3D, Inc., a majority-owned
subsidiary, and a nonrecurring and unusual gain, net of state income taxes, of
$33 million. On a combined basis, these transactions increased 1999 net earnings
by $43 million, or $.11 per diluted share.
Industry Considerations
The Corporation's primary lines of business are in advanced technology systems,
products and services for aerospace and defense, serving both government and
commercial customers. In recent years, domestic and worldwide political and
economic developments have strongly affected these markets, requiring
significant adaptation by market participants.
The U.S. aerospace and defense industry has experienced years of pressures
and uncertainties relative to budgets for research, development, test and
evaluation, and procurement. After over a decade of downward trends in the U.S.
defense budget, the portion of the Federal budget devoted to defense is at one
of its lowest levels in modern history. In addition, worldwide defense budgets
have been declining, with the limited funds available for such budgets targeted
for operational readiness and personnel issues instead of acquisition programs.
An increasing portion of expenditures for defense is used for upgrading and
modernizing existing equipment rather than acquisition of new equipment. Such
trends in defense spending have created risks associated with demand and timing
of orders relative to certain of the Corporation's existing programs. For
example, though the Corporation received several new orders for C-130J airlift
aircraft in 2000, the program since inception has not experienced the level of
orders anticipated which has resulted in lower than expected production levels.
The Corporation is continuing to focus its efforts on new orders from domestic
and foreign customers, although it cannot predict the outcome of these efforts.
The industry participants reacted to shrinking defense budgets by combining
to maintain critical mass and attempting to achieve significant cost savings.
The U.S. Government was supportive of industry consolidation activities through
1997, and the Corporation had been at the forefront of those activities. Through
its own consolidation activities, the Corporation has been able to pass along
savings to its customers, principally the U.S. Department of Defense (DOD). More
recently, major aerospace companies have focused their efforts on cost savings
and efficiency improvements, as well as generation of cash to repay debt
incurred during the period of consolidation. Further domestic consolidation is
possible, as evidenced by the proposed acquisition of Litton Industries, Inc. by
Northrop Grumman Corporation announced in 2000.
Ongoing consolidation continues within the European aerospace industry
resulting in fewer but larger and more capable competitors, potentially
resulting in an environment where there could be less demand for products from
U.S. companies. Such an environment could affect opportunities for European
partnerships and sales potential for U.S. products outside the U.S. In addition,
consolidation is beginning to occur between U.S. and European aerospace
companies,
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Lockheed Martin Corporation
- --------------------------------------------------------------------------------
December 31, 2000
as evidenced by the acquisition in 2000 of the Corporation's AES and Control
Systems businesses by a U.S. subsidiary of BAE SYSTEMS plc.
There are signs that the continuing decline in the defense budget may have
ended, with proposals being made for modest increases in the next several years.
However, the change of administration in Washington, D.C. may result in
significant alterations to current defense budgets and goals. A new
administration typically begins by reviewing existing programs and priorities,
and President Bush has instructed the Secretary of Defense to perform a
"top-to-bottom" review of all defense expenditures. He has also indicated a
willingness to curtail spending on programs that may become technologically
obsolete in the near future and may allocate additional funding for research and
development projects as well as personnel needs. The Corporation cannot predict
whether the defense budget will increase or the magnitude of such increases, if
any.
If there are moderate increases in defense spending, the Corporation's
broad mix of programs and capabilities makes it a likely beneficiary of any such
increases. However, there are risks associated with certain of the programs for
which the Corporation is competing and which may be the primary recipients of
significant future U.S. Government spending. These programs are very large and
likely to be well-funded, but may only involve one prime contractor. For
example, the Corporation is involved in the competition for the Joint Strike
Fighter (JSF) tactical aircraft program. Because of the magnitude of this
program, being unsuccessful in the competition would be significant to any of
the competitors' future fighter aircraft operations. Additionally, the JSF
program and other large, highly visible programs, such as the Corporation's F-22
fighter aircraft program, will likely receive significant attention in the
Administration's "top-to-bottom" review, and will continue to attract
substantial Congressional focus as potential targets for reductions and/or
extensions of their funding to pay for other programs. However, the JSF and F-22
programs remain a high priority for the DOD and the armed services, as well as
for the Corporation.
In February 2001, the F-22 program completed the eleven test criteria
established by the Defense Acquisition Board (DAB) which were required to be
completed prior to the full contract award for the production of Lot 1 (10
aircraft) and the long lead procurement authorization for Lot 2. The Corporation
is currently awaiting further direction from the U.S. Government regarding
authorization to begin initial production (Lot 1). In January 2001, the
Corporation received partial funding of Lot 1 which is adequate to continue
necessary activities through the end of March 2001. Also in January 2001, the
Corporation received advance procurement funds to protect Lot 2 cost, schedule
and the supplier base. The U.S. Air Force has advised the Corporation of its
intent to provide additional Lot 2 advance procurement funds in monthly
increments prior to the F-22 DAB's final decision. The second increment was
received in February 2001 which covers efforts through the end of February. The
Corporation cannot predict whether or when full funding will be received for the
Lot 1 and Lot 2 phases of the F-22 program.
As a government contractor, the Corporation is subject to U.S. Government
oversight. The government may investigate and make inquiries of the
Corporation's business practices and conduct audits of contract performance and
cost accounting. Depending on the results of these investigations, the
government may make claims against the Corporation. Under U.S. Government
procurement regulations and practices, an indictment of a government contractor
could result in that contractor being fined and/or suspended for a period of
time from eligibility for bidding on, or for award of, new government contracts.
A conviction could result in debarment for a specified period of time. Similar
government oversight exists in most other countries where the Corporation
conducts business. Although the outcome of such investigations and inquiries
cannot be predicted, in the opinion of management, there are no claims, audits
or investigations pending against the Corporation that are likely to have a
material adverse effect on the Corporation's business or its consolidated
results of operations, cash flows or financial position.
The Corporation remains exposed to other inherent risks associated with
U.S. Government contracting, including technological uncertainties and
obsolescence, changes in
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(Continued)
government policies, and dependence on annual Congressional appropriation and
allotment of funds. Many of the Corporation's programs involve development and
application of state-of-the-art technology aimed at achieving challenging goals.
As a result, setbacks and failures can occur. It is important for the
Corporation to resolve performance issues related to such programs in a timely
manner to achieve success on these programs.
The nature of the Corporation's business also makes it subject to export
control regulation by the U.S. Department of State and the Department of
Commerce. Violations of these regulations can result in monetary penalties and
denial of export privileges. Management is currently unaware of any violations
of export control regulations which could have a material adverse effect on the
Corporation's business or its consolidated results of operations, cash flows or
financial position.
The Corporation also conducts business in related commercial and
non-defense markets. Although these lines of business are not dependent on
defense budgets, they share many of the risks associated with the Corporation's
defense businesses, as well as other risks unique to the commercial marketplace.
Such risks include development of competing products, technological feasibility
and product obsolescence.
Industry-wide, the launch vehicle industry experienced a reduction in
demand beginning in 1999 primarily reflecting start-up issues for certain
satellite systems with which the Corporation was not involved and delays in
completing certain satellite systems due to excess transponder capacity in some
regions. These factors have resulted in pricing pressures in the launch vehicle
industry associated with increased competition. This comes at a time when the
Corporation is making significant investments in the Evolved Expendable Launch
Vehicle (Atlas V) program, the Corporation's next generation of launch vehicles.
This program has required investment of funds for research and development,
start-up costs, certain other nonrecurring costs, and launch facilities. A
portion of these expenditures have been funded under an agreement with the U.S.
Government. Orders to date relative to the program have been lower than
expected, resulting in lower production levels than anticipated.
The above factors relative to start-up issues and delays in completion of
satellite systems also contributed to delays in commercial satellite orders. In
addition, similar to the launch vehicle industry, the commercial satellite
industry is experiencing pricing pressures due to excess capacity as well as
industry consolidation. Further impacting demand have been the business
difficulties encountered by certain satellite systems, such as the bankruptcies
of the Iridium and ICO systems in 1999, which have resulted in increased
investor scrutiny of new ventures and a reduction in the total market size in
the near term. The Corporation has established cost objectives related to its
launch vehicle and commercial satellite programs intended to allow it to
continue to compete in these markets while maintaining its focus on successful
operations, though it cannot predict the outcome of these efforts.
The Corporation's Global Telecommunications segment is subject to
regulation by the Federal Communications Commission (FCC) with respect to
various aspects of the telecommunications services it provides. FCC decisions
and policies have had, and may continue to have, a significant impact on the
segment. In March 2000, Congress passed the ORBIT Act which permitted the
Corporation to complete its acquisition of COMSAT. The ORBIT Act also
established deadlines for the privatization and completion of initial public
offerings by the International Telecommunications Satellite Organization
(INTELSAT), Inmarsat and New Skies Satellites, N.V. (New Skies), as well as
specific criteria for determining whether the privatizations of those entities
are pro-competitive. If those criteria are not met, the FCC may limit access by
U.S. users to the satellite capacity of the privatized entities for certain
services. The Corporation owns 22.5% of INTELSAT, 14% of Inmarsat, and 14.3% of
New Skies. INTELSAT is working to complete a timely privatization in 2001 and
plans to conduct an initial public offering in the future as mandated by the
ORBIT Act. Inmarsat privatized in 1999 and also plans to access the public
capital markets. New Skies privatized in 1998 and completed an initial public
offering in 2000. If INTELSAT and Inmarsat were unable to satisfy the ORBIT Act
criteria and were denied U.S. market access, the value of the Corporation's
investment in those entities could be adversely affected.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Lockheed Martin Corporation
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December 31, 2000
In addition, pursuant to the ORBIT Act, the FCC commenced a proceeding in 2000
to determine whether "sufficient opportunities" exist to directly access
INTELSAT from the U.S. If the FCC determines that such opportunities do not
exist, it may take actions that could adversely affect the Corporation's ability
to utilize contractually committed future capacity on the INTELSAT system. A
decision is expected in 2001.
The Global Telecommunications segment is also subject to substantial and
increasing competition on a variety of fronts. There has been an increase in the
number of competing satellite systems and other telecommunications services
providers in recent years, including a substantial deployment of undersea fiber
cables. Many of those companies have plans to substantially increase capacity. A
number of the new satellite systems have had difficulty attracting customers and
financing at the levels contemplated by their business plans following the
bankruptcies of the Iridium and ICO satellite systems mentioned previously. LMGT
has investments in a number of new or development-stage satellite systems, such
as ACeS International, Ltd. (ACeS) and Astrolink International, LLC. In
addition, the Corporation owns approximately 15% of Loral Space & Communications
Ltd. (Loral Space), which is a major investor in Globalstar Telecommunications
Limited (Globalstar). There can be no assurance that these ventures will be
successful in attracting the financing necessary to complete and operate their
systems or the customer bases required for profitable operations.
In connection with expanding its portfolio of offered products and services
in commercial space and telecommunications activities, the Corporation has
entered into various joint venture, teaming and other business arrangements.
Such arrangements generally include a formal plan for funding of the business
which typically requires commitments for funding from the partners, and may
require the business to obtain financing from other sources. To the extent the
business is unable to obtain such financing, the business partners, including
the Corporation, would be required to assess alternatives relative to further
funding for the business. In addition, some of these business arrangements
include foreign partners. The conduct of international business introduces other
risks into the Corporation's operations, including fluctuating economic
conditions, fluctuations in relative currency values, regulation by foreign
jurisdictions and the potential for unanticipated cost increases and timing
issues resulting from the possible deterioration of political relations.
In 1992, the Corporation entered into a joint venture with two Russian
government-owned space firms to form Lockheed-Khrunichev-Energia International,
Inc. (LKEI). Lockheed Martin owns 51 percent of LKEI and consolidates the
operations of LKEI into its financial statements. LKEI has exclusive rights to
market launches of commercial, non-Russian-origin space payloads on the Proton
rocket from a launch site in Kazakhstan. In 1995, another joint venture was
formed, International Launch Services (ILS), with the Corporation and LKEI each
holding a 50 percent ownership. ILS was formed to market commercial Atlas and
Proton launch services worldwide. Contracts for Proton launch services typically
provide for substantial advances from the customer in advance of launch, and a
sizable percentage of these advances are forwarded to Khrunichev State Research
and Production Space Center (Khrunichev), the manufacturer in Russia, to provide
for the manufacture of the related launch vehicle. Significant portions of such
advances would be required to be refunded to each customer if launch services
were not successfully provided within the contracted time frames. At December
31, 2000, approximately $409 million related to launches not yet provided was
included in customer advances and amounts in excess of costs incurred, and
approximately $602 million of payments to Khrunichev for launches not yet
provided was included in inventories. Through year-end 2000, launch services
provided through LKEI and ILS have been in accordance with contract terms.
The Corporation has entered into agreements with RD AMROSS, a joint venture
of the Pratt & Whitney division of United Technologies Corporation and the
Russian firm NPO Energomash, for the development and purchase, subject to
certain conditions, of up to 101 RD-180 booster engines for use in two models of
the Corporation's Atlas launch vehicle. Terms of the agreements call for
payments to be made to RD AMROSS upon the achievement of certain milestones in
the development and manufacturing processes. Approximately $55 million of
payments made under these agreements were included in the Corporation's
inventories at December 31, 2000.
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(Continued)
Net Sales
(In millions)
-----------------------------------
2000 1999 1998
-----------------------------------
$25,329 $25,530 $26,266
[GRAPH]
Results of Operations
The Corporation's operating cycle is long-term and involves many types of
production contracts with varying production delivery schedules. Accordingly,
the results of a particular year, or year-to-year comparisons of recorded sales
and profits, may not be indicative of future operating results. The following
comparative analysis should be viewed in this context.
The Corporation's consolidated net sales for 2000 were $25.3 billion, a
decrease of one percent compared to 1999. Net sales for 1999 were $25.5 billion,
a decrease of three percent compared to 1998. During 2000, increases in net
sales in the Systems Integration, Technology Services and Global
Telecommunications segments compared to 1999 were more than offset by decreases
in the remaining business segments. In 1999, net sales decreases in the Space
Systems and Corporate and Other segments more than offset increases in the
remaining business segments. The U.S. Government remained the Corporation's
largest customer, comprising approximately 70 percent of the Corporation's net
sales for 2000 compared to 71 percent in 1999 and 70 percent in 1998.
The Corporation's operating profit (earnings before interest and taxes) for
2000 was approximately $1.2 billion, a decrease of 40 percent compared to 1999.
Operating profit for 1999 was approximately $2.0 billion, a decrease of 20
percent compared to 1998. The reported amounts for the three years presented
include the financial impacts of various nonrecurring and unusual items. The
impact of these items on operating profit, net (loss) earnings and (loss)
earnings per diluted share is as follows:
Effects of nonrecurring and unusual items:
(Loss)
Operating Net earnings
(loss) (loss) per diluted
(In millions) profit earnings share
- -----------------------------------------------------------------------------
Year ended December 31, 2000
Loss related to AES
Transaction (see Note 3) $(598) $(878) $(2.18)
Gain on sale of Control
Systems (see Note 3) 302 180 .45
Charge related to Globalstar
guarantee (see Note 10) (141) (91) (.23)
Impairment charge related
to ACeS (see Note 9) (117) (77) (.19)
Partial reversal of CalComp
reserve (see Note 4) 33 21 .05
Gain on sales of surplus real estate 28 19 .05
Other portfolio shaping items (46) (30) (.07)
Extraordinary loss on
early extinguishment
of debt (see Note 10) -- (95) (.24)
- ---------------------------------------------------------------------------
$(539) $(951) $(2.36)
- ---------------------------------------------------------------------------
Year ended December 31, 1999
Divestiture of interest in L-3
(see Note 3) $ 155 $ 101 $ .26
Gain on sales of surplus real estate 57 37 .10
Partial reversal of CalComp
reserve (see Note 4) 20 12 .03
Divestitures and other
portfolio shaping items 17 12 .03
Cumulative effect of change in
accounting principle (see Note 1) -- (355) (.93)
- ---------------------------------------------------------------------------
$ 249 $(193) $ (.51)
- ---------------------------------------------------------------------------
Year ended December 31, 1998
Charge for shutdown of
CalComp (see Note 4) $(233) $(183) $ (.48)
Gain on sales of surplus real estate 35 23 .06
Initial public offering
of L-3 (see Note 3) 18 12 .03
Divestitures and other
portfolio shaping items 18 12 .03
- ---------------------------------------------------------------------------
$(162) $(136) $ (.36)
- ---------------------------------------------------------------------------
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Lockheed Martin Corporation
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December 31, 2000
The note references in the preceding table refer to the Notes to
Consolidated Financial Statements included in this Annual Report.
Excluding the effects of these nonrecurring and unusual items for each
year, operating profit for 2000 would have decreased by one percent compared to
1999, and would have decreased by 34 percent for 1999 compared to 1998. For 2000
compared to 1999, reductions in operating profit at the Space Systems, Global
Telecommunications and Corporate and Other segments more than offset increases
in operating profit at the remaining business segments. Operating profit for
2000 compared to 1999 in the Aeronautics and Space Systems segments were
favorably impacted by the absence in 2000 of negative adjustments recorded in
1999 on the C-130J airlift aircraft and Titan IV
Net Earnings
(In millions)
------------------------------------
2000 1999 1998
------------------------------------
($519) $382 $1,001
432 (a) 575 (a) 1,137 (a)
[GRAPH]
a. Excluding the effects of the items presented in the preceding table entitled
"Effects of nonrecurring and unusual items," net earnings for 2000, 1999 and
1998 would have been $432 million, $575 million and $1,137 million,
respectively.
launch vehicle programs, respectively. In addition, as more fully discussed in
Note 14, "Post-Retirement Benefit Plans," operating profit for 2000 was
favorably impacted by an increase in net pension income of $213 million as
compared to 1999. This increase was due primarily to an increase in the expected
return on plan assets resulting from an increase in the fair value of plan
assets at the beginning of 2000 as compared to the beginning of 1999, in
accordance with the provisions of SFAS No. 87, "Employers' Accounting For
Pensions." Additionally, favorable actual investment returns in comparison to
expected returns on plan assets in 1999 resulted in an increase in the
recognition of actuarial gains in 2000. These increases were partially offset by
an increase in the interest cost component of pension income associated with the
Corporation's total estimated benefit obligation.
For 1999 compared to 1998, decreases in operating profit at the Space
Systems, Aeronautics and Global Telecommunications segments more than offset
the increases in operating profit at the remaining business segments. Operating
profits for 1999 compared to 1998 in the Aeronautics and Space Systems segments
were negatively impacted by the adjustments recorded on the C-130J and Titan IV
programs mentioned above, and by the absence in 1999 of a favorable adjustment
recorded during 1998 in the Space Systems segment related to the Atlas launch
vehicle program.
Diluted Earnings
(Loss) Per Share
(In dollars)
------------------------------------
2000 1999 1998
------------------------------------
($1.29) $0.99 $2.63
1.07 (a) 1.50 (a) 2.99 (a)
[GRAPH]
a. Excluding the effects of the items presented in the preceding table
entitled "Effects of nonrecurring and unusual items," diluted earnings per
share for 2000, 1999 and 1998 would have been $1.07, $1.50 and $2.99,
respectively.
For a more detailed discussion of the operating results of the business
segments, see "Discussion of Business Segments" below.
