Lockheed Martin 1996 Annual Report Download - page 53

Management's Discussion and Analysis
of Financial Condition and
Results of Operations
Lockheed Martin Corporation
Lockheed Martin Corporation (Lockheed Martin or the
Corporation) is a highly diversified global enterprise princi-
pally engaged in the conception, research, design, develop-
ment, manufacture and integration of advanced-technology
products and services. The following discussion should be
read in conjunction with the audited consolidated financial
statements included herein.
Business Combination with Loral Corporation
On January 7, 1996, the Corporation entered into an Agree-
ment and Plan of Merger (the Loral Merger Agreement) with
Loral Corporation (Loral) pursuant to which the Corpora-
tion agreed to purchase all of the issued and outstanding
shares of common stock of Loral (together with the associ-
ated preferred stock purchase rights) for an aggregate con-
sideration of $38 per share in cash (the Tender Offer). The
Tender Offer was made as part of a series of transactions that
resulted in (i) the distribution to Loral stockholders of
shares of capital stock in Loral Space & Communications,
Ltd. (Loral SpaceCom), a newly-formed company, which
now owns and manages substantially all of Loral's former
space and satellite telecommunications interests, and (ii) the
acquisition by the Corporation of Loral's defense electronics
and systems integration businesses (collectively, the Loral
Transaction). As a result of the Loral Transaction, Loral
changed its name to Lockheed Martin Tactical Systems, Inc.
(Tactical Systems) and became a wholly-owned subsidiary
of the Corporation. The operations of Tactical Systems have
been included in the results of operations of the Corporation
from April 1,1996.
In connection with the Loral Transaction, the Corpora-
tion acquired shares of preferred stock of Loral SpaceCom
that were convertible into 20 percent of Loral SpaceCom's
common stock on a fully diluted basis at the acquisition date.
The Corporation's ownership of the preferred stock of Loral
SpaceCom is subject to certain limitations and restrictions
set forth in the terms and conditions of the preferred stock
and in agreements between the Corporation and Loral
SpaceCom.
The total purchase price paid with respect to the above
transactions, including acquisition costs, was approximately
$7.6 billion. The Loral Transaction has been accounted for
using the purchase method of accounting.
The funds for the consummation of the Loral Transac-
tion were provided through the issuance of commercial
paper by the Corporation and through borrowings under
revolving credit facilities with a syndicate of commercial
banks. Approximately $6.6 billion of commercial paper was
issued and approximately $1 billion was borrowed under the
revolving credit facilities to finance the Loral Transaction on
the closing date. During the second quarter of 1996, the Cor-
poration issued $5 billion of debt securities, the net proceeds
from which were used to repay the $1 billion borrowed under
the revolving credit facility and to reduce the amount of
commercial paper outstanding.
Repositioning of Non-Core Businesses
On January 31, 1997, the Corporation signed a memorandum
of understanding to reposition certain non-core business
units as a new independent company (Newco). Under the
proposed transaction, Lehman Brothers Capital Partners III,
L.P, a merchant banking partnership associated with
Lehman Brothers Holdings, will own 50.1 percent of the new
company, Lockheed Martin will retain a 34.9 percent equity
stake and the new company's management team will own the
remaining 15 percent. The business units have approxi-
mately 4,900 employees and combined 1996 annual rev-
enues exceeding $650 million. The proposed transaction is
subject to the parties entering into a mutually acceptable
definitive purchase agreement, certain regulatory approvals
and other customary conditions, and is expected to close
during the first half of 1997.
Results of Operations
The Corporation's operating cycle is long-term and involves
various types of production contracts and varying produc-
tion delivery schedules. Accordingly, 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.
51