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(Continued)
The Corporation reported a net loss for 2000 of $519 million, a decrease of
approximately $900 million compared to 1999 results. Reported net earnings for
1999 were $382 million, a decrease of 62 percent compared to 1998. The 2000
reported amount included the combined after-tax effects of the nonrecurring and
unusual items presented above. The combination of these nonrecurring and unusual
items reduced 2000 net earnings by $951 million, or $2.36 per diluted share. The
after-tax effects of the 1999 and 1998 nonrecurring and unusual items are also
presented above. On a combined basis, these nonrecurring and unusual items
decreased 1999 and 1998 net earnings by $193 million, or $.51 per diluted
share, and $136 million, or $.36 per diluted share, respectively.
The Corporation reported diluted (loss) earnings per share of $(1.29),
$.99, and $2.63 for 2000, 1999, and 1998, respectively. If the nonrecurring and
unusual items described above were excluded from the calculation of earnings per
share, diluted earnings per share for 2000, 1999 and 1998 would have been $1.07,
$1.50, and $2.99, respectively.
Discussion of Business Segments
The Corporation operates in five principal business segments: Systems
Integration, Space Systems, Aeronautics, Technology Services and Global
Telecommunications. All other activities of the Corporation fall within the
Corporate and Other segment. The following tables of financial information and
related discussions of the results of operations of the Corporation's business
segments correspond to additional segment information presented in "Note
17--Information on Industry Segments and Major Customers" of the Notes to
Consolidated Financial Statements.
In the third quarter of 2000, Lockheed Martin began presenting LMGT, which
includes the operations of COMSAT and IBS, as a separate segment called Global
Telecommunications. The operations of LMGT and IBS were previously included in
the Corporate and Other segment. Earlier in 2000, the Corporation reassigned the
Management & Data Systems business unit and the space applications systems line
of business from the Systems Integration segment to the Space Systems segment.
Prior period amounts have been reclassified to conform to these organizational
changes.
(In millions) 2000 1999 1998
- ------------------------------------------------------------
Net sales
Systems Integration $ 9,647 $ 9,570 $ 9,334
Space Systems 7,127 7,209 8,600
Aeronautics 4,885 5,499 5,459
Technology Services 2,318 2,261 1,935
Global Telecommunications 766 389 251
Corporate and Other 586 602 687
- ------------------------------------------------------------
$25,329 $25,530 $26,266
- ------------------------------------------------------------
(In millions) 2000 1999 1998
- ------------------------------------------------------------
Operating profit (loss)
Systems Integration $ 583 $ 880 $ 858
Space Systems 416 561 1,045
Aeronautics 343 247 649
Technology Services 126 137 135
Global Telecommunications (215) (97) (4)
Corporate and Other (48) 281 (161)
- ------------------------------------------------------------
$ 1,205 $ 2,009 $ 2,522
- ------------------------------------------------------------
The following table displays the total impact on each segment's operating
profit (loss) of the nonrecurring and unusual items presented earlier for each
of the three years presented:
(In millions) 2000 1999 1998
- ------------------------------------------------------------
Segment effects of non-
recurring and unusual
items--operating (loss) profit
Systems Integration $ (304) $ 13 $ 4
Space Systems 25 21 --
Aeronautics -- -- --
Technology Services (34) -- --
Global Telecommunications (117) -- --
Corporate and Other (109) 215 (166)
- ------------------------------------------------------------
$ (539) $ 249 $ (162)
- ------------------------------------------------------------
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 have been excluded. The Space Systems and
Aeronautics 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 large number of relatively smaller programs in the
Systems Integration, Technology Services and Global Telecommunications
segments, the impacts of performance by individual programs typically are not as
significant to these segments' overall results of operations.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Lockheed Martin Corporation
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December 31, 2000
Systems Integration
Net sales of the Systems Integration segment increased by one percent in 2000
compared to 1999, and increased by three percent in 1999 compared to 1998. For
the year ended December 31, 2000 compared to 1999, net sales increased by
approximately $360 million as a result of volume increases in the segment's
Naval Electronic and Surveillance Systems product line and electronic platform
integration activities. Net sales also increased by approximately $115 million
in the segment's Missiles & Air Defense product line, primarily as a result of
the Theater High Altitude Area Defense (THAAD) program's movement into the
engineering, manufacturing and development (EMD) phase. These increases were
partially offset by a reduction in net sales of approximately $410 million
related to the AES and Control Systems businesses primarily due to the
divestiture of these businesses in 2000. The increase in 1999 was comprised of a
$100 million increase related to increased volume on surface systems activities,
an $80 million increase in volume on tactical training systems and a $65 million
increase in postal systems program activities. These increases were partially
offset by a decrease of $100 million in classified activities and space
electronics programs. The remaining increase was primarily attributable to
increased electronics activities in the United Kingdom.
Operating profit for the segment increased by two percent both in 2000
compared to 1999 and in 1999 compared to 1998. In 2000, the previously mentioned
volume increases in the segment's Naval Electronic and Surveillance Systems
product line and electronic platform integration activities contributed
approximately $40 million to the increase in operating profit from 1999. This
increase was partially offset by an approximate $20 million decline in operating
profit related to the AES and Control Systems businesses due to their
divestiture in 2000. Also during 2000, increases in operating profit
attributable to the THAAD program's movement into the EMD phase, as well as the
absence in 2000 of a $15 million penalty recorded on that program in the second
quarter of 1999, were offset by declines in operating profit on certain fire
control and sensor programs due to program maturity. The 1999 increase was
comprised of a $50 million increase related to the tactical training systems and
postal systems volume increases discussed in the preceding paragraph as well as
improved performance on missile and fire control programs. These increases were
offset by the aforementioned $15 million penalty on the THAAD program and the
absence in 1999 of a $16 million favorable arbitration resolution recorded in
1998. The remaining fluctuation in 1999 year-over-year operating profit related
to declines in volume on various other systems integration activities.
Space Systems
Net sales of the Space Systems segment decreased by one percent in 2000 compared
to 1999, and by 16 percent in 1999 compared to 1998. In 2000, net sales
decreased by approximately $440 million due to volume declines in military,
civil, and classified satellite activities, and by $180 million due to decreased
ground systems activities. An additional $140 million decrease related to
reduced volume in government launch vehicle programs. These decreases were
partially offset by approximately $490 million related to increased volume on
commercial space activities as well as an approximate $50 million increase in
various other space system activities. Year-over-year net sales also increased
due to the absence in 2000 of approximately $90 million in negative adjustments
recorded during 1999 related to the Titan IV program. These adjustments included
the effects of changes in estimates for award and incentive fees resulting from
a second quarter 1999 Titan IV launch failure, as well as a more conservative
assessment of future program performance. In addition, 2000 net sales were also
favorably impacted by an approximate $50 million adjustment recorded in 2000 on
the Titan IV program as a result of contract modifications and improved
performance on the program. The contract modifications, which resulted primarily
from the U.S. Government's Broad Area Review team recommendations, provided for
a more balanced sharing of risk in the future. The improved performance on the
program resulted from the successful implementation of corrective actions and
initiatives taken since the previously mentioned 1999 Titan IV launch failure.
During 1999, almost half of the segment's net sales decrease resulted from
volume decreases
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(Continued)
on military satellite programs and classified activities. Net sales were also
reduced by a $185 million decrease in commercial and civil satellite activities
as a result of the maturity of certain programs and lower market demand. Net
sales were further reduced by an approximate $175 million decrease from 1998
related to ground systems activities, and by a $50 million decrease in launch
vehicle activities. As mentioned previously, during 1999 the segment recorded a
negative adjustment related to the Titan IV program which reduced net sales by
approximately $90 million. The remaining decrease in 1999 net sales was related
to a decline in volume on various other space systems activities.
Operating profit for the segment decreased by 28 percent in 2000 compared
to 1999, and decreased by 48 percent in 1999 compared to 1998. Continued market
and pricing pressures on commercial space programs, increased investment in
certain launch vehicle programs and reduced margins on commercial satellites
decreased 2000 operating profit by approximately $180 million from 1999. This
decrease included charges of approximately $85 million recorded in 2000 on the
Atlas launch vehicle program related to continued market and pricing pressures.
In addition, 2000 operating profit was further reduced by approximately $35
million due to the impact of the volume declines on military, civil, and
classified satellite programs mentioned previously. Consistent with the change
in net sales, the absence in 2000 of the negative adjustments recorded during
1999 on the Titan IV program, combined with the favorable adjustments recorded
in 2000 on the same program, had an approximate $140 million positive impact on
2000 operating profit. The remainder of the decrease is primarily attributable
to an approximate $55 million decrease in operating profit related to a more
conservative assessment of future performance on government launch vehicle
programs. A contributing factor to the decrease in the segment's operating
profit in 1999 compared to 1998 was the impact of a third quarter 1998 favorable
adjustment of approximately $120 million, net of state income taxes, which
resulted from a significant improvement in the Atlas program related to the
retirement of technical and program risk. In addition, 1999 operating profit was
adversely affected by the impact of the $90 million Titan IV program adjustment
discussed above. Operating profit in 1999 was also adversely impacted by
increased period costs (principally start-up costs) related to launch vehicle
investments which accounted for approximately 15 percent of the decrease, by a
reduction in Trident fleet ballistic missile activities that reduced operating
profit by approximately $30 million, and by a launch vehicle contract
cancellation which resulted in a charge of $30 million. The remainder of the
decrease is attributable to the decline in sales related to military satellite
and classified activities mentioned above as well as a reduction in commercial
satellite activities.
Aeronautics
Net sales of the Aeronautics segment decreased by 11 percent in 2000 compared to
1999, after having increased by one percent in 1999 compared to 1998.
Approximately 95 percent of the decrease in 2000 net sales is attributable to
declines in F-16 fighter aircraft and C-130J airlift aircraft sales and
deliveries. These decreases more than offset increases in net sales related to
the F-22 fighter aircraft program. The 1999 increase was comprised of $715
million in increased sales related to C-130J program activities offset by a $717
million decrease in F-16 sales and deliveries. The remaining increase was
attributable to increased sales on various other aircraft programs.
Operating profit for the segment increased by 39 percent in 2000 compared
to 1999 after decreasing by 62 percent in 1999 compared to 1998. The current
year increase is primarily attributable to the absence in 2000 of a $210 million
negative adjustment recorded during the second quarter of 1999 that resulted
from changes in estimates related to the C-130J program due to cost growth and a
reduction in production rates. This increase was partially offset by an
approximate $115 million reduction in 2000 operating profit resulting from the
decrease in aircraft sales and deliveries mentioned in the preceding paragraph.
The 1999 decrease from 1998 principally reflects the $210 million negative
impact of the previously mentioned C-130J program adjustment. Additionally, the
Corporation decided in the fourth quarter of 1999 not to record profit on C-130J
deliveries, as a result of changes in estimates due to cost growth and reduced
production rates, until further
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Lockheed Martin Corporation
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December 31, 2000
favorable progress occurs in terms of orders and cost. Of the remaining decrease
in 1999 operating profit, $80 million resulted from reduced F-16 deliveries,
with the remainder due to volume decreases on various other aircraft programs.
Technology Services
Net sales of the Technology Services segment increased by three percent in 2000
as compared to 1999, and by 17 percent in 1999 compared to 1998. The increase in
2000 net sales is comprised of an approximate $150 million increase in various
federal technology services programs including the Consolidated Space Operations
Contract and the Rapid Response contract. These increases were partially offset
by an approximate $95 million decline in volume on aircraft maintenance and
logistics contracts and certain defense and science energy services contracts
due to program completions. The increase in 1999 net sales was mainly the result
of an approximate $300 million increase in volume on the Consolidated Space
Operations Contract, which was awarded in September 1998.
Operating profit for the segment increased by 17 percent in 2000 compared
to 1999, and by one percent in 1999 compared to 1998. The increase in 2000 is
primarily attributable to various federal technology services programs including
the impact of the volume increases discussed above and increased profitability
on certain information services contracts, and improved performance on certain
aircraft maintenance and logistics contracts. These increases were partially
offset by the operating profit impact of the previously mentioned volume
declines on certain defense and science energy services contracts. The increase
in 1999 operating profit was primarily attributable to the Consolidated Space
Operations Contract. The remaining change was comprised of increases related to
improved performance on aircraft maintenance and logistics contracts that were
partially offset by decreases attributable to the timing of award fees on
certain defense and science energy services contracts.
Global Telecommunications
Net sales of the Global Telecommunications segment increased by 97 percent in
2000 compared to 1999, and by 55 percent in 1999 compared to 1998. The increase
in 2000 net sales was primarily attributable to the Corporation's consummation
of the merger with COMSAT and the inclusion of COMSAT's consolidated operations
in the segment's results beginning August 1, 2000. COMSAT contributed
approximately $250 million to the increase in 2000 net sales. The majority of
the remaining increase was associated with the recognition of approximately $65
million in net sales on a Proton launch vehicle, which successfully launched the
ACeS 1 satellite in the first quarter of 2000. The remainder of the increase was
mainly related to an approximate $35 million increase in volume on various
network systems and technology programs. The 1999 increase was comprised of $75
million related to increased volume on information technology outsourcing
contracts and $75 million in international telecommunications contracts,
government services programs and various systems and technology programs. These
increases more than offset declines in other Global Telecommunications
activities.
Global Telecommunications' operating loss increased by approximately $1
million in 2000 compared to 1999, and by approximately $93 million in 1999
compared to 1998. During 2000, pricing pressures and the impact of negative
adjustments related to performance on certain information outsourcing programs
resulted in an approximate $30 million increase in the segment's operating loss.
This increase in the operating loss was almost entirely offset by reduced
operating expenses at LMGT headquarters as a result of synergies realized
through the merger with COMSAT, and the impact of increased volume on network
systems and technology programs discussed in the preceding paragraph. The
increase in the operating loss in 1999 reflects $103 million in operating losses
related to LMGT which began operations effective January 1, 1999, partially
offset by increased operating profit related to the volume increases on
information technology outsourcing contracts discussed in the preceding
paragraph.
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(Continued)
Corporate and Other
Net sales of the Corporate and Other segment decreased by three percent in 2000
compared to 1999, and by 12 percent in 1999 compared to 1998. The decline in net
sales for the year was attributable to reduced volume in the segment's
properties line of business and the absence in 2000 of sales attributable to the
Corporation's commercial graphics company, Real 3D, which was divested in the
fourth quarter of 1999. These decreases in net sales more than offset increased
volume on state and municipal services programs. The majority of the 1999
decrease related to the absence in 1999 of $155 million in net sales
attributable to the segment's CalComp subsidiary, which shut down operations
during 1999. This decrease was partially offset by $65 million in increased
volume on various state and municipal services contracts.
Operating profit for the segment decreased by $5 million in 2000 compared
to 1999, after increasing by $61 million in 1999 compared to 1998. The majority
of the decrease in 2000 operating profit was due to the expensing of start-up
costs associated with the Corporation's e-commerce investment and the absence in
2000 of a favorable adjustment recorded by the segment's Communications Industry
Services line of business in the first quarter of 1999. The decreases in the
segment were partially offset by increases in interest income, the absence in
2000 of losses associated with Real 3D, and the impact of the higher volume on
state and municipal services programs discussed previously. The increase in 1999
was primarily attributable to the absence in 1999 of operating losses incurred
by the segment's CalComp and Real 3D operating units in 1998.
Backlog
Total negotiated backlog of $56.4 billion at December 31, 2000 included both
unfilled firm orders for the Corporation's products for which funding has been
authorized and appropriated by the customer (Congress, in the case of U.S.
Government agencies) and firm orders for which funding has not been
appropriated.
Negotiated Backlog
(In millions)
------------------------------------
2000 1999 1998
------------------------------------
$56,424 $45,913 $45,345
[GRAPH]
The following table shows total backlog by segment at the end of each of
the last three years:
(In millions) 2000 1999 1998
- -------------------------------------------------------------
Backlog
Systems Integration $16,706 $13,971 $12,524
Space Systems 14,976 15,998 17,330
Aeronautics 17,570 9,003 10,265
Technology Services 4,371 4,399 3,503
Global Telecommunications 1,625 1,533 763
Corporate and Other 1,176 1,009 960
- -------------------------------------------------------------
$56,424 $45,913 $45,345
- -------------------------------------------------------------
Total Systems Integration backlog increased by 20 percent in 2000 compared
to 1999, and by 12 percent in 1999 compared to 1998. The majority of the 2000
increase was attributable to new orders for missile and air defense systems,
primarily orders received on the THAAD program as a result of that program's
movement into the EMD phase. Increased orders for naval electronic and
surveillance systems and various platform integration activities were partially
offset by the absence of backlog associated with the segment's AES and Control
Systems businesses, which were divested during 2000. The remainder of the 2000
variance from 1999 was primarily due to sales on existing orders
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Lockheed Martin Corporation
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December 31, 2000
and decreases in new orders on Command, Control, Communications, Computers and
Intelligence (C4I) programs. Approximately one half of the 1999 increase from
1998 was comprised of new orders for missile systems, with the remaining
increase primarily attributable to increased orders for various platform
integration activities and increased surface ship system awards.
Total Space Systems backlog decreased by six percent in 2000 compared to
1999, and by eight percent in 1999 compared to 1998. The decrease in 2000 was
primarily attributable to declines in backlog on government launch vehicles and
commercial satellites due to decreases in new orders and sales on existing
orders, respectively. Additional decreases in orders of military, civil, and
classified satellites were partially offset by an increase in orders for
commercial launch vehicles. The decrease in 1999 was mainly attributable to
significant decreases in launch vehicle backlog as a result of a decline in new
orders and sales on existing orders, as well as in backlog associated with
military satellites and classified activities. Approximately one half of these
decreases were partially offset by new orders for commercial and civil
satellites.
Total Aeronautics backlog increased by 95 percent in 2000 compared to 1999
after decreasing by 12 percent in 1999 compared to 1998. The 2000 increase is
primarily due to approximately $10.6 billion in orders related to the F-16
fighter aircraft program, including new F-16 contracts with the U.S. Government,
the United Arab Emirates (UAE), Israel, Greece, Singapore and Korea,
collectively. This increase was partially offset by a reduction in backlog for
the F-22 fighter aircraft program as a result of increased sales on existing
orders. The decline in 1999 backlog was a result of approximately equal
decreases on F-16 programs and C-130J airlift aircraft programs related to the
timing of new orders and sales recorded during 1999. An increase in orders
associated with the F-22 program offset approximately one-third of the
aforementioned decreases.
Total Technology Services backlog decreased by one percent in 2000 compared
to 1999 after having increased by 26 percent in 1999 compared to 1998. The
decrease in 2000 was primarily associated with sales on existing federal
technology services contracts, principally the Consolidated Space Operations
Contract. The increase in 1999 was attributable to new orders associated with
the 1999 award of an aircraft engine maintenance contract by the U.S. Air Force
which was partially offset by sales on the Consolidated Space Operations
Contract.
Total Global Telecommunications backlog increased approximately six percent
in 2000 compared to 1999, and increased significantly in 1999 compared to 1998.
The 2000 increase was primarily the result of the acquisition of COMSAT in 2000
and new orders on network systems and technology programs. The 1999 increase was
primarily the result of new orders on information outsourcing contracts with the
remainder of the increase reflecting new orders on various network systems and
technology programs.
Total Corporate and Other backlog increased by 17 percent in 2000 compared
to 1999, and increased by five percent in 1999 compared to 1998. The 2000
increase was mainly attributable to new orders on various state and municipal
services programs. The 1999 increase was primarily the result of increases on
various state and municipal services programs which were partially offset by the
absence at year-end 1999 of backlog related to the Corporation's Real 3D
business unit, which was divested in the fourth quarter of 1999.
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(Continued)
Net Cash Provided By
Operating Activities
(In millions)
------------------------------------
2000 1999 1998
------------------------------------
$2,016 $1,077 $2,031
[GRAPH]
Liquidity and Cash Flows
Operating Activities
Operating activities provided $2.0 billion in cash during 2000, compared to $1.1
billion and $2.0 billion provided in 1999 and 1998, respectively. The
significant increase in 2000 compared to 1999 was primarily the result of lower
working capital requirements and reduced net federal income tax payments. The
significant decrease in cash provided by operations during 1999 compared to 1998
resulted from the decrease in earnings before cumulative effect of change in
accounting between the periods and increased working capital requirements.
Investing Activities
Investing activities provided $1.8 billion in cash during 2000, compared to $1.6
billion used and $455 million used during 1999 and 1998, respectively. Cash used
for additions to property, plant and equipment declined 25 percent in 2000 after
a four percent decrease in 1999. During 2000, the divestiture of certain
non-core businesses and the sale of investments accounted for the majority of
cash provided by investing activities. As discussed previously under the caption
"Divestiture Activities," the Corporation's sale of its AES and Control Systems
businesses, as well as the sale of a portion of its investment in Inmarsat,
generated approximately $1.7 billion, $510 million, and $164 million,
respectively. Also in 2000, $257 million of cash was used for additional
investments in affiliated companies, including $127 million of net cash used for
additional investments in Astrolink International, LLC, a joint venture in
which Lockheed Martin holds an approximate 31 percent interest. The remainder of
the 2000 activity was attributable to various other investing activities. During
1999, as discussed previously under the caption "Business Combination with
COMSAT Corporation," $1.2 billion was used to acquire the Corporation's initial
49 percent investment in COMSAT, which was the primary reason for the increase
in the use of cash in 1999 compared to 1998. Also in 1999, $263 million of cash
was provided related to the sale of the Corporation's interest in L-3, which was
partially offset by $103 million of cash used for additional investments in
Astrolink International, LLC and other affiliated companies.
Financing Activities
The Corporation used $2.7 billion in cash for financing activities during 2000,
compared to $731 million provided by financing activities during 1999 and $1.3
billion used during 1998. During 2000, improved operating cash flows and cash
provided by investing activities allowed the Corporation to reduce its
long-term debt by approximately $2.1 billion and decrease its net short-term
borrowings by $463 million. The reduction in long-term debt was primarily
attributable to the Corporation's completion of tender offers for certain of its
long-term debt securities during the fourth quarter of 2000. The Corporation
used $2.1 billion to consummate the tender offers, resulting in the early
extinguishment of $1.9 billion in long-term debt and an extraordinary loss of
$156 million, or $95 million after tax. Approximately $882 million of long-term
debt will mature in 2001. The $2.0 billion increase in cash provided by
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Lockheed Martin Corporation
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December 31, 2000
financing activities in 1999 as compared to the cash used during 1998 reflects
the Corporation's issuance of $3.0 billion in long-term debt securities in the
fourth quarter of 1999, partially offset by repayments of long-term debt
totaling $1.1 billion and a net decrease of $868 million in short-term
borrowings outstanding. During 1998, operating activities generated a
significant amount of cash which allowed the Corporation to reduce its total
debt by more than $1.0 billion.
The Corporation paid dividends of $183 million in 2000 compared to $345
million in 1999 and $310 million in 1998.
Other
The Corporation receives advances on certain contracts to finance inventories.
At December 31, 2000, approximately $1.9 billion in advances and progress
payments related to work in process were received from customers and recorded as
a reduction to inventories in the Corporation's Consolidated Balance Sheet.
Also at December 31, 2000, approximately $626 million of customer advances and
progress payments were recorded in receivables as an offset to unbilled costs
and accrued profits. Approximately $4.8 billion of customer advances and amounts
in excess of costs incurred, which are typically from foreign governments and
commercial customers, were included in current liabilities at the end of 2000.
Capital Structure and Resources
Total debt, including short-term borrowings, decreased by approximately 17
percent during 2000 from approximately $12.0 billion at December 31, 1999. The
decrease was primarily the result of the completion of the tender offers
mentioned previously. The remaining change in debt was comprised of scheduled
repayments of long-term debt totaling approximately $50 million and net
repayments of short-term debt of approximately $463 million, primarily
attributable to commercial paper repayments of approximately $475 million. These
decreases were partially offset by approximately $410 million in debt assumed in
conjunction with the COMSAT Merger. The Corporation's long-term debt is
primarily in the form of publicly issued, fixed-rate notes and debentures. At
year-end 2000, the Corporation held cash and cash equivalents of approximately
$1.5 billion, a portion of which is expected to be used to meet scheduled
long-term debt maturities in 2001.
Total stockholders' equity was $7.2 billion at December 31, 2000, an
increase of approximately $800 million from the December 31, 1999 balance. This
increase resulted from the issuance of 27.5 million shares of the Corporation's
common stock and the assumption of 4.3 million COMSAT stock options related to
the completion of the Merger with COMSAT. On a combined basis, these non-cash
items increased stockholders' equity by approximately $1.4 billion. Employee
stock option and ESOP activities accounted for a further increase of
approximately $218 million. These increases were partially offset by the 2000
net loss of $519 million, the payment of dividends of $183 million and other
comprehensive losses of approximately $134 million primarily related to the
temporary decline in value of the Corporation's investment in Loral Space. As a
result of the above factors, the Corporation's total debt to capitalization
ratio decreased from 65 percent at December 31, 1999 to 58 percent at December
31, 2000.
At the end of 2000, the Corporation had in place a revolving credit
facility in the amount of $3.5 billion, which expires on December 20, 2001 (the
Credit Facility). No borrowings were outstanding under this facility at December
31, 2000. In March 2000, the Corporation filed a shelf registration with the
Securities and Exchange Commission (SEC) 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 other debt, working capital
needs, capital expenditures, acquisitions and any other general corporate
purpose.
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(Continued)
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 changes in
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.
In connection with the UAE's order for F-16 fighter aircraft discussed
previously, in June 2000, the Corporation issued a letter of credit in the
amount of $2 billion related to advance payments to be received under the
contract. At December 31, 2000, in accordance with the terms of the agreement
with the UAE, the amount of the letter of credit available for draw down in the
event of the Corporation's nonperformance under the contract was limited to the
amount of advance payments received to date, or approximately $900 million.
These advance payments were recorded in customer advances and amounts in excess
of costs incurred in the Consolidated Balance Sheet at December 31, 2000.
The Corporation has entered into standby letter of credit agreements and
other arrangements with financial institutions primarily relating to the
guarantee of future performance on certain other contracts. At December 31,
2000, the Corporation had contingent liabilities on outstanding letters of
credit, guarantees and other arrangements aggregating approximately $940
million.
The Corporation satisfied its contractual obligation with respect to its
guarantee of certain indebtedness of Globalstar with a net payment of $150
million on June 30, 2000 to repay a portion of Globalstar's borrowings under a
revolving credit agreement. The Corporation has no remaining guarantees in place
related to Globalstar. The Corporation continues to guarantee certain borrowings
of Space Imaging LLC (Space Imaging), a joint venture in which the Corporation
holds a 46 percent ownership interest. The amount of borrowings outstanding as
of December 31, 2000 for which Lockheed Martin was guarantor was approximately
$120 million. This amount is included in the aggregate amount of contingent
liabilities mentioned in the preceding paragraph.
The Corporation's investment in Space Imaging is accounted for under the
equity method of accounting. At December 31, 2000, the Corporation's investment
in and receivables from Space Imaging amounted to approximately $131 million.
The Corporation expects to continue to provide debt guarantees of up to $150
million in connection with a new loan facility which Space Imaging is
negotiating.
Effective March 31, 2000, the Corporation converted its 45.9 million shares
of Loral Space Series A Preferred Stock into an equal number of shares of Loral
Space common stock. The Corporation plans 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.
Environmental Matters
As more fully described in "Note 16--Commitments and Contingencies" of the Notes
to Consolidated Financial Statements (Note 16), the Corporation is responding to
three administrative orders issued by the California Regional Water Quality
Control Board (the Regional Board) in connection with its former facilities in
Redlands, California. The Corporation estimates that expenditures required to
implement work currently approved by the Regional Board related to the Redlands
facilities will be approximately $90 million. Also in connection with the
Redlands facilities, the Corporation is coordinating with the U.S. Air Force,
which is working with the aerospace and defense industry to conduct
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Lockheed Martin Corporation
- --------------------------------------------------------------------------------
December 31, 2000
preliminary studies of the potential health effects of perchlorate exposure in
connection with several sites across the country, including the Redlands site.
The results of these studies will assist state and federal regulators in setting
appropriate action levels for perchlorates in groundwater, which will in turn
assist the Corporation in determining its ultimate clean-up obligation, if any,
with respect to perchlorates. Also as mentioned in Note 16, since 1990, the
Corporation has been responding to various consent decrees and orders relating
to soil and regional groundwater contamination in the San Fernando Valley
(including the cities of Burbank and Glendale) associated with the Corporation's
former operations in Burbank, California. Under an agreement reached with the
U.S. Government and filed with the U.S. District Court in January 2000 (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 orders related to
the Burbank and Glendale facilities, net of the effects of the Agreement, will
be approximately $45 million.
The Corporation is a party to various other proceedings and potential
proceedings related to environmental clean-up issues, including matters at
various sites where it has been designated a Potentially Responsible Party (PRP)
by the EPA or by a state agency. In the event the Corporation is ultimately
found to have liability at those sites where it has been designated a PRP, the
Corporation anticipates that the actual burden for the costs of remediation will
be shared with other liable PRPs. Generally, PRPs that are ultimately determined
to be responsible parties are strictly liable for site clean-up and usually
agree among themselves to share, on an allocated basis, the costs and expenses
for investigation and remediation of hazardous materials. Under existing
environmental laws, however, responsible parties are jointly and severally
liable and, therefore, the Corporation is potentially liable for the full cost
of funding such remediation. In the unlikely event that the Corporation was
required to fund the entire cost of such remediation, the statutory framework
provides that the Corporation may pursue rights of contribution from the other
PRPs. Among the variables management must assess in evaluating costs associated
with these sites are changing cost estimates, continually evolving governmental
environmental standards and cost allowability issues. Therefore, the nature of
these environmental matters makes it extremely difficult to estimate the timing
and amount of any future costs that may be necessary for remedial actions.
The Corporation records appropriate financial statement accruals for
environmental issues in the period in which it is probable that a liability has
been incurred and the amounts can be reasonably estimated. In addition to the
matters with respect to the Redlands and Burbank properties and the city of
Glendale described above, the Corporation has accrued approximately $190 million
at December 31, 2000 for other matters in which an estimate of financial
exposure could be determined. Management believes, however, that it is unlikely
that any additional liability the Corporation may incur for known environmental
issues would have a material adverse effect on its consolidated results of
operations or financial position.
Also as more fully described in Note 16, 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
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Page 54
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(Continued)
in 1998, the management contractor, again at the DOE's direction, filed suit
against the Corporation seeking recovery of approximately $54 million previously
paid to the Corporation under the Pit 9 contract. The Corporation is defending
this action in which discovery has been pending since August 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.
Other Matters
The Corporation's primary exposure to market risk relates to interest rates and
foreign currency exchange rates. The Corporation's financial instruments which
are subject to interest rate risk principally include variable rate commercial
paper and fixed rate long-term debt. The Corporation's long-term debt
obligations are generally not callable until maturity. The Corporation may use
interest rate swaps to manage its exposure to fluctuations in interest rates;
however, there were no such agreements outstanding at December 31, 2000.
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. Effective January 1, 2001, the Corporation began
accounting for these contracts under the provisions of SFAS No. 133, as amended.
At December 31, 2000, the fair value of forward exchange contracts outstanding,
as well as the amounts of gains and losses recorded during the year then ended,
were not material. The Corporation does not hold or issue derivative financial
instruments for trading purposes.
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Page 55
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations, Other Matters" on page 55 of this report, and "Derivative financial
instruments" and "New accounting pronouncements" in "Note 1 - Summary of
Significant Accounting Policies" of the "Notes to Consolidated Financial
Statements" on page 64 this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE CORPORATION'S RESPONSIBILITY FOR FINANCIAL REPORTING
Lockheed Martin Corporation
- --------------------------------------------------------------------------------
The management of Lockheed Martin prepared and is responsible for the
consolidated financial statements and all related financial information
contained in this Annual Report. The consolidated financial statements, which
include amounts based on estimates and judgments, have been prepared in
accordance with accounting principles generally accepted in the United States.
In recognition of its responsibility for the integrity and objectivity of
data in the financial statements, the Corporation maintains a system of internal
accounting controls designed and intended to provide reasonable assurance that
assets are safeguarded and transactions are properly executed and recorded. An
environment that provides for an appropriate level of control consciousness is
maintained and monitored and includes examinations by an internal audit staff
and by the independent auditors in connection with their annual audit.
Essential to the Corporation's internal control system is management's
dedication to the highest standards of integrity, ethics and social
responsibility. In connection therewith, management has issued the Code of
Ethics and Business Conduct and written policy statements that cover, among
other topics, environmental protection, potentially conflicting outside
interests of employees, proper business practices, and adherence to high
standards of conduct and practices in dealings with customers, including the
U.S. Government. The importance of ethical behavior is regularly communicated to
all employees through the distribution of the Code of Ethics and Business
Conduct, and through ongoing education and review programs designed to create a
strong compliance environment.
The Audit and Ethics Committee of the Board of Directors is composed of six
outside directors. This Committee meets periodically with the independent
auditors, internal auditors and management to review their activities. Both the
independent auditors and the internal auditors have unrestricted access to meet
with members of the Audit and Ethics Committee, with or without management
representatives present.
The consolidated financial statements have been audited by Ernst & Young
LLP, independent auditors, whose report follows.
/s/ Robert J. Stevens
- ---------------------
Robert J. Stevens
President and Chief Operating Officer
/s/ Christopher E. Kubasik
- --------------------------
Christopher E. Kubasik
Vice President and Chief Financial Officer
Acting Controller
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Page 56
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Lockheed Martin Corporation
- --------------------------------------------------------------------------------
Board of Directors and Stockholders
Lockheed Martin Corporation
We have audited the accompanying consolidated balance sheet of Lockheed
Martin Corporation as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Lockheed Martin Corporation at December 31, 2000 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
As discussed in Note 1 of the Notes to Consolidated Financial Statements,
in 1999 the Corporation adopted the provisions of the American Institute of
Certified Public Accountants' Statement of Position No. 98-5, "Reporting on the
Costs of Start-Up Activities."
Ernst & Young LLP
Washington D.C.
January 22, 2001
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CONSOLIDATED STATEMENT OF OPERATIONS
Lockheed Martin Corporation
- --------------------------------------------------------------------------------
Year ended December 31,
(In millions, except per share data) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
Net sales $25,329 $25,530 $26,266
Cost of sales 23,715 23,865 23,914
- ------------------------------------------------------------------------------------------------------------------------------
Earnings from operations 1,614 1,665 2,352
Other income and expenses, net (409) 344 170
- ------------------------------------------------------------------------------------------------------------------------------
1,205 2,009 2,522
Interest expense 919 809 861
- ------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes, extraordinary item and
cumulative effect of change in accounting 286 1,200 1,661
Income tax expense 710 463 660
- ------------------------------------------------------------------------------------------------------------------------------
(Loss) earnings before extraordinary item and
cumulative effect of change in accounting (424) 737 1,001
Extraordinary loss on early extinguishment of debt (95) -- --
Cumulative effect of change in accounting -- (355) --
- ------------------------------------------------------------------------------------------------------------------------------
Net (loss) earnings $ (519) $ 382 $ 1,001
==============================================================================================================================
(Loss) earnings per common share:
Basic:
Before extraordinary item and cumulative effect of change in accounting $ (1.05) $ 1.93 $ 2.66
Extraordinary loss on early extinguishment of debt (.24) -- --
Cumulative effect of change in accounting -- (.93) --
- ------------------------------------------------------------------------------------------------------------------------------
$ (1.29) $ 1.00 $ 2.66
Diluted:
Before extraordinary item and cumulative effect of change in accounting $ (1.05) $ 1.92 $ 2.63
Extraordinary loss on early extinguishment of debt (.24) -- --
Cumulative effect of change in accounting -- (.93) --
- ------------------------------------------------------------------------------------------------------------------------------
$ (1.29) $ .99 $ 2.63
==============================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
Page 58
CONSOLIDATED STATEMENT OF CASH FLOWS
Lockheed Martin Corporation
- -------------------------------------------------------------------------------
Year ended December 31,
(In millions) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
Operating Activities
(Loss) earnings before extraordinary item and
cumulative effect of change in accounting $ (424) $ 737 $ 1,001
Adjustments to reconcile (loss) earnings before extraordinary
item and cumulative effect of change in accounting to net cash
provided by operating activities:
Depreciation and amortization 518 529 569
Amortization of intangible assets 450 440 436
Deferred federal income taxes (84) 293 203
Loss related to AES Transaction 547 -- --
Gain on sale of Control Systems business (325) -- --
Impairment loss related to ACeS 125 -- --
Changes in operating assets and liabilities:
Receivables 108 130 809
Inventories (187) (404) (1,183)
Customer advances and amounts in excess of costs incurred 387 313 329
Income taxes 522 (284) 189
Other 379 (677) (322)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,016 1,077 2,031
===============================================================================================================================
Investing Activities
Expenditures for property, plant and equipment (500) (669) (697)
AES Transaction 1,670 -- --
Sale of Control Systems business 510 -- --
Sale of shares of Inmarsat 164 -- --
COMSAT Tender Offer -- (1,203) --
Sale of interest in L-3 -- 263 --
Additional investments in affiliated companies (257) (170) --
Other 175 141 242
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 1,762 (1,638) (455)
- -------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Net decrease in short-term borrowings (463) (868) (151)
Increases in long-term debt -- 2,994 266
Repayments and early extinguishment of long-term debt (2,096) (1,067) (1,136)
Issuances of common stock 14 17 91
Common stock dividends (183) (345) (310)
Other -- -- (51)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash (used for) provided by financing activities (2,728) 731 (1,291)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,050 170 285
Cash and cash equivalents at beginning of year 455 285 --
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,505 $ 455 $ 285
===============================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
Page 59
CONSOLIDATED BALANCE SHEET
Lockheed Martin Corporation
- -------------------------------------------------------------------------------
December 31,
(In millions) 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 1,505 $ 455
Receivables 4,195 4,348
Inventories 3,825 4,051
Deferred income taxes 1,236 1,237
Other current assets 498 605
- -------------------------------------------------------------------------------------------------------------------------------
Total current assets 11,259 10,696
Property, plant and equipment 3,446 3,634
Investments in equity securities 2,433 2,210
Intangible assets related to contracts and programs acquired 1,088 1,259
Cost in excess of net assets acquired 8,855 9,162
Prepaid pension cost 1,794 1,397
Other assets 1,474 1,903
- -------------------------------------------------------------------------------------------------------------------------------
$30,349 $30,261
===============================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,184 $ 1,228
Customer advances and amounts in excess of costs incurred 4,780 4,655
Salaries, benefits and payroll taxes 1,038 941
Income taxes 519 51
Short-term borrowings 12 475
Current maturities of long-term debt 882 52
Other current liabilities 1,760 1,410
- -------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 10,175 8,812
Long-term debt 9,065 11,427
Post-retirement benefit liabilities 1,647 1,805
Deferred income taxes 736 517
Other liabilities 1,566 1,339
Stockholders' equity:
Common stock, $1 par value per share 431 398
Additional paid-in capital 1,789 222
Retained earnings 5,199 5,901
Unearned ESOP shares (115) (150)
Accumulated other comprehensive loss (144) (10)
- -------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 7,160 6,361
- -------------------------------------------------------------------------------------------------------------------------------
$30,349 $30,261
===============================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
Page 60
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Lockheed Martin Corporation
- -------------------------------------------------------------------------------
Accumulated
Additional Unearned Other Total
Common Paid-In Retained ESOP Comprehensive Stockholders' Comprehensive
(In millions, except per share data) Stock Capital Earnings Shares Loss Equity Income (Loss)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $194 $ 25 $5,173 $(216) $ -- $5,176
Net earnings -- -- 1,001 -- -- 1,001 $1,001
Common stock dividends declared
($.82 per share) -- -- (310) -- -- (310) --
Stock awards and options,
and ESOP activity 2 204 -- 34 -- 240 --
Stock issued for acquisitions -- 38 -- -- -- 38 --
Other comprehensive loss -- -- -- -- (8) (8) (8)
Two-for-one stock split 197 (197) -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 393 70 5,864 (182) (8) 6,137 $ 993
======
Net earnings -- -- 382 -- -- 382 $ 382
Common stock dividends declared
($.88 per share) -- -- (345) -- -- (345) --
Stock awards and options,
and ESOP activity 5 152 -- 32 -- 189 --
Other comprehensive loss -- -- -- -- (2) (2) (2)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 398 222 5,901 (150) (10) 6,361 $ 380
======
Net loss -- -- (519) -- -- (519) $ (519)
Common stock dividends declared
($.44 per share) -- -- (183) -- -- (183) --
Stock awards and options,
and ESOP activity 6 177 -- 35 -- 218 --
Stock issued in COMSAT Merger 27 1,319 -- -- -- 1,346 --
COMSAT stock options assumed -- 71 -- -- -- 71 --
Other comprehensive loss -- -- -- -- (134) (134) (134)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 $431 $1,789 $5,199 $(115) $(144) $7,160 $ (653)
=================================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
Page 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lockheed Martin Corporation
- -------------------------------------------------------------------------------
December 31, 2000
Note 1--Summary of Significant Accounting Policies
Organization--Lockheed Martin Corporation (Lockheed Martin or the Corporation)
is engaged in the conception, research, design, development, manufacture,
integration and operation of advanced technology systems, products and services.
Its products and services range from aircraft, spacecraft and launch vehicles to
missiles, electronics, information systems and telecommunications. The
Corporation serves customers in both domestic and international defense and
commercial markets, with its principal customers being agencies of the U.S.
Government.
Basis of consolidation and use of estimates--The consolidated financial
statements include the accounts of wholly-owned and majority-owned subsidiaries.
Intercompany balances and transactions have been eliminated in consolidation.
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions, including estimates of anticipated
contract costs and revenues utilized in the earnings recognition process, that
affect the reported amounts in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Classifications--Receivables and inventories are primarily attributable to
long-term contracts or programs in progress for which the related operating
cycles are longer than one year. In accordance with industry practice, these
items are included in current assets. Certain amounts for prior years have been
reclassified to conform with the 2000 presentation.
Cash and cash equivalents--Cash and cash equivalents are net of outstanding
checks that are funded daily as presented for payment. Cash equivalents are
generally comprised of highly liquid instruments with maturities of three months
or less when purchased. Due to the short maturity of these instruments, carrying
value on the Corporation's Consolidated Balance Sheet approximates fair value.
Receivables--Receivables consist of amounts billed and currently due from
customers, and include unbilled costs and accrued profits primarily related to
revenues on long-term contracts that have been recognized for accounting
purposes but not yet billed to customers. As such revenues are recognized,
appropriate amounts of customer advances and progress payments are reflected as
an offset to the related accounts receivable balance.
Inventories--Inventories are stated at the lower of cost or estimated net
realizable value. Costs on long-term contracts and programs in progress
represent recoverable costs incurred for production, allocable operating
overhead and, where appropriate, research and development and general and
administrative expenses. Pursuant to contract provisions, agencies of the U.S.
Government and certain other customers have title to, or a security interest in,
inventories related to such contracts as a result of advances and progress
payments. Such advances and progress payments are reflected as an offset against
the related inventory balances. General and administrative expenses related to
commercial products and services provided essentially under commercial terms and
conditions are expensed as incurred. Costs of other product and supply
inventories are principally determined by the first-in, first-out or average
cost methods.
Property, plant and equipment--Property, plant and equipment are carried
principally at cost. Depreciation is provided on plant and equipment generally
using accelerated methods during the first half of the estimated useful lives of
the assets; thereafter, straight-line depreciation generally is used. Estimated
useful lives generally range from 10 years to 40 years for buildings and 5 years
to 15 years for machinery and equipment.
Investments in equity securities--Investments in equity securities include the
Corporation's ownership interests in affiliated companies accounted for under
the equity method of accounting. Under this method of accounting, which
generally applies to investments that represent a 20 percent to 50 percent
ownership of the equity securities of the investees, the Corporation's share of
the earnings of the affiliated companies is included in other income and
expenses. The Corporation recognizes currently gains or losses arising from
issuances of stock by wholly-owned or majority-owned subsidiaries, or by equity
method investees. These gains
- --------------------------------------------------------------------------------
Page 62
- -------------------------------------------------------------------------------
(Continued)
or losses are also included in other income and expenses. Investments in equity
securities also include the Corporation's ownership interests in companies in
which its investment represents less than 20 percent. These investments are
generally accounted for under the cost method of accounting.
Intangible assets--Intangible assets related to contracts and programs acquired
are amortized over the estimated periods of benefit (15 years or less) and are
displayed in the Consolidated Balance Sheet net of accumulated amortization of
$1,085 million and $958 million at December 31, 2000 and 1999, respectively.
Cost in excess of net assets acquired (goodwill) is amortized ratably over
appropriate periods, generally 30 to 40 years, and is displayed on the
Consolidated Balance Sheet net of accumulated amortization of $1,184 million and
$1,373 million at December 31, 2000 and 1999, respectively. The carrying values
of intangible assets, as well as other long-lived assets, are reviewed for
impairment if changes in the facts and circumstances indicate potential
impairment of their carrying values. Any impairment determined is recorded in
the current period and is measured by comparing the discounted cash flows of the
related business operations to the appropriate carrying values.
Customer advances and amounts in excess of costs incurred--The Corporation
receives advances and progress payments from customers in excess of costs
incurred on certain contracts, including contracts with agencies of the U.S.
Government. Such advances and progress payments, other than those reflected as
an offset to accounts receivable or inventories as discussed above, are
classified as current liabilities.
Environmental matters--The Corporation records a liability for environmental
matters when it is probable that a liability has been incurred and the amount
can be reasonably estimated. A substantial portion of these costs are expected
to be reflected in sales and cost of sales pursuant to U.S. Government agreement
or regulation. At the time a liability is recorded for future environmental
costs, an asset is recorded for estimated future recovery considered probable
through the pricing of products and services to agencies of the U.S. Government.
The portion of those costs expected to be allocated to commercial business is
reflected in cost of sales at the time the liability is established.
Sales and earnings--Sales and anticipated profits under long-term fixed-price
production contracts are recorded on a percentage of completion basis, generally
using units of delivery as the measurement basis for effort accomplished.
Estimated contract profits are taken into earnings in proportion to recorded
sales. Sales under certain long-term fixed-price contracts which, among other
things, provide for the delivery of minimal quantities or require a significant
amount of development effort in relation to total contract value, are recorded
upon achievement of performance milestones or using the cost-to-cost method of
accounting where sales and profits are recorded based on the ratio of costs
incurred to estimated total costs at completion.
Sales under cost-reimbursement-type contracts are recorded as costs are
incurred. Applicable estimated profits are included in earnings in the
proportion that incurred costs bear to total estimated costs. Sales of products
and services provided essentially under commercial terms and conditions are
recorded upon shipment or completion of specified tasks.
Amounts representing contract change orders, claims or other items are
included in sales only when they can be reliably estimated and realization is
probable. Incentives or penalties and awards applicable to performance on
contracts are considered in estimating sales and profit rates, and are recorded
when there is sufficient information to assess anticipated contract performance.
Incentive provisions which increase or decrease earnings based solely on a
single significant event are generally not recognized until the event occurs.
When adjustments in contract value or estimated costs are determined, any
changes from prior estimates are reflected in earnings in the current period.
Anticipated losses on contracts or programs in progress are charged to earnings
when identified.
- --------------------------------------------------------------------------------
Page 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lockheed Martin Corporation
- -------------------------------------------------------------------------------
December 31, 2000
Research and development and similar costs--Corporation-sponsored research and
development costs primarily include research and development and bid and
proposal efforts related to government products and services. Except for certain
arrangements described below, these costs are generally included as part of the
general and administrative costs that are allocated among all contracts and
programs in progress under U.S. Government contractual arrangements.
Corporation-sponsored product development costs not otherwise allocable are
charged to expense when incurred. Under certain arrangements in which a customer
shares in product development costs, the Corporation's portion of such
unreimbursed costs is expensed as incurred. Customer-sponsored research and
development costs incurred pursuant to contracts are accounted for as contract
costs.
Derivative financial instruments--The Corporation may use derivative financial
instruments to manage its exposure to fluctuations in interest rates and foreign
exchange rates. Forward exchange contracts are designated as qualifying hedges
of firm commitments or specific anticipated transactions. Gains and losses on
these contracts are recognized in income when the hedged transactions occur. At
December 31, 2000, the fair values of forward exchange contracts outstanding, as
well as the amounts of gains and losses recorded during the year, were not
material. The Corporation does not hold or issue derivative financial
instruments for trading purposes. Effective January 1, 2001, the Corporation
began to account for derivative financial instruments in accordance with
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities."
Stock-based compensation--The Corporation measures compensation cost for
stock-based compensation plans using the intrinsic value method of accounting as
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. The Corporation has adopted
those provisions of SFAS No. 123, "Accounting for Stock-Based Compensation,"
which require disclosure of the pro forma effects on net earnings and earnings
per share as if compensation cost had been recognized based upon the estimated
fair value at the date of grant for options awarded.
Comprehensive income--Comprehensive income (loss) for the Corporation consists
primarily of net earnings (loss), after-tax foreign currency translation
adjustments and after-tax unrealized gains and losses on available-for-sale
securities. At December 31, 2000, 1999 and 1998, the accumulated balances of
other comprehensive income related to foreign currency translation adjustments
were insignificant. For the year ended December 31, 2000, other comprehensive
loss included net unrealized losses, net of income tax benefits, of $129
million, primarily related to the temporary decline in value of the
Corporation's investment in Loral Space & Communications, Ltd. (Loral Space).
New accounting pronouncements--Effective January 1, 2001, the Corporation
adopted SFAS No. 133. This Statement requires the recognition of all derivative
financial instruments as either assets or liabilities in the Consolidated
Balance Sheet, and the periodic adjustment of those instruments to 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. Adjustments to reflect changes in fair values of
derivatives that are not considered highly effective hedges are reflected in
earnings. Adjustments to reflect changes in fair values of derivatives that are
considered highly effective hedges are either reflected in earnings and largely
offset by corresponding adjustments related to the fair values of the hedged
items, or reflected in other comprehensive income until the hedged transaction
matures and the entire transaction is recognized in earnings. The change in fair
value of the ineffective portion of a hedge is immediately recognized in
earnings. The effect of adopting SFAS No. 133 was not material to the
Corporation's consolidated results of operations, cash flows, or financial
position.
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
- --------------------------------------------------------------------------------
Page 64
- -------------------------------------------------------------------------------
(Continued)
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 year ended December 31, 1999 by
$355 million, or $.93 per diluted share. The cumulative effect adjustment was
recorded net of income tax benefits of $227 million, and was primarily composed
of approximately $560 million of costs previously included in inventories.
Note 2--Business Combination 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 (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 for 49 percent of the outstanding
stock of COMSAT (the Tender Offer) on September 18, 1999. The total value of
this phase of the transaction was $1.2 billion, and such amount was included in
investments in equity securities in the consolidated balance sheet prior to
consummation of the Merger as discussed below. The Corporation accounted for its
49 percent investment in COMSAT under the equity method of accounting.
On August 3, 2000, pursuant to the terms of the Merger Agreement, the
second phase of the transaction was accomplished and the Merger was consummated.
On that date, each share of COMSAT common stock outstanding immediately prior to
the effective time of the Merger (other than shares held by the Corporation) was
converted into the right to receive one share of Lockheed Martin common stock in
a tax-free exchange. The total amount recorded related to this phase of the
transaction was approximately $1.3 billion based on the Corporation's issuance
of approximately 27.5 million shares of its common stock at a price of $49 per
share. This price per share represents the average of the price of Lockheed
Martin's common stock a few days before and after the announcement of the
transaction in September 1998.
The total purchase price for COMSAT, including transaction costs and
amounts related to Lockheed Martin's assumption of COMSAT stock options, was
approximately $2.6 billion, net of $76 million in cash balances acquired. The
COMSAT transaction was accounted for using the purchase method of accounting.
Purchase accounting adjustments were recorded in 2000 to allocate the purchase
price to assets acquired and liabilities assumed based on their fair values.
These adjustments included certain amounts totaling approximately $2.1 billion,
composed of adjustments to record investments in equity securities acquired at
their fair values and cost in excess of net assets acquired, which will be
amortized over an estimated life of 30 years. A summary of assets acquired and
liabilities assumed as of the acquisition date follows:
(In millions)
- ------------------------------------------------------------------------
Working capital, excluding cash acquired $ (99)
Property, plant and equipment 243
Investments in equity securities 1,793
Cost in excess of net assets acquired 1,439
Other assets 171
Long-term debt (334)
Post-retirement benefit liabilities (38)
Deferred income taxes (455)
Other liabilities (165)
- ------------------------------------------------------------------------
Net investment 2,555
Cash acquired 76
- ------------------------------------------------------------------------
Total cost of acquisition $2,631
- ------------------------------------------------------------------------
The following unaudited pro forma combined earnings data present the
results of operations of the Corporation and COMSAT for the years ended December
31, 2000 and 1999, as if the Merger had been consummated at the beginning of the
periods presented. The pro forma
- --------------------------------------------------------------------------------
Page 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lockheed Martin Corporation
- -------------------------------------------------------------------------------
December 31, 2000
combined earnings data does not purport to be indicative of the results of
operations that would have resulted if the COMSAT transaction had occurred at
the beginning of the respective periods. Moreover, this data is not intended to
be indicative of future results of operations.
(In millions, except per share data) 2000 1999
- --------------------------------------------------------------------------
Net sales $25,674 $26,072
(Loss) earnings before
extraordinary item and cumulative
effect of change in accounting (413) 639
Net (loss) earnings (508) 284
(Loss) earnings per common share:
Basic:
Before extraordinary item and
cumulative effect of change
in accounting (.98) 1.56(a)
(Loss) earnings per common share (1.21) .69(a)
Diluted:
Before extraordinary item and
cumulative effect of change
in accounting (.98) 1.55(a)
(Loss) earnings per common share (1.21) .69(a)
- --------------------------------------------------------------------------
(a) The differences between these amounts and the respective earnings per share
amounts presented on the Consolidated Statement of Operations relate
primarily to the estimated effects of interest on the debt to finance the
Tender Offer which was, for purposes of this pro forma presentation,
assumed to have been issued on January 1, 1999.
The Corporation has consolidated the operations of COMSAT with the results
of operations of Lockheed Martin Global Telecommunications, Inc. (LMGT), a
wholly-owned subsidiary of the Corporation, from August 1, 2000.
Note 3--Divestiture Activities
In July 2000, the Corporation decided to sell its Aerospace Electronics Systems
(AES) businesses and announced that it had reached a definitive agreement to
sell these businesses to BAE SYSTEMS, North America Inc. (BAE SYSTEMS) for $1.67
billion in cash (the AES Transaction). As a result of this decision, the
Corporation classified the assets of these businesses as "held for disposal"
under the provisions of SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The sum of the
carrying value of the net assets of the AES businesses and estimated transaction
costs exceeded the sales price per the definitive sales agreement. Therefore,
the Corporation recorded an impairment loss in the third quarter of 2000 to
adjust the book values of the assets to be disposed of to their fair values.
Based on preliminary calculations and analyses, the Corporation recorded a loss,
including state income taxes, of approximately $755 million. The loss negatively
impacted the net loss for the third quarter by approximately $980 million, or
$2.42 per diluted share. The AES Transaction closed in November 2000. In
connection with the closing, the Corporation refined certain estimates included
in its calculation of the loss on the transaction based on more current
information and analyses. As a result, the Corporation recorded an adjustment in
the fourth quarter of 2000 to reduce the amount of the loss, net of state income
taxes, by $157 million, which increased fourth quarter net earnings by $102
million. In total for the year ended December 31, 2000, the Corporation recorded
a nonrecurring and unusual loss of $598 million related to the AES Transaction
which is included in other income and expenses. The loss negatively impacted the
net loss for 2000 by $878 million, or $2.18 per diluted share.
On September 25, 2000, the Corporation consummated the sale of Lockheed
Martin Control Systems (Control Systems) to BAE SYSTEMS for $510 million in
cash. This transaction resulted in the recognition of a nonrecurring and unusual
gain, net of state income taxes, of $302 million which is reflected in other
income and expenses. The gain favorably impacted the net loss for 2000 by $180
million, or $.45 per diluted share.
In September 2000, the Corporation completed the sale of approximately
one-third of its interest in Inmarsat Ventures Limited (Inmarsat) for $164
million. The investment
- --------------------------------------------------------------------------------
Page 66
- -------------------------------------------------------------------------------
(Continued)
in Inmarsat was acquired as part of COMSAT in conjunction with the Merger. As a
result of the transaction, the Corporation's interest in Inmarsat was reduced
from approximately 22% to 14%. The sale of shares in Inmarsat did not impact the
Corporation's results of operations for 2000.
In March 1997, the Corporation repositioned 10 of its non-core business
units as a new independent company, L-3 Communications Holdings, Inc. (L-3), in
which the Corporation retained an approximate 35 percent ownership interest at
closing. In May 1998, L-3 completed an initial public offering which resulted in
a reduction in the Corporation's ownership to approximately 25 percent and the
recognition of a gain, net of state income taxes, of $18 million. The gain
increased net earnings by $12 million, or $.03 per diluted share. In 1999, the
Corporation sold its remaining interest in L-3 in two separate transactions. On
a combined basis, these transactions resulted in a nonrecurring and unusual
gain, net of state income taxes, of $155 million which increased net earnings by
$101 million, or $.26 per diluted share.
In September 1999, the Corporation sold its interest in Airport Group
International Holdings, LLC which resulted in a nonrecurring and unusual gain,
net of state income taxes, of $33 million in other income and expenses. In
October 1999, the Corporation exited its commercial 3D graphics business through
consummation of a series of transactions which resulted in the sale of its
interest in Real 3D, Inc., a majority-owned subsidiary, and a nonrecurring and
unusual gain, net of state income taxes, of $33 million in other income and
expenses. On a combined basis, these transactions increased net earnings by $43
million, or $.11 per diluted share.
Note 4--Restructuring and Other Charges
In the fourth quarter of 1998, the Corporation recorded a nonrecurring and
unusual pretax charge, net of state income tax benefits, of $233 million related
to actions surrounding the decision to fund a timely non-bankruptcy shutdown of
the business of CalComp Technology, Inc. (CalComp), a majority-owned subsidiary.
This charge decreased net earnings by $183 million, or $.48 per diluted share.
As of December 31, 1999, CalComp had, among other actions, sold substantially
all of its assets, terminated substantially all of its work force, and initiated
the corporate dissolution process under the applicable state and foreign
government statutes. The financial impacts of these actions were less than
anticipated in the Corporation's plans and estimates and, in the fourth quarter
of 1999, the Corporation reversed approximately 10 percent of the original
charge recorded in 1998. As of December 31, 2000, the Corporation had
substantially completed the shutdown of CalComp's operations. Based on
management's assessment of the remaining actions to be taken to complete
initiatives contemplated in the Corporation's original plans and estimates, the
Corporation reversed approximately $33 million of the original charge, which
favorably impacted the net loss for 2000 by $21 million, or $.05 per diluted
share. While uncertainty remains concerning the resolution of matters in dispute
or litigation, management believes that the remaining amount recorded at
December 31, 2000, which represents approximately 10 percent of the original
charge, is adequate to provide for resolution of these matters and to complete
the dissolution process.
During 1997 and 1996, the Corporation recorded nonrecurring and unusual
charges, net of state income tax benefits, which in the aggregate totaled $764
million. These charges reflected the estimated effects of exiting non-strategic
lines of business and impairment in the values of various non-core investments
and certain other assets, and included estimated costs for facility closings and
transfers of programs related to the Corporation's acquisition of Loral
Corporation in April 1996. All initiatives undertaken as part of the 1997 and
1996 charges had been completed as of December 31, 2000, other than actions
contemplated as part of the Corporation's exit from a certain environmental
remediation line of business and a fixed price systems development line
- --------------------------------------------------------------------------------
Page 67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lockheed Martin Corporation
- -------------------------------------------------------------------------------
December 31, 2000
of business in the area of children and family services. In 1999, the
Corporation recorded an additional charge of approximately $40 million related
to these remaining initiatives. The estimated costs related to these remaining
initiatives represent approximately 30 percent of the total amounts recorded.
During 2000, there were no further adjustments associated with these charges.
The amounts recorded in the Consolidated Balance Sheet at December 31, 2000
related to these actions are, in the opinion of management, adequate to complete
the remaining initiatives originally contemplated in the 1997 and 1996 charges.
Under existing U.S. Government regulations, certain costs incurred for
consolidation actions that can be demonstrated to result in savings in excess of
the cost to implement can be deferred and amortized for government contracting
purposes and included as allowable costs in future pricing of the Corporation's
products and services. Included in the Consolidated Balance Sheet at December
31, 2000 is approximately $300 million of deferred costs related primarily to
consolidation actions undertaken in connection with the formation of Lockheed
Martin in 1995 that will be recognized in future sales and cost of sales.
Note 5--Earnings Per Share
Basic and diluted per share results for all periods presented were computed
based on the net loss or net earnings for the respective periods. The weighted
average number of common shares outstanding during the period was used in the
calculation of basic (loss) earnings per share and, for 1999 and 1998, this
number of shares was increased by the effects of dilutive stock options based on
the treasury stock method in the calculation of diluted (loss) earnings per
share. The diluted loss per share for 2000 was computed in the same manner as
the basic loss per share, since adjustments related to the dilutive effects of
stock options would have been antidilutive.
The following table sets forth the computations of basic and diluted (loss)
earnings per share:
(In millions, except per share data) 2000 1999 1998
- -----------------------------------------------------------------------------
Net (loss) earnings:
(Loss) earnings before
extraordinary item and
cumulative effect of change
in accounting $ (424) $ 737 $ 1,001
Extraordinary loss on early
extinguishment of debt (95) -- --
Cumulative effect of change
in accounting -- (355) --
- -----------------------------------------------------------------------------
Net (loss) earnings for basic
and diluted computations $ (519) $ 382 $ 1,001
- -----------------------------------------------------------------------------
Average common shares
outstanding:
Average number of common
shares outstanding for
basic computations 400.8 382.3 376.5
Dilutive stock options--based
on the treasury stock method --(a) 1.8 4.6
- -----------------------------------------------------------------------------
Average number of common
shares outstanding for
diluted computations 400.8(a) 384.1 381.1
- -----------------------------------------------------------------------------
(Loss) earnings per share:
Basic:
Before extraordinary item
and cumulative effect of
change in accounting $ (1.05) $ 1.93 $ 2.66
Extraordinary loss on early
extinguishment of debt (.24) -- --
Cumulative effect of change
in accounting -- (.93) --
- -----------------------------------------------------------------------------
$ (1.29) $ 1.00 $ 2.66
Diluted:
Before extraordinary item
and cumulative effect of
change in accounting $ (1.05) $ 1.92 $ 2.63
Extraordinary loss on early
extinguishment of debt (.24) -- --
Cumulative effect of change
in accounting -- (.93) --
- -----------------------------------------------------------------------------
$ (1.29) $ .99 $ 2.63
- -----------------------------------------------------------------------------
(a) In accordance with SFAS No. 128, the average number of common shares used
in the calculation of the diluted loss per share before extraordinary item
and cumulative effect of change in accounting has not been adjusted for the
effects of 2.3 million dilutive stock options, as such adjustment would
have been antidilutive.
- --------------------------------------------------------------------------------
Page 68
- -------------------------------------------------------------------------------
(Continued)
Note 6--Receivables
(In millions) 2000 1999
- ------------------------------------------------------------
U.S. Government:
Amounts billed $ 1,143 $ 927
Unbilled costs and accrued profits 2,289 2,300
Less customer advances and
progress payments (457) (395)
Commercial and foreign governments:
Amounts billed 725 644
Unbilled costs and accrued profits,
primarily related to
commercial contracts 664 963
Less customer advances and
progress payments (169) (91)
- ------------------------------------------------------------
$ 4,195 $ 4,348
============================================================
Approximately $169 million of the December 31, 2000 unbilled costs and
accrued profits are not expected to be recovered within one year.
Note 7--Inventories
(In millions) 2000 1999
- ------------------------------------------------------------
Work in process, commercial
launch vehicles $ 1,175 $ 1,514
Work in process, primarily related
to other long-term contracts and
programs in progress 3,834 3,879
Less customer advances and
progress payments (1,864) (1,848)
- ------------------------------------------------------------
3,145 3,545
Other inventories 680 506
- ------------------------------------------------------------
$ 3,825 $ 4,051
============================================================
Work in process inventories related to commercial launch vehicles include
costs for launch vehicles, both under contract and not under contract, including
approximately $120 million of unamortized deferred costs at December 31, 2000
for launch vehicles not under contract related to the commercial Atlas and the
Evolved Expendable Launch Vehicle (Atlas V) programs. At December 31, 2000 and
1999, commercial launch vehicle inventories 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 $657 million and $903 million, respectively, for the manufacture
of launch vehicles and related launch services.
Work in process inventories at December 31, 2000 related to other long-term
contracts and programs in progress included approximately $50 million of
unamortized deferred costs for aircraft not under contract related to the
Corporation's C-130J program.
Approximately $1.5 billion of costs included in 2000 inventories, including
approximately $565 million advanced to Russian manufacturers, are not expected
to be recovered within one year.
An analysis of general and administrative costs, including research and
development costs, included in work in process inventories follows:
(In millions) 2000 1999 1998
- ------------------------------------------------------------
Beginning of year $ 493 $ 693 $ 533
Incurred during the year 1,950 2,354 2,469
Charged to cost of
sales during the year:
Research and
development (647) (822) (864)
Other general and
administrative (1,401) (1,732) (1,445)
- ------------------------------------------------------------
End of year $ 395 $ 493 $ 693
============================================================
In addition, included in cost of sales in 2000, 1999 and 1998 were general
and administrative costs, including research and development costs, of
approximately $672 million, $509 million and $490 million, respectively,
incurred by commercial business units or programs.
- --------------------------------------------------------------------------------
Page 69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lockheed Martin Corporation
- -------------------------------------------------------------------------------
December 31, 2000
Note 8--Property, Plant and Equipment
(In millions) 2000 1999
- ------------------------------------------------------------
Land $ 174 $ 218
Buildings 2,931 3,027
Machinery and equipment 5,334 5,662
- ------------------------------------------------------------
8,439 8,907
Less accumulated depreciation
and amortization (4,993) (5,273)
- ------------------------------------------------------------
$ 3,446 $ 3,634
============================================================
Note 9--Investments in Equity Securities
(In millions) 2000 1999
- ------------------------------------------------------------
Equity method investments:
International Telecommunications
Satellite Organization (INTELSAT) $ 1,201 $ --
Astrolink International, LLC 266 148
Americom Asia-Pacific, LLC 138 114
Space Imaging, LLC 67 86
ACeS International, Ltd. 32 163
COMSAT -- 1,188
Other 79 72
- ------------------------------------------------------------
1,783 1,771
Cost method investments:
Inmarsat 270 --
New Skies Satellites, N.V. 188 --
Loral Space 146 393
Other 46 46
- ------------------------------------------------------------
650 439
- ------------------------------------------------------------
$ 2,433 $ 2,210
============================================================
The carrying value of the Corporation's 22.5 percent investment in INTELSAT
exceeds the Corporation's share of INTELSAT's net assets by approximately $700
million, and this amount is being amortized ratably over 30 years. The
Corporation has commitments to provide additional funding to Astrolink
International, LLC totaling approximately $140 million at December 31, 2000.
In the fourth quarter of 2000, the Corporation recorded a nonrecurring and
unusual charge, net of state income tax benefits, of $117 million related to
impairment of its investment in ACeS International, Ltd. (ACeS) due to an other
than temporary decline in the value of the investment. ACeS is a joint venture
in which the Corporation holds a 33 percent interest at December 31, 2000. ACeS
operates the Asian Cellular Satellite System, a geostationary mobile satellite
system serving Southeast Asia which was placed in commercial operation in the
fourth quarter of 2000. The spacecraft has experienced an anomaly that may
reduce the overall capacity of the system by about 30 to 35 percent. The decline
in the value of the investment was assessed to be other than temporary as a
result of the reduced business prospects due to this anomaly as well as overall
market conditions. The adjustment reduced net earnings by $77 million, or $0.19
per share.
Note 10--Debt
Type (Maturity Dates)
(In millions, except Range of
interest rate data) Interest Rates 2000 1999
- --------------------------------------------------------------
Notes (2001-2022) 5.7 - 9.4% $5,202 $ 6,778
Debentures (2011-2036) 7.0 - 9.1% 4,312 4,407
Monthly Income
Preferred Securities 8.125% 200 --
ESOP obligations
(2001-2004) 8.4% 177 217
Other obligations
(2001-2016) 1.0 -12.7% 56 77
- --------------------------------------------------------------
9,947 11,479
Less current maturities (882) (52)
- --------------------------------------------------------------
$9,065 $11,427
==============================================================
In November 2000, the Corporation commenced tender offers for the purchase
of up to $1.95 billion in principal amount of six issues of debt securities then
outstanding. Such debt securities included a combination of notes and
debentures. In December 2000, the Corporation purchased approximately $1.9
billion in principal amount of the debt securities included in the tender
offers, the majority of which were notes. The repurchase of the debt securities
resulted in an extraordinary loss on early extinguishment of debt, net of $61
million in income tax benefits, of $95 million.
- --------------------------------------------------------------------------------
Page 70
- -------------------------------------------------------------------------------
(Continued)
In connection with the Merger, the Corporation recorded at fair value
approximately $410 million of COMSAT debt obligations in its Consolidated
Balance Sheet. COMSAT's debt obligations consisted of approximately $210 million
in notes, and $200 million in Monthly Income Preferred Securities (MIPS) issued
by a wholly-owned subsidiary of COMSAT. The MIPS, which were issued at a par
value of $25 per share, require the payment of dividends at an annual rate of
8.125%, and became callable beginning in July 2000. The MIPS are fully and
unconditionally guaranteed by COMSAT and the Corporation.
As of December 31, 2000, the Corporation had $1.3 billion of notes
outstanding which had been issued to a wholly-owned subsidiary of General
Electric Company (GE). The notes are due November 17, 2002 and bear interest at
a rate of approximately 6%. The agreements relating to these notes require that,
so long as the aggregate principal amount of the notes exceeds $1.0 billion, the
Corporation will recommend to its stockholders the election of one person
designated by GE to serve as a director of the Corporation.
The registered holders of $300 million of 40 year Debentures issued in 1996
may elect, between March 1 and April 1, 2008, to have their Debentures repaid by
the Corporation on May 1, 2008.
Included in Debentures are $114 million of 7% obligations ($175 million at
face value) which were originally sold at approximately 54 percent of their
principal amount. These Debentures, which are redeemable in whole or in part at
the Corporation's option at 100 percent of their face value, have an effective
yield of 13.25%.
A leveraged employee stock ownership plan (ESOP) incorporated into the
Corporation's salaried savings plan borrowed $500 million through a private
placement of notes in 1989. These notes are being repaid in quarterly
installments over terms ending in 2004. The ESOP note agreement stipulates that,
in the event that the ratings assigned to the Corporation's long-term senior
unsecured debt are below investment grade, holders of the notes may require the
Corporation to purchase the notes and pay accrued interest. These notes are
obligations of the ESOP but are guaranteed by the Corporation and included as
debt in the Corporation's Consolidated Balance Sheet.
At the end of 2000, the Corporation had a $3.5 billion revolving credit
facility which matures on December 20, 2001 (the Credit Facility). Borrowings
under the Credit Facility would be unsecured and bear interest at rates based,
at the Corporation's option, on the Eurodollar rate or a bank Base Rate (as
defined). Each bank's obligation to make loans under the Credit Facility is
subject to, among other things, compliance by the Corporation with various
representations, warranties and covenants, including, but not limited to,
covenants limiting the ability of the Corporation and certain of its
subsidiaries to encumber their assets and a covenant not to exceed a maximum
leverage ratio. There were no borrowings outstanding under the Credit Facility
at December 31, 2000.
The Credit Facility supported commercial paper borrowings of approximately
$475 million outstanding at December 31, 1999. The weighted average interest
rate for commercial paper outstanding at December 31, 1999 was 6.6%.
The Corporation's long-term debt maturities for the five years following
December 31, 2000 are: $882 million in 2001; $1,334 million in 2002; $767
million in 2003; $137 million in 2004; $16 million in 2005; and $6,811 million
thereafter.
Certain of the Corporation's other financing agreements contain restrictive
covenants relating to debt, limitations on encumbrances and sale and lease-back
transactions, and provisions which relate to certain changes in control.
The estimated fair values of the Corporation's long-term debt instruments
at December 31, 2000, aggregated approximately $10.4 billion, compared with a
carrying
- --------------------------------------------------------------------------------
Page 71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lockheed Martin Corporation
- -------------------------------------------------------------------------------
December 31, 2000
amount of approximately $9.9 billion. The fair values were estimated based on
quoted market prices for those instruments publicly traded. For privately placed
debt, the fair values were estimated based on the quoted market prices for
similar issues, or on current rates offered to the Corporation for debt with
similar remaining maturities. Unless otherwise indicated elsewhere in the Notes
to Consolidated Financial Statements, the carrying values of the Corporation's
other financial instruments approximate their fair values.
In June 2000, the Corporation was notified that Globalstar
Telecommunications, L.P. (Globalstar) failed to repay borrowings of $250 million
under a revolving credit agreement on which Lockheed Martin was a partial
guarantor. In connection with its contractual obligation under the guarantee, on
June 30, 2000, the Corporation paid $207 million to the lending institutions
from which Globalstar had borrowed, which included applicable interest and fees.
On that same date, Loral Space & Communications, Ltd. (Loral Space), under a
separate indemnification agreement between the Corporation and Loral Space, paid
Lockheed Martin $57 million. The Corporation is entitled to repayment by
Globalstar of the remaining $150 million paid under the guarantee, but has not
as yet reached agreement with respect to the form and timing of such repayment.
In light of the uncertainty of the situation regarding the amounts due from
Globalstar, the Corporation recorded a nonrecurring and unusual charge in the
second quarter of 2000, net of state income tax benefits, of approximately $141
million in other income and expenses. The charge negatively impacted the net
loss for 2000 by $91 million, or $.23 per diluted share.
Interest payments were $947 million in 2000, $790 million in 1999 and $856
million in 1998.
Note 11--Income Taxes
The provision for federal and foreign income taxes consisted of the following
components:
(In millions) 2000 1999 1998
- -------------------------------------------------------------
Federal income taxes:
Current $763 $136 $432
Deferred (84) 293 203
- -------------------------------------------------------------
Total federal income taxes 679 429 635
Foreign income taxes 31 34 25
- -------------------------------------------------------------
Total income taxes provided $710 $463 $660
=============================================================
Net provisions for state income taxes are included in general and
administrative expenses, which are primarily allocable to government contracts.
Such state income taxes were $100 million for 2000, $22 million for 1999 and $70
million for 1998.
The Corporation's effective income tax rate varied from the statutory
federal income tax rate because of the following differences:
2000 1999 1998
- -------------------------------------------------------------
Statutory federal tax rate 35.0% 35.0% 35.0%
Increase (reduction)
in tax rate from:
Nondeductible
amortization 29.5 7.6 5.5
Revisions to prior years'
estimated liabilities 4.4 (6.0) (2.4)
Divestitures 176.7 -- 1.1
Other, net 2.4 2.0 .5
- -------------------------------------------------------------
248.0% 38.6% 39.7%
=============================================================
- --------------------------------------------------------------------------------
Page 72
- -------------------------------------------------------------------------------
(Continued)
The primary components of the Corporation's federal deferred income tax
assets and liabilities at December 31 were as follows:
(In millions) 2000 1999
- ----------------------------------------------------------------------
Deferred tax assets related to:
Accumulated post-retirement
benefit obligations $ 590 $ 632
Contract accounting methods 416 587
Accrued compensation and benefits 259 248
Other 267 165
- ----------------------------------------------------------------------
1,532 1,632
Deferred tax liabilities related to:
Intangible assets 409 436
Prepaid pension asset 535 383
Property, plant and equipment 88 93
- ----------------------------------------------------------------------
1,032 912
- ----------------------------------------------------------------------
Net deferred tax assets $ 500 $ 720
======================================================================
Federal and foreign income tax payments, net of refunds received, were $249
million in 2000, $530 million in 1999 and $228 million in 1998.
Note 12--Other Income and Expenses, Net
(In millions) 2000 1999 1998
- ----------------------------------------------------------------------
Equity in earnings of
equity investees $ 60 $ 18 $ 39
Interest income 89 33 38
Gain on sales of surplus real estate 28 57 35
Royalty income 15 17 19
Loss related to the AES Transaction (598) -- --
Gain on sale of Control Systems 302 -- --
Charge related to Globalstar guarantee (141) -- --
Impairment loss on ACeS (117) -- --
Sale of interest in L-3 -- 155 --
Other portfolio shaping
activities and other items (47) 64 39
- ----------------------------------------------------------------------
$(409) $ 344 $170
======================================================================
Note 13--Stockholders' Equity and Related Items
Capital stock--At December 31, 2000, the authorized capital of the Corporation
was composed of 1.5 billion shares of common stock (approximately 431 million
shares issued), 50 million shares of series preferred stock (no shares issued),
and 20 million shares of Series A preferred stock (no shares outstanding).
In 1995, the Corporation's Board of Directors authorized a common stock
repurchase plan for the repurchase of up to 18 million common shares to counter
the dilutive effect of common stock issued under certain of the Corporation's
benefit and compensation programs and for other purposes related to such plans.
No shares were repurchased in 2000, 1999 or 1998 under this plan.
Stock option and award plans--In March 1995, the stockholders approved the
Lockheed Martin 1995 Omnibus Performance Award Plan (the Omnibus Plan). Under
the Omnibus Plan, employees of the Corporation may be granted stock-based
incentive awards, including options to purchase common stock, stock appreciation
rights, restricted stock or other stock-based incentive awards. Employees may
also be granted cash-based incentive awards, such as performance units. These
awards may be granted either individually or in combination with other awards.
The Omnibus Plan requires that options to purchase common stock have an exercise
price of not less than 100 percent of the market value of the underlying stock
on the date of grant. The number of shares of Lockheed Martin common stock
reserved for issuance under the Omnibus Plan at December 31, 2000 was 39 million
shares. The Omnibus Plan does not impose any minimum vesting periods on options
or other awards. The maximum term of an option or any other award is 10 years.
The Omnibus Plan allows the Corporation to provide for financing of purchases of
its common stock, subject to certain conditions, by interest-bearing notes
payable to the Corporation.
- --------------------------------------------------------------------------------
Page 73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lockheed Martin Corporation
- -------------------------------------------------------------------------------
December 31, 2000
In 2000 and 1999, a total of 300,000 shares of restricted common stock
(125,000 and 175,000 shares, respectively) were awarded under the Omnibus Plan
to certain senior executives of the Corporation. The shares were recorded based
on the market value of the Corporation's common stock on the date of the award.
The award requires the recipients to pay the $1 par value of each share of stock
and provides for payment to be made in cash or in the form of a recourse note to
the Corporation. Recipients are entitled to cash dividends and to vote their
respective shares, but are prohibited from selling or transferring shares prior
to vesting. The restricted shares vest at various intervals over a four year
period from the grant date. The impact of these awards was not material to
stockholders' equity or compensation expense in 2000 or 1999.
In April 1999, the stockholders approved the Lockheed Martin Directors
Equity Plan (the Directors Plan). Approximately 50 percent of each director's
annual compensation is awarded under the Directors Plan. Directors of the
Corporation may elect to receive such compensation in the form of stock units
which track investment return to changes in value of the Corporation's common
stock with dividends reinvested, options to purchase common stock of the
Corporation, or a combination of the two. The Directors Plan requires that
options to purchase common stock have an exercise price of not less than 100
percent of the market value of the underlying stock on the date of grant. The
number of shares of Lockheed Martin common stock reserved for issuance under the
Directors Plan at December 31, 2000 was one million shares. Except in certain
circumstances, options and stock units issued under the Directors Plan vest on
the first anniversary of the grant. The maximum term of an option is 10 years.
In connection with the Merger with COMSAT, the Corporation assumed all
outstanding options granted under COMSAT stock option plans for employees and
directors. Each such option to purchase one share of COMSAT common stock
outstanding at the Merger date became fully vested (in accordance with the
applicable COMSAT stock option agreements), and became an option, on the same
terms and conditions, to purchase one share of Lockheed Martin common stock. A
total of 4.3 million COMSAT stock options were outstanding at the Merger date.
Included in the total purchase price of the transaction is $71 million
representing the estimated fair value of the 4.3 million COMSAT options based on
assumptions as of the date of the announcement of the transaction using the
Black-Scholes option pricing model. Such amount was recorded in stockholders'
equity in the Corporation's Consolidated Balance Sheet at December 31, 2000.
The following table summarizes stock option and restricted stock activity
related to the Corporation's plans during 1998, 1999 and 2000:
Number of Shares
(In thousands) Weighted
------------------------ Average
Available for Options Exercise
Grant Outstanding Price
- --------------------------------------------------------------------------------
December 31, 1997 9,504 20,877 $31.18
Additional shares reserved 17,000 -- --
Options granted (5,090) 5,090 52.06
Options exercised -- (2,697) 24.70
Options terminated 220 (223) 49.03
- -----------------------------------------------------------------
December 31, 1998 21,634 23,047 36.38
Additional shares reserved 1,000 -- --
Options granted (5,466) 5,466 37.04
Options exercised -- (656) 19.76
Options terminated 565 (567) 42.51
Restricted stock awards (175) -- --
- -----------------------------------------------------------------
December 31, 1999 17,558 27,290 36.78
Options granted (8,454) 8,454 19.85
COMSAT options assumed -- 4,263 22.43
Options exercised -- (659) 16.15
Options terminated 755 (766) 33.23
Restricted stock awards (125) -- --
- -----------------------------------------------------------------
December 31, 2000 9,734 38,582 31.91
================================================================================
Approximately 27.9 million, 19.7 million and 15.5 million outstanding
options were exercisable by employees at December 31, 2000, 1999 and 1998,
respectively.
- --------------------------------------------------------------------------------
Page 74
- -------------------------------------------------------------------------------
(Continued)
Information regarding options outstanding at December 31, 2000 follows
(number of options in thousands):
Weighted
Weighted Average
Average Remaining
Range of Number Exercise Contractual
Exercise Prices of Options Price Life
================================================================================
Options Outstanding:
Less than $20.00 10,909 $17.52 6.8
$20.00-$29.99 8,263 25.65 5.7
$30.00-$39.99 9,831 36.69 6.9
$40.00-$50.00 4,865 45.57 6.1
Greater than $50.00 4,714 52.08 7.1
------
Total 38,582 31.91 6.5
- --------------------------------------------------------------------------------
Options Exercisable:
Less than $20.00 4,360 $16.05
$20.00-$29.99 6,625 25.70
$30.00-$39.99 7,316 36.58
$40.00-$50.00 4,865 45.57
Greater than $50.00 4,714 52.08
------
Total 27,880 34.97
================================================================================
All stock options granted in 2000, 1999 and 1998 under the Omnibus Plan
have 10 year terms and generally vest over a two year service period. Exercise
prices of options awarded in those years were equal to the market price of the
stock on the date of grant. Pro forma information regarding net earnings and
earnings per share as required by SFAS No. 123 has been prepared as if the
Corporation had accounted for its employee stock options under the fair value
method. The fair value for these options was estimated at the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions for 2000, 1999 and 1998, respectively: risk-free interest rates of
6.61 percent, 4.64 percent and 5.39 percent; dividend yields of .8 percent, 2.4
percent and 1.9 percent; volatility factors related to the expected market price
of the Corporation's common stock of .342, .247 and .174; and a weighted average
expected option life of five years. The weighted average fair value of each
option granted during 2000, 1999 and 1998 was $7.62, $8.53 and $10.96,
respectively.
For purposes of pro forma disclosures, the options' estimated fair values
are amortized to expense over the options' vesting periods. The Corporation's
pro forma information follows:
(In millions, except per share data) 2000 1999 1998
- --------------------------------------------------------------------------------
Pro forma net (loss) earnings $ (550) $ 351 $ 965
Pro forma (loss) earnings per share:
Basic $(1.37) $ .92 $2.56
Diluted $(1.37) $ .91 $2.53
================================================================================
Note 14--Post-Retirement Benefit Plans
Defined contribution plans--The Corporation maintains a number of defined
contribution plans which cover substantially all employees, the most significant
of which are the 401(k) plans for salaried employees and hourly employees. Under
the provisions of these 401(k) plans, employees' eligible contributions are
matched by the Corporation at established rates. The Corporation's matching
obligations were $221 million in 2000, $222 million in 1999 and $226 million in
1998.
The Lockheed Martin Corporation Salaried Savings Plan includes an ESOP
which purchased 34.8 million shares of the Corporation's common stock with the
proceeds from a $500 million note issue which is guaranteed by the Corporation.
The Corporation's match consisted of shares of its common stock, which was
partially fulfilled with stock released from the ESOP at approximately 2.4
million shares per year based upon the debt repayment schedule through the year
2004, with the remainder being fulfilled through purchases of common stock from
terminating participants or in the open market, or through newly issued shares
from the Corporation. Interest incurred on the ESOP debt totaled $17 million,
$20 million and $23 million in 2000, 1999 and 1998, respectively. Dividends
received by the ESOP with respect to unallocated shares held are used for debt
service. The ESOP held approximately 47.3 million issued shares of the
Corporation's common stock at December 31, 2000, of which approximately 39.2
million were allocated and 8.1 million were unallocated.
- --------------------------------------------------------------------------------
Page 75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lockheed Martin Corporation
- -------------------------------------------------------------------------------
December 31, 2000
Unallocated common shares held by the ESOP are considered outstanding for voting
and other Corporate purposes, but excluded from weighted average outstanding
shares in calculating earnings per share. For 2000, 1999 and 1998, the weighted
average unallocated ESOP shares excluded in calculating earnings per share
totaled approximately 9.0 million, 11.3 million and 13.6 million common shares,
respectively. The fair value of the unallocated ESOP shares at December 31, 2000
was approximately $276 million.
Certain plans for hourly employees include non-leveraged ESOPs. The
Corporation's match to these plans was made through cash contributions to the
ESOP trusts which were used, in part, to purchase common stock from terminating
participants and in the open market for allocation to participant accounts.
These ESOP trusts held approximately 3.6 million issued and outstanding shares
of common stock at December 31, 2000.
Dividends paid to the salaried and hourly ESOP trusts on the allocated
shares are paid annually by the ESOP trusts to the participants based upon the
number of shares allocated to each participant.
Defined benefit pension plans, and retiree medical and life insurance
plans--Most employees are covered by defined benefit pension plans, and certain
health care and life insurance benefits are provided to eligible retirees by the
Corporation. The Corporation has made contributions to trusts (including
Voluntary Employees' Beneficiary Association trusts and 401(h) accounts, the
assets of which will be used to pay expenses of certain retiree medical plans)
established to pay future benefits to eligible retirees and dependents. Benefit
obligations as of the end of each year reflect assumptions in effect as of those
dates. Net pension and net retiree medical costs for 2000, 1999 and 1998 were
based on assumptions in effect at the end of the respective preceding years.
The following provides a reconciliation of benefit obligations, plan assets
and funded status of the plans:
Defined Benefit Retiree Medical and
Pension Plans Life Insurance Plans
-------------------- ------------------------
(In millions) 2000 1999 2000 1999
- ------------------------------------------------------------------------------
Change in Benefit Obligations
Benefit obligations at
beginning of year $18,073 $18,146 $2,706 $2,685
Service cost 517 564 38 43
Interest cost 1,372 1,245 198 177
Benefits paid (1,180) (1,110) (232) (208)
Amendments 5 77 36 3
Divestitures (689) -- (95) --
Actuarial losses (gains) 423 (852) 298 (23)
Participants'
contributions 3 3 35 29
- ------------------------------------------------------------------------------
Benefit obligations at
end of year $18,524 $18,073 $2,984 $2,706
- ------------------------------------------------------------------------------
Change in Plan Assets
Fair value of plan
assets at
beginning of year $25,064 $22,811 $1,141 $ 1,002
Actual return on
plan assets (383) 3,211 (30) 116
Corporation's
contributions 46 149 129 118
Benefits paid (1,180) (1,110) (143) (124)
Participants'
contributions 3 3 35 29
Divestitures (812) -- (34) --
- ------------------------------------------------------------------------------
Fair value of plan
assets at
end of year $22,738 $25,064 $ 1,098 $ 1,141
- ------------------------------------------------------------------------------
Funded (unfunded)
status of the plans $ 4,214 $ 6,991 $(1,886) $(1,565)
Unrecognized
net actuarial
(gains) losses (2,975) (6,240) 233 (191)
Unrecognized prior
service cost 564 659 6 (49)
Unrecognized
transition asset (9) (13) -- --
- ------------------------------------------------------------------------------
Prepaid (accrued)
benefit cost $ 1,794 $ 1,397 $(1,647) $(1,805)
- ------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 76
- -------------------------------------------------------------------------------
(Continued)
The net pension cost and the net post-retirement benefit cost related to
the Corporation's plans include the following components:
(In millions) 2000 1999 1998
- ------------------------------------------------------------------------
Defined Benefit Pension Plans
Service cost $ 517 $ 564 $ 491
Interest cost 1,372 1,245 1,197
Expected return on plan assets (2,130) (1,920) (1,715)
Amortization of prior service cost 75 69 58
Recognized net actuarial gains (143) (43) (22)
Amortization of transition asset (4) (4) (89)
Curtailment loss/(a)/ 11 -- --
- ------------------------------------------------------------------------
Net pension income $ (302) $ (89) $ (80)
- ------------------------------------------------------------------------
Retiree Medical and Life Insurance Plans
Service cost $ 38 $ 43 $ 40
Interest cost 198 177 178
Expected return on plan assets (105) (90) (79)
Amortization of prior service cost (12) (12) (6)
Recognized net actuarial gains (11) (8) (15)
Curtailment gain/(a)/ (87) -- --
- ------------------------------------------------------------------------
Net post-retirement cost $ 21 $ 110 $ 118
- ------------------------------------------------------------------------
(a) Amounts relate primarily to the divestiture of AES and Control Systems in
2000 and are included in the calculation of the gains or losses on the
respective transactions.
The following actuarial assumptions were used to determine the benefit
obligations and the net costs related to the Corporation's defined benefit
pension and post-retirement benefit plans, as appropriate:
2000 1999 1998
- ------------------------------------------------------------------------
Discount rates 7.5% 7.75% 7.0%
Expected long-term rates
of return on assets 9.5 9.5 9.5
Rates of increase in
future compensation levels 5.5 5.5 5.5
- ------------------------------------------------------------------------
The medical trend rates used in measuring the post-retirement benefit
obligation were 7.8 percent in 2000 and 6.0 percent in 1999, and were assumed to
ultimately decrease to 4.5 percent by the year 2009. An increase or decrease of
one percentage point in the assumed medical trend rates would result in a change
in the benefit obligation of approximately 4.5 percent and (4.0) percent,
respectively, at December 31, 2000, and a change in the 2000 post-retirement
service cost plus interest cost of approximately 4.7 percent and (4.0) percent,
respectively. The medical trend rate for 2001 is 8.2 percent.
Note 15--Leases
Total rental expense under operating leases, net of immaterial amounts of
sublease rentals and contingent rentals, was $463 million, $287 million and $285
million for 2000, 1999 and 1998, respectively.
Future minimum lease commitments at December 31, 2000 for all operating
leases that have a remaining term of more than one year were approximately
$1,893 million ($438 million in 2001, $343 million in 2002, $279 million in
2003, $233 million in 2004, $198 million in 2005 and $402 million in later
years). Certain major plant facilities and equipment are furnished by the U.S.
Government under short-term or cancelable arrangements.
Note 16--Commitments and Contingencies
The Corporation or its subsidiaries are parties to or have property subject to
litigation and other proceedings, including matters arising under provisions
relating to the protection of the environment. In the opinion of management and
in-house counsel, the probability is remote that the outcome of these matters
will have a material adverse effect on the Corporation's consolidated results of
operations or financial position. These matters include the following items:
- --------------------------------------------------------------------------------
Page 77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lockheed Martin Corporation
- -------------------------------------------------------------------------------
December 31, 2000
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 $90 million. The Corporation is also coordinating
with the U.S. Air Force, which is working with the aerospace and defense
industry to conduct preliminary studies of the potential health effects of
perchlorate exposure in connection with several sites across the country,
including the Redlands site. The results of these studies will assist state and
federal regulators in setting appropriate action levels for perchlorates in
groundwater, which will in turn assist the Corporation in determining its
ultimate clean-up obligation, if any, with respect to perchlorates.
Since 1990, the Corporation has been responding to various consent decrees
and orders relating to soil and regional groundwater contamination in the San
Fernando Valley associated with the Corporation's former operations in Burbank,
California. Among other things, these consent decrees and orders obligate the
Corporation to operate and maintain soil and groundwater treatment facilities in
Burbank and Glendale, California through 2018 and 2012, respectively; however,
the responsibility for the long-term operation of these facilities will be
assumed by the respective localities following an appropriate start-up period.
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 orders described above, net of the effects of the Agreement,
will be approximately $45 million.
The Corporation is involved in proceedings and potential proceedings
relating to environmental matters at other facilities, 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 $190 million for the other properties (including current operating
facilities and certain facilities operated in prior years) in which an estimate
of financial exposure can be determined has been recorded.
Under agreements reached with the U.S. Government in 1990 and 2000, 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.
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
- --------------------------------------------------------------------------------
Page 78
- -------------------------------------------------------------------------------
(Continued)
cost of sales. The recorded amounts do not reflect the possible future
recoveries 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.
Letters of credit and other matters--The Corporation has entered into standby
letter of credit agreements and other arrangements with financial institutions
primarily relating to the guarantee of future performance on certain contracts.
At December 31, 2000, the Corporation had contingent liabilities on outstanding
letters of credit, guarantees, and other arrangements aggregating approximately
$940 million.
Note 17--Information on Industry Segments and Major Customers
The Corporation operates in five principal business segments. The five segments
include Systems Integration, Space Systems, Aeronautics, Technology Services and
Global Telecommunications. All other activities of the Corporation fall within
the Corporate and Other segment.
Transactions between segments are generally negotiated and accounted for
under terms and conditions that are similar to other government and commercial
contracts; however, these intercompany transactions are eliminated in
consolidation. Other accounting policies of the business segments are the same
as those described in "Note 1--Summary of Significant Accounting Policies."
- --------------------------------------------------------------------------------
Page 79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lockheed Martin Corporation
- -------------------------------------------------------------------------------
December 31, 2000
As mentioned previously, Lockheed Martin consummated its merger with
COMSAT, and COMSAT's operations have been included in the results of operations
of LMGT from August 1, 2000. Prior to the merger, the results of operations of
LMGT, which began operations effective January 1, 1999, included the
Corporation's 49 percent investment in COMSAT which was acquired on September
18, 1999 and accounted for under the equity method of accounting. In addition to
the merger with COMSAT, in October 2000, the Corporation began including the
operations of Integrated Business Solutions (IBS), a business unit serving
commercial information technology markets, in LMGT's results of operations. In
accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," the Corporation began presenting LMGT as a separate
operating segment called Global Telecommunications in the third quarter of 2000.
The operations of LMGT and IBS were previously included in the Corporate and
Other segment. Earlier in 2000, the Corporation reassigned the Management & Data
Systems business unit and the space applications systems line of business from
the Systems Integration segment to the Space Systems segment.
The following segment descriptions and financial data have been adjusted to
reflect the Corporation's Global Telecommunications business as a separate
segment and the other changes in organizational structure noted above for the
periods presented. Following is a brief description of the activities of each
business segment:
Systems Integration--Engaged in the design, development, integration and
production of high performance electronic systems for undersea, shipboard, land,
and airborne applications. Major product lines include missiles and fire control
systems; air and theater missile defense systems; surface ship and submarine
combat systems; anti-submarine and undersea warfare systems; avionics and ground
combat vehicle integration; platform integration systems; command, control,
communications, computers and intelligence (C4I) systems for naval, airborne and
ground applications; surveillance and reconnaissance systems; air traffic
control systems; and postal automation systems.
Space Systems--Engaged in the design, development, engineering and production of
civil, commercial and military space systems. Major product lines include
spacecraft, space launch vehicles and manned space systems; their supporting
ground systems and services; and strategic fleet ballistic missiles. In addition
to its consolidated business units, the segment has investments in joint
ventures that are principally engaged in businesses which complement and enhance
other activities of the segment.
Aeronautics--Engaged in design, research and development, and production of
combat and air mobility aircraft, surveillance/command systems, reconnaissance
systems, platform systems integration and advanced development programs. Major
products and programs include the F-16 multi-role fighter, the F-22
air-superiority fighter, the C-130J tactical airlift aircraft, support for the
C-5, F-117 and U2 aircraft, and the Joint Strike Fighter concept demonstration
program.
Technology Services--Provides a wide array of management, engineering,
scientific, logistic and information services to federal agencies and other
customers. Major product lines include e-commerce, enterprise information
services, software modernization and data center management for DOD and civil
government agencies; engineering, science and information services for NASA;
aircraft and engine maintenance and modification services; operation,
maintenance, training, and logistics support for military and civilian systems;
launch, mission, and analysis services for military, classified and commercial
satellites; and research, development, engineering and science in support of
nuclear weapons stewardship and naval reactor programs.
Global Telecommunications--Provides communications services and advanced
technology solutions through three lines of business: enterprise solutions,
which provides telecommunications services, managed networks and information
technology solutions in the U.S. and international markets; satellite services,
which provides global fixed and mobile satellite services; and systems and
technology, which designs, builds and integrates satellite gateways and provides
systems integration services for telecommunications
- --------------------------------------------------------------------------------
Page 80
- -------------------------------------------------------------------------------
(Continued)
networks. In addition to its consolidated business units, the segment also has
investments in joint ventures that are principally engaged in businesses which
complement and enhance other activities of the segment.
Corporate and Other--Includes the state and local government services line of
business. In addition, this segment includes the Corporation's properties line
of business as well as various Corporate activities.
Selected Financial Data by Business Segment
(In millions) 2000 1999 1998
- ----------------------------------------------------------------
Net sales
Systems Integration $ 9,647 $ 9,570 $ 9,334
Space Systems 7,127 7,209 8,600
Aeronautics 4,885 5,499 5,459
Technology Services 2,318 2,261 1,935
Global Telecommunications 766 389 251
Corporate and Other 586 602 687
- ----------------------------------------------------------------
$25,329 $25,530 $26,266
- ----------------------------------------------------------------
Operating profit (loss)
Systems Integration $ 583 $ 880 $ 858
Space Systems 416 561 1,045
Aeronautics 343 247 649
Technology Services 126 137 135
Global Telecommunications (215) (97) (4)
Corporate and Other (48) 281 (161)
- ----------------------------------------------------------------
$ 1,205 $ 2,009 $ 2,522
- ----------------------------------------------------------------
Intersegment revenue
Systems Integration $ 472 $ 470 $ 630
Space Systems 64 135 77
Aeronautics 78 88 60
Technology Services 713 641 507
Global Telecommunications 38 17 6
Corporate and Other 48 47 40
- ----------------------------------------------------------------
$ 1,413 $ 1,398 $ 1,320
- ----------------------------------------------------------------
Depreciation and amortization
Systems Integration $ 183 $ 223 $ 244
Space Systems 152 165 185
Aeronautics 88 82 74
Technology Services 15 14 12
Global Telecommunications 45 5 2
Corporate and Other 35 40 52
- ----------------------------------------------------------------
$ 518 $ 529 $ 569
- ----------------------------------------------------------------
Amortization of
intangible assets
Systems Integration $ 245 $ 276 $ 273
Space Systems 56 57 60
Aeronautics 81 80 80
Technology Services 18 18 18
Global Telecommunications 49 8 --
Corporate and Other 1 1 5
- ----------------------------------------------------------------
$ 450 $ 440 $ 436
- ----------------------------------------------------------------
Equity in earnings of
equity investees
Systems Integration $ (16) $ -- $ 6
Space Systems 40 35 25
Aeronautics -- -- --
Technology Services 7 -- --
Global Telecommunications 29 (17) --
Corporate and Other -- -- 8
- ----------------------------------------------------------------
$ 60 $ 18 $ 39
- ----------------------------------------------------------------
Nonrecurring and unusual items
included in operating
profit (loss)
Systems Integration $ (304) $ 13 $ 4
Space Systems 25 21 --
Aeronautics -- -- --
Technology Services (34) -- --
Global Telecommunications (117) -- --
Corporate and Other (109) 215 (166)
- ----------------------------------------------------------------
$ (539) $ 249 $ (162)
- ----------------------------------------------------------------
Expenditures for property,
plant and equipment
Systems Integration $ 185 $ 214 $ 201
Space Systems 126 136 290
Aeronautics 89 123 100
Technology Services 14 24 25
Global Telecommunications 42 89 1
Corporate and Other 44 83 80
- ----------------------------------------------------------------
$ 500 $ 669 $ 697
- ----------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lockheed Martin Corporation
- -------------------------------------------------------------------------------
December 31, 2000
(In millions) 2000 1999 1998
- -----------------------------------------------------------------------
Assets/(a)/
Systems Integration $ 9,758 $12,209 $12,307
Space Systems 5,500 6,060 6,356
Aeronautics 3,173 3,206 3,593
Technology Services 1,435 1,484 1,421
Global Telecommunications 4,616 2,145 71
Corporate and Other 5,867 5,157 4,996
- -----------------------------------------------------------------------
$30,349 $30,261 $28,744
- -----------------------------------------------------------------------
Customer advances and amounts
in excess of costs incurred/(b)/
Systems Integration $ 899 $ 1,039 $ 756
Space Systems 2,012 2,553 2,136
Aeronautics 1,636 899 1,052
Technology Services 16 31 30
Global Telecommunications 202 132 2
Corporate and Other 15 1 36
- -----------------------------------------------------------------------
$ 4,780 $ 4,655 $ 4,012
- -----------------------------------------------------------------------
/(a)/ The Corporation has no significant long-lived assets located in foreign
countries.
/(b)/ At December 31, 2000, customer advances and amounts in excess of costs
incurred in the Space Systems segment included approximately $900 million
for commercial launch vehicles and related services (approximately $409
million of which related to launch vehicles and services from Russian
manufacturers) and approximately $650 million for the manufacture of
commercial satellites (of which approximately $65 million is refundable to
various customers at each customer's discretion). Customer advances and
amounts in excess of costs incurred in the Aeronautics segment included
approximately $866 million related the F-16 fighter aircraft program
(approximately $510 million of which related to a contract with the United
Arab Emirates).
Net Sales by Customer Category
(In millions) 2000 1999 1998
- -------------------------------------------------------------
U.S. Government
Systems Integration $ 6,855 $ 7,017 $ 6,841
Space Systems 5,854 6,054 7,044
Aeronautics 2,784 2,979 2,706
Technology Services 2,111 2,033 1,718
Global Telecommunications 113 15 --
Corporate and Other -- -- --
- -------------------------------------------------------------
$17,717 $18,098 $18,309
- -------------------------------------------------------------
(In millions) 2000 1999 1998
- -------------------------------------------------------------
Foreign governments/(a)//(b)/
Systems Integration $ 2,231 $ 2,125 $ 2,075
Space Systems 79 188 119
Aeronautics 2,061 2,501 2,721
Technology Services 116 106 97
Global Telecommunications 1 -- --
Corporate and Other 1 -- 1
- -------------------------------------------------------------
$ 4,489 $ 4,920 $ 5,013
- -------------------------------------------------------------
Commercial/(b)/
Systems Integration $ 561 $ 428 $ 418
Space Systems 1,194 967 1,437
Aeronautics 40 19 32
Technology Services 91 122 120
Global Telecommunications 652 374 251
Corporate and Other 585 602 686
- -------------------------------------------------------------
$ 3,123 $ 2,512 $ 2,944
- -------------------------------------------------------------
/(a)/ Sales made to foreign governments through the U.S. Government are included
in the foreign governments category above.
/(b)/ Export sales, included in the foreign governments and commercial
categories above, were approximately $6.4 billion, $5.7 billion and $6.1
billion in 2000, 1999 and 1998, respectively.
Note 18--Summary of Quarterly Information (Unaudited)
2000 Quarters
(In millions, except --------------------------------------------------
per share data) First/(b)/ Second/(c)/ Third/(d)/ Fourth/(e)/
- ------------------------------------------------------------------------------
Net sales $5,562 $6,212 $5,960 $7,595
Earnings from operations 313 428 408 465
Earnings (loss) before
extraordinary item 54 42 (704) 184
Net earnings (loss) 54 42 (704) 89
Diluted earnings (loss)
per share before
extraordinary item/(a)/ .14 .11 (1.74) 0.44
Diluted earnings
(loss) per share/(a)/ .14 .11 (1.74) 0.21
- ------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 82
- -------------------------------------------------------------------------------
(Continued)
1999 Quarters
(In millions, except --------------------------------------------------
per share data) First/(f)/ Second/(g)/ Third/(h)/ Fourth/(i)/
- ------------------------------------------------------------------------------
Net sales $6,188 $6,203 $6,157 $6,982
Earnings from operations 487 131 488 559
Earnings (loss) before
cumulative effect of
change in accounting 268 (41) 217 293
Net (loss) earnings (87) (41) 217 293
Diluted earnings (loss)
per share before
cumulative effect of
change in accounting .70 (.11) .57 .76
Diluted (loss) earnings
per share (.23) (.11) .57 .76
- ------------------------------------------------------------------------------
/(a)/ The sum of the diluted earnings (loss) per share amounts for the four
quarters of 2000 does not equal the related amounts included in the
Consolidated Statement of Operations for the year ended December 31, 2000
due to the impact of the issuance of 27.5 million shares of the
Corporation's common stock to consummate the Merger with COMSAT (see Note
2). In addition, the quarterly earnings per share impact of individual
items discussed in notes (b) through (e) below may not equal the earnings
per share impact of such items for the year ended December 31, 2000 as
disclosed elsewhere in this Annual Report due to the impact of the
issuance of shares to consummate the Merger with COMSAT.
/(b)/ Net earnings for the first quarter of 2000 include gains from sales of
surplus real estate and losses from portfolio shaping activities. On a
combined basis, these nonrecurring and unusual items increased net
earnings for the first quarter by $6 million, or $.02 per diluted share.
/(c)/ Net earnings for the second quarter of 2000 include the following
nonrecurring and unusual items: a charge related to the Corporation's
guarantee of certain indebtedness of Globalstar which reduced net earnings
for the quarter by $91 million, or $.23 per diluted share; a favorable
adjustment of $21 million, or $.05 per diluted share, related to the
reversal of a portion of the previously recorded charge for the shutdown
of CalComp. In addition, net earnings included a favorable adjustment
related to the Titan IV launch vehicle program which increased net
earnings by $31 million, or $.08 per diluted share.
/(d)/ Net loss for the third quarter of 2000 includes the following nonrecurring
and unusual items: an impairment loss related to the Corporation's
decision to sell its AES businesses which negatively impacted the net loss
by $980 million, or $2.42 per diluted share; a gain from the Corporation's
sale of its Control Systems business which favorably impacted the net loss
by $180 million, or $.44 per diluted share; and a net loss of $19 million,
or $.04 per diluted share, related to portfolio shaping activities and
sales of surplus real estate.
/(e)/ Net earnings for the fourth quarter of 2000 include the following
nonrecurring and unusual items: an adjustment to reduce the impairment
loss recorded related to the sale of the AES businesses which increased
net earnings by $102 million, or $.24 per diluted share; an impairment
charge related to the Corporation's investment in ACeS which reduced net
earnings by $77 million, or $.18 per diluted share; an extraordinary loss
on the early extinguishment of debt which reduced net earnings by $95
million, or $.23 per diluted share and portfolio shaping activities and
sales of surplus real estate which, on a combined basis, increased net
earnings by $2 million. Net earnings also includes charges related to the
Atlas launch vehicle program which decreased net earnings by $31 million,
or $.07 per diluted share.
/(f)/ Net loss for the first quarter of 1999 includes the following nonrecurring
and unusual items: a gain from the Corporation's sale of 4.5 million of
its shares of L-3 as part of a secondary public offering by L-3 which
favorably impacted the net loss by $74 million, or $.19 per diluted share;
and the effect of the Corporation's adoption of SOP No. 98-5 pertaining to
the costs of start-up activities which resulted in the recognition of a
cumulative effect adjustment that negatively impacted the net loss by $355
million, or $.93 per diluted share.
/(g)/ Net loss for the second quarter of 1999 includes the effects of negative
adjustments related to changes in estimate on the C-130J airlift aircraft
program due to cost growth and a reduction in production rates, based on a
current evaluation of the program's performance. These adjustments, net of
state income tax benefits, negatively impacted (loss) earnings before
income taxes and cumulative effect of change in accounting by $197
million, and increased the net loss by $128 million, or $.33 per diluted
share. Net loss for the second quarter also includes the effects of
negative adjustments related to changes in estimate on the Titan IV
program due to reduced award and incentive fees resulting from the Titan
IV launch failure on April 30, 1999 as well as a more conservative
assessment of future program performance. These adjustments, net of state
income tax benefits, negatively impacted (loss) earnings before income
taxes and cumulative effect of change in accounting by $84 million, and
increased the net loss by $54 million, or $.14 per diluted share. Also,
net earnings for the second quarter of 1999 include a nonrecurring and
unusual item related to portfolio shaping activities which increased the
net loss by $12 million, or $.03 per diluted share.
/(h)/ Net earnings for the third quarter of 1999 include nonrecurring and
unusual items related to gains from the sale of surplus real estate and a
net gain associated with sales of various non-core businesses and
investments and other portfolio shaping items. On a combined basis, these
nonrecurring and unusual items increased net earnings by $34 million, or
$.09 per diluted share.
/(i)/ Net earnings for the fourth quarter of 1999 include the following
nonrecurring and unusual items: a gain from the Corporation's sale of its
remaining interest in L-3, which increased net earnings by $27 million, or
$.07 per diluted share; and gains related to the Corporation's sale of
surplus real estate and a net gain associated with sales of various non-
core businesses and investments and other portfolio shaping items which,
on a combined basis, increased net earnings by $39 million, or $.10 per
diluted share.
- --------------------------------------------------------------------------------
Page 83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lockheed Martin Corporation
- -------------------------------------------------------------------------------
December 31, 2000
Note 19 - Condensed Consolidating Financial Information
As discussed more fully in "Note 10--Debt," the Corporation recorded $200
million in MIPS in connection with the Merger. The MIPS were issued in 1995 by a
subsidiary of COMSAT and were guaranteed by COMSAT. In the third quarter of
2000, Lockheed Martin also guaranteed the MIPS. The guarantees by the
Corporation and COMSAT are full and unconditional and joint and several.
The following condensed consolidating financial information presents
separate financial information for each of the guarantors, with all non-
guarantor entities presented as a separate group. Investments in majority-owned
subsidiaries are accounted for under the equity method of accounting for
purposes of this presentation and, accordingly, earnings of such subsidiaries
are reflected in the earnings and investment accounts of the parent companies.
The elimination entries eliminate investments in subsidiaries and intercompany
balances and transactions.
Lockheed Non-Guarantor
(In millions) Martin/(a)/ COMSAT/(b)/ Entities Eliminations Consolidated
===========================================================================================================================
Condensed Statement of Operations
- ---------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 2000
Net sales $ 19,888 $ 167 $ 6,247 $ (973) $ 25,329
Cost of sales 18,471 193 6,024 (973) 23,715
- ---------------------------------------------------------------------------------------------------------------------------
Earnings from operations 1,417 (26) 223 -- 1,614
Other income and expenses, net (474) 52 717 (704) (409)
Equity in earnings of majority-owned
subsidiaries 844 (16) -- (828) --
- ---------------------------------------------------------------------------------------------------------------------------
1,787 10 940 (1,532) 1,205
Interest expense 1,598 17 8 (704) 919
- ---------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes and
extraordinary item 189 (7) 932 (828) 286
Income tax expense 613 -- 97 -- 710
- ---------------------------------------------------------------------------------------------------------------------------
(Loss) earnings before extraordinary item (424) (7) 835 (828) (424)
Extraordinary loss on early extinguishment
of debt (95) -- -- -- (95)
- ---------------------------------------------------------------------------------------------------------------------------
Net (loss) earnings $ (519) $ (7) $ 835 $ (828) $ (519)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Condensed Statement of Cash Flows
- ---------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 1,385 $ 132 $ 499 $ -- $ 2,016
- ---------------------------------------------------------------------------------------------------------------------------
Investing Activities
Expenditures for property, plant and
equipment (483) (4) (13) -- (500)
AES Transaction 1,670 -- -- -- 1,670
Sale of Control Systems business 510 -- -- -- 510
Sale of shares in Inmarsat -- 164 -- -- 164
Additional investments in affiliated
companies (219) (38) -- -- (257)
Other 240 (60) (5) -- 175
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing
activities 1,718 62 (18) -- 1,762
- ---------------------------------------------------------------------------------------------------------------------------
Financing Activities
Net decrease in short-term borrowings (461) -- (2) -- (463)
Repayments and early extinguishment of
long-term debt (2,096) -- -- -- (2,096)
Issuances of common stock 14 -- -- -- 14
Common stock dividends (183) -- -- -- (183)
Net intercompany financing activities 345 (269) (76) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (2,381) (269) (78) -- (2,728)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 722 (75) 403 -- 1,050
Cash and cash equivalents at beginning of
year (198) 66 587 -- 455
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 524 $ (9) $ 990 $ -- $ 1,505
===========================================================================================================================
- --------------------------------------------------------------------------------
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- -------------------------------------------------------------------------------
(Continued)
Lockheed Non-Guarantor
(In millions) Martin/(a)/ COMSAT/(b)/ Entities Eliminations Consolidated
===========================================================================================================================
Condensed Balance Sheet
- ---------------------------------------------------------------------------------------------------------------------------
As of December 31, 2000
Assets
Cash and cash equivalents $ 524 $ (9) $ 990 $ -- $ 1,505
Receivables 3,140 76 2,454 (1,475) 4,195
Inventories 3,054 1 770 -- 3,825
Deferred income taxes 1,233 3 -- -- 1,236
Other current assets 232 9 257 -- 498
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 8,183 80 4,471 (1,475) 11,259
Property, plant and equipment 2,742 76 628 -- 3,446
Investments in equity securities 206 1,617 610 -- 2,433
Investments in majority-owned
subsidiaries 5,016 974 -- (5,990) --
Intangible assets related to contracts and
programs acquired 1,052 -- 36 -- 1,088
Cost in excess of net assets acquired 6,732 664 1,459 -- 8,855
Prepaid pension cost 1,743 49 2 -- 1,794
Other assets 629 73 772 -- 1,474
- ---------------------------------------------------------------------------------------------------------------------------
$ 26,303 $ 3,533 $ 7,978 $ (7,465) $ 30,349
===========================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 831 $ 2 $ 1,826 $ (1,475) $ 1,184
Customer advances and amounts in excess
of costs incurred 3,623 2 1,155 -- 4,780
Salaries, benefits and payroll taxes 821 43 174 -- 1,038
Income taxes 241 (2) 280 -- 519
Short-term borrowings 12 -- -- -- 12
Current maturities of long-term debt 802 75 5 -- 882
Other current liabilities 607 70 1,083 -- 1,760
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 6,937 190 4,523 (1,475) 10,175
Long-term debt 8,713 134 218 -- 9,065
Post-retirement benefit liabilities 1,607 39 1 -- 1,647
Deferred income taxes 677 156 (97) -- 736
Other liabilities 1,209 333 24 -- 1,566
Stockholders' equity:
Common stock, $1 par value per share 431 -- -- -- 431
Additional paid-in capital 1,789 -- -- -- 1,789
Retained earnings 5,199 -- -- -- 5,199
Unearned ESOP shares (115) -- -- -- (115)
Accumulated other comprehensive loss (144) -- -- -- (144)
Total equity of subsidiaries -- 2,681 3,309 (5,990) --
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 7,160 2,681 3,309 (5,990) 7,160
- ---------------------------------------------------------------------------------------------------------------------------
$ 26,303 $ 3,533 $ 7,978 $ (7,465) $ 30,349
===========================================================================================================================
/(a)/ Data is related to the Lockheed Martin parent company only.
/(b)/ Data is related to the COMSAT parent company only and pertains to
operations from August 1, 2000.
- --------------------------------------------------------------------------------
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors required by this Item 10 is included
under the caption "Election of Directors" in our definitive Proxy Statement to
be filed pursuant to Regulation 14A no later than March 2001 (the "2001 Proxy
Statement"), and that information is incorporated by reference in this Form 10-
K. Information concerning executive officers required by this Item 10 is
located under Part I, Item 4(a) of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is included in the text and tables
under the caption "Compensation of Executive Officers" in the 2001 Proxy
Statement and that information, except for the information required by Item
402(k) and 402(l) of Regulation S-K, is incorporated by reference in this Form
10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is included under the headings
"Security Ownership of Certain Beneficial Owners," "Securities Owned by
Directors, Nominees and Named Executive Officers" and "Voting Securities and
Record Date" in the 2001 Proxy Statement, and that information is incorporated
by reference in this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
- --------------------------------------------------------------------------------
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) List of Financial Statements filed as part of the Form 10-K.
The following financial statements of Lockheed Martin Corporation and
consolidated subsidiaries are included in Item 8 of this Annual Report on Form
10-K at the page numbers referenced below:
Page
Consolidated Statement of Operations--
Years ended December 31, 2000, 1999, and 1998...................... 58
Consolidated Statement of Cash Flows--
Years ended December 31, 2000, 1999, and 1998...................... 59
Consolidated Balance Sheet--
December 31, 2000 and 1999......................................... 60
Consolidated Statement of Stockholders' Equity--
Years ended December 31, 2000, 1999 and 1998....................... 61
Notes to Consolidated Financial Statements--
December 31, 2000.................................................. 62
(2) List of Financial Statement Schedules filed as part of this
Form 10-K. All schedules have been omitted because they are not
applicable, not required, or the information has been otherwise
supplied in the financial statements or notes to the financial
statements.
(3) Ernst & Young LLP
The report of Lockheed Martin's independent auditors with respect to
the above-referenced financial statements appears on page 57 of this
Form 10-K. The consent of Lockheed Martin's independent auditors
appears as Exhibit 23 of this Annual Report on Form 10-K.
(b) The following reports on Form 8-K were filed during the last quarter of
the period covered by this report:
(1) Lockheed Martin Corporation Current Report on Form 8-K filed with the
Securities and Exchange Commission on October 24, 2000.
- --------------------------------------------------------------------------------
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(2) Lockheed Martin Corporation Current Report on Form 8-K filed with the
Securities and Exchange Commission on November 28, 2000.
(3) Lockheed Martin Corporation Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 20, 2000.
During the first quarter of 2001 (up until this report was filed), the
Corporation did not file any current reports on Form 8-K.
(c) Exhibits
(3) (i) Articles of Incorporation.
(a) Articles of Amendment and Restatement of Lockheed Martin
Corporation (formerly Parent Corporation) filed with the State
Department of Assessments and Taxation of the State of Maryland
on February 7, 1995 (incorporated by reference to Exhibit 3.1 to
Lockheed Martin Corporation's Registration Statement on Form S-4
(No. 33-57645) filed with the Commission on February 9, 1995).
(ii) Bylaws
(a) Copy of the Bylaws of Lockheed Martin Corporation as last amended
on June 14, 2000 (incorporated by reference to Exhibit 3 of the
Corporation's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000).
(4) (a) Indenture dated May 16, 1996, between the Corporation, Lockheed
Martin Tactical Systems, Inc., and First Trust of Illinois,
National Association as Trustee (incorporated by reference to
Exhibit 4 of the Corporation's filing on Form 8-K on May 16,
1996).
(b) Form of Indenture between the Corporation and U.S. Bank Trust
National Association as Trustee (incorporated by reference to
Exhibit 4(a) of the Corporation's filing on Form S-3
(No. 333-71409) on January 29, 1999).
(c) See Exhibits 3(i) and 3(ii).
No other instruments defining the rights of holders of long-term debt are
filed since the total amount of securities authorized under any such instrument
does not exceed 10% of the total assets of the Corporation on a consolidated
basis. The Corporation agrees to furnish a copy of such instruments to the
Securities and Exchange Commission upon request.
- --------------------------------------------------------------------------------
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(10)* (a) Lockheed Martin Corporation 1995 Omnibus Performance Award Plan
(incorporated by reference to Exhibit 10.36 to Lockheed Martin
Corporation's Registration Statement on Form S-4 (No. 33-57645)
filed with the Commission on February 9, 1995).
(b) Lockheed Martin Corporation Directors Deferred Stock Plan, as
amended (incorporated by reference to Exhibit 10(b) to Lockheed
Martin Corporation's Annual Report on Form 10-K for the year
ended December 31, 1998).
(c) Agreement Containing Consent Order, dated December 22, 1994,
among the Corporation, Lockheed Corporation, Martin Marietta
Corporation and the Federal Trade Commission (incorporated by
reference to Exhibit 10.4 to Lockheed Martin Corporation's
Registration Statement on Form S-4 (No. 33-57645) filed with the
Commission on February 9, 1995).
(d) Lockheed Martin Corporation Directors Deferred Compensation Plan,
as amended (incorporated by reference to Exhibit 10(d) to
Lockheed Martin Corporation's Annual Report on Form 10-K for the
year ended December 31, 1998).
(e) Resolutions relating to Lockheed Martin Corporation Financial
Counseling Program for directors, officers, company presidents,
and other key employees, as amended (incorporated by reference to
Exhibit 10(e) to Lockheed Martin Corporation's Annual Report on
Form 10-K for the year ended December 31, 1997).
(f) Martin Marietta Corporation Post-Retirement Death Benefit Plan
for Senior Executives, as amended (incorporated by reference to
Exhibit 10.9 to Lockheed Martin Corporation's Registration
Statement on Form S-4 (No. 33-57645) filed with Commission on
February 9, 1995).
(g) Martin Marietta Corporation 1984 Stock Option Plan for Key
Employees, as amended (incorporated by reference to Exhibit 10.12
to Lockheed Martin Corporation's Registration Statement on Form
S-4 (No. 33-57645) filed with Commission on February 9, 1995).
(h) Martin Marietta Corporation Amended Omnibus Securities Award
Plan, as amended March 25, 1993 (incorporated by reference to
Exhibit 10.13 to Lockheed Martin Corporation's Registration
Statement on Form S-4 (No. 33-57645) filed with Commission on
February 9, 1995).
(i) Martin Marietta Corporation Supplemental Excess Retirement Plan,
as amended (incorporated by reference to Exhibit 10.15 to
Lockheed Martin Corporation's Registration Statement on Form S-4
(No. 33-57645) filed with Commission on February 9, 1995).
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(j) Martin Marietta Corporation Directors' Life Insurance Program
(incorporated by reference to Exhibit 10.17 to Lockheed Martin
Corporation's Registration Statement on Form S-4 (No. 33-57645)
filed with Commission on February 9, 1995).
(k) Martin Marietta Corporation Executive Special Early Retirement
Option and Plant Closing Retirement Option Plan (incorporated by
reference to Exhibit 10.18 to Lockheed Martin Corporation's
Registration Statement on Form S-4 (No. 33-57645) filed with
Commission on February 9, 1995).
(l) Martin Marietta Supplementary Pension Plan for Employees of
Transferred GE Operations (incorporated by reference to Exhibit
10.19 to Lockheed Martin Corporation's Registration Statement on
Form S-4 (No. 33-57645) filed with Commission on February 9,
1995).
(m) Martin Marietta Corporation Deferred Compensation Plan for
Selected Officers, as amended (incorporated by reference to
Exhibit 10(v) to Lockheed Martin Corporation's Annual Report on
Form 10-K for the year ended December 31, 1997).
(n) Lockheed Corporation 1992 Employee Stock Option Program
(incorporated by reference to the Registration Statement on Form
S-8 (No. 33-49003) of Lockheed Corporation filed with the
Commission on September 11, 1992).
(o) Amendment to Lockheed Corporation 1992 Employee Stock Option Plan
(incorporated by reference to Exhibit 10.22 to Lockheed Martin
Corporation's Registration Statement on Form S-4 (No. 33-57645)
filed with the Commission on February 9, 1995).
(p) Lockheed Corporation 1986 Employee Stock Purchase Program, as
amended (incorporated by reference to Exhibit 10.23 to Lockheed
Martin Corporation's Registration Statement on Form S-4 (No. 33-
57645) filed with the Commission on February 9, 1995).
(q) Incentive Retirement Benefit Plan for Certain Executives of
Lockheed Corporation, as amended (incorporated by reference to
Exhibit 10.25 to Lockheed Martin Corporation's Registration
Statement on Form S-4 (No. 33-57645) filed with the Commission on
February 9, 1995).
(r) Supplemental Retirement Benefit Plan for Certain Transferred
Employees of Lockheed Corporation, as amended (incorporated by
reference to Exhibit 10.26 to Lockheed Martin Corporation's
Registration Statement on Form S-4 (No. 33-57645) filed with the
Commission on February 9, 1995).
- --------------------------------------------------------------------------------
Page 90
(s) Supplemental Benefit Plan of Lockheed Corporation, as amended
(incorporated by reference to Exhibit 10.27 to Lockheed Martin
Corporation's Registration Statement on Form S-4 (No. 33-57645)
filed with the Commission on February 9, 1995).
(t) Lockheed Martin Corporation Supplemental Savings Plan, as amended
and restated (incorporated by reference to Exhibit 10(ee) to
Lockheed Martin Corporation's Annual Report on Form 10-K for the
year ended December 31, 1997).
(u) Deferred Compensation Plan for Directors of Lockheed Corporation,
as amended (incorporated by reference to Exhibit 10.30 to
Lockheed Martin Corporation's Registration Statement on Form S-4
(No. 33-57645) filed with the Commission on February 9, 1995).
(v) Lockheed Corporation Retirement Plan for Directors, as amended
(incorporated by reference to Exhibit 10.31 to Lockheed Martin
Corporation's Registration Statement on Form S-4 (No. 33-57645)
filed with the Commission on February 9, 1995).
(w) Trust Agreement, as amended February 3, 1995, between Lockheed
Corporation and First Interstate Bank of California (incorporated
by reference to Exhibit 10.33 to Lockheed Martin Corporation's
Registration Statement on Form S-4 (No. 33-57645) filed with the
Commission on February 9, 1995).
(x) Lockheed Corporation Directors' Deferred Compensation Plan Trust
Agreement, as amended (incorporated by reference to Exhibit 10.34
to Lockheed Martin Corporation's Registration Statement on Form
S-4 (No. 33-57645) filed with the Commission on February 9,
1995).
(y) Trust Agreement, dated December 22, 1994, between Lockheed
Corporation and J.P. Morgan California with respect to certain
employee benefit plans of Lockheed Corporation (incorporated by
reference to Exhibit 10.35 to Lockheed Martin Corporation's
Registration Statement on Form S-4 (No. 33-57645) filed with the
Commission on February 9, 1995).
(z) Lockheed Martin Corporation Directors Charitable Award Plan
(incorporated by reference to Exhibit 10(oo) to Lockheed Martin
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996).
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Page 91
(aa) Loral Supplemental Executive Retirement Plan (incorporated by reference to
Exhibit 99.2 of the Schedule 14D-9 filed by Loral Corporation with the
Commission on January 16, 1996).
(bb) Amendment to Lockheed Martin Corporation Supplemental Excess Retirement
Plan (incorporated by reference to Exhibit 10(nnn) to Lockheed Martin
Corporation's Annual Report on Form 10-K for the year ended December 31,
1996).
(cc) Amendment to Terms of Outstanding Stock Option Relating to Exercise Period
for Employees of Divested Business (incorporated by reference to Exhibit
10(dd) to Lockheed Martin Corporation's Annual Report on Form 10-K for the
year ended December 31, 1999).
(dd) Lockheed Martin Corporation Post-Retirement Death Benefit Plan for Elected
Officers, as amended (incorporated by reference to Exhibit 10(ppp) to
Lockheed Martin Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996).
(ee) Lockheed Martin Corporation Directors Retirement Plan, as amended
(incorporated by reference to Exhibit 10(ff) to Lockheed Martin
Corporation's Annual Report on Form 10-K for the year ended December 31,
1998).
(ff) Deferred Performance Payment Plan of Lockheed Martin Corporation Space &
Strategic Missiles Sector (incorporated by reference to Exhibit 10(ooo) to
Lockheed Martin Corporation's Annual Report on Form 10-K for the year ended
December 31, 1997).
(gg) Resolutions of Board of Directors of Lockheed Martin Corporation dated
June 27, 1997 amending Lockheed Martin Non-Qualified Pension Plans
(incorporated by reference to Exhibit 10(ppp) to Lockheed Martin
Corporation's Annual Report on Form 10-K for the year ended December 31,
1997).
(hh) Form of Retention Agreement, including Addendum (incorporated by reference
to Exhibit 10(u) to Lockheed Martin Corporation's Annual Report on
Form 10-K for the year ended December 31, 1997).
(ii) Lockheed Martin Corporation Directors Equity Plan (incorporated by
reference to Exhibit 10 to Lockheed Martin Corporation's Quarterly Report
on Form 10-Q for the quarter ended March 31, 2000).
(jj) Lockheed Martin Corporation Deferred Management Incentive Compensation Plan
(incorporated by reference to Exhibit 10(ll) to
- --------------------------------------------------------------------------------
Page 92
Lockheed Martin Corporation's Annual Report on Form 10-K for the year ended
December 31, 1998).
(kk) Lockheed Martin Corporation Divested Business Deferred Management Incentive
Compensation Plan (incorporated by reference to Exhibit 10(mm) to Lockheed
Martin Corporation's Annual Report on Form 10-K for the year ended December
31, 1999).
(ll) Special Agreement between the Corporation and Louis R. Hughes (incorporated
by reference to Exhibit 10(a) to Lockheed Martin Corporation's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000).
(mm) Lockheed Martin Corporation Management Incentive Compensation Plan
(incorporated by reference to Exhibit 10.1 to Lockheed Martin Corporation's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).
(nn) COMSAT Corporation Non-Employee Directors Stock Plan (incorporated by
reference from Exhibit 10.11 to the Form 10-K of COMSAT Corporation, SEC
File No. 1-4929, for the fiscal year ended December 31, 1996).
(oo) COMSAT Corporation Directors and Officers Deferred Compensation Plan
(incorporated by reference from Exhibit 10.24 to Form 10-K of COMSAT
Corporation, SEC File No. 1-4929, for the fiscal year ended December 31,
1996).
(pp) Lockheed Martin Global Telecommunications Supplemental Savings Incentive
Plan.
(qq) Form of Retention Agreement used in connection with Loral Corporation
acquisition.
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Page 93
* Exhibits (10)(a), 10(b) and 10(d) through (10)(qq) constitute management
contracts or compensatory plans or arrangements required to be filed as an
Exhibit to this Form pursuant to Item 14(c) of this Report.
(12) Computation of ratio of earnings to fixed charges for the year ended
December 31, 2000.
(23) Consent of Ernst & Young LLP, Independent Auditors for Lockheed Martin
Corporation.
(24) Powers of Attorney.
Other material incorporated by reference:
None.
- --------------------------------------------------------------------------------
Page 94
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LOCKHEED MARTIN CORPORATION
Date: March 9, 2001 By: /s/ Frank H. Menaker, Jr.
-------------------------
FRANK H. MENAKER, JR.
Senior Vice President
and General Counsel
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ Vance D. Coffman* Chairman and
- -------------------- Chief Executive Officer March 9, 2001
VANCE D. COFFMAN
/s/ Robert J. Stevens* President, Chief Operating
- --------------------- Officer and Director March 9, 2001
ROBERT J. STEVENS
/s/ Christopher E. Kubasik* Vice President and Chief
- -------------------------- Financial Officer; Acting March 9, 2001
CHRISTOPHER E. KUBASIK Controller (Chief Accounting
Officer)
/s/ Norman R. Augustine* Director March 9, 2001
- -----------------------
NORMAN R. AUGUSTINE
/s/ Marcus C. Bennett* Director March 9, 2001
- ---------------------
MARCUS C. BENNETT
/s/ James F. Gibbons* Director March 9, 2001
- --------------------
JAMES F. GIBBONS
- -------------------------------------------------------------------------------
Page 95
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ Edward E. Hood, Jr.* Director March 9, 2001
- --------------------------
EDWARD E. HOOD, JR.
/s/ Caleb B. Hurtt* Director March 9, 2001
- --------------------------
CALEB B. HURTT
/s/ Gwendolyn S. King* Director March 9, 2001
- --------------------------
GWENDOLYN S. KING
/s/ Eugene F. Murphy* Director March 9, 2001
- --------------------------
EUGENE F. MURPHY
_________________ Director March 9, 2001
FRANK SAVAGE
/s/ James R. Ukropina* Director March 9, 2001
- --------------------------
JAMES R. UKROPINA
/s/ Douglas C. Yearley* Director March 9, 2001
- ----------------------
DOUGLAS C. YEARLEY
* By: /s/ David A. Dedman March 9, 2001
-------------------
(David A. Dedman, Attorney-in-fact**)
___________________________
** By authority of Powers of Attorney filed with this Annual Report on Form
10-K.
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