Lockheed Martin 1998 Annual Report Download - page 41

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Lockheed Martin Corporation
The Corporation’s effective income tax rate varied from the statu-
tory federal income tax rate because of the following differences:
1998 1997 1996
Statutory federal tax rate 35.0% 35.0% 35.0%
Increase (reduction) in tax rate from:
Nondeductible amortization 5.5 4.9 4.2
Revisions to prior years’ estimated liabilities (2.4) (5.7) (1.6)
Divestitures 1.1 (2.4) (5.6)
Other, net .5 1.1 1.8
39.7% 32.9% 33.8%
The primary components of the Corporation’s federal deferred
income tax assets and liabilities at December 31 were as follows:
(In millions) 1998 1997
Deferred tax assets related to:
Accumulated post-retirement
benefit obligations $ 666 $ 698
Contract accounting methods 635 669
Accrued compensation and benefits 181 258
Other 240 199
1,722 1,824
Deferred tax liabilities related to:
Intangible assets 444 437
Prepaid pension asset 338 259
Property, plant and equipment 147 132
929 828
Net deferred tax assets $ 793 $ 996
At December 31, 1998 and 1997, other liabilities included net
long-term deferred tax liabilities of $316 million and $260 million,
respectively.
Federal and foreign income tax payments, net of refunds received,
were $228 million in 1998, $986 million in 1997 and $1.1 billion
in 1996.
Note 12—Other Income and Expenses, Net
(In millions) 1998 1997 1996
Equity in earnings (losses) of affiliates $ 39 $ 48 $(28)
Interest income 38 40 60
Gains on land sales 36 20 —
Royalty income 19 52 47
GE Transaction —311 —
Materials transaction —— 365
Other 38 11 8
$170 $482 $452
Note 13—Stockholders’ Equity and Related Items
Capital structure—At December 31, 1998, the authorized capital
of the Corporation was composed of 1.5 billion shares of common
stock (approximately 393 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 com-
mon 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 1998, 1997 or 1996 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 indi-
vidually 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 under-
lying 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, 1998 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.
The following table summarizes the stock option activity of the
Corporation’s plans during 1996, 1997 and 1998:
Number of Shares Weighted
(In thousands) Average
Available Options Exercise
for Grant Outstanding Price
December 31, 1995 19,662 18,840 $19.87
Granted (5,298) 5,298 37.52
Exercised — (4,482) 16.33
Terminated 282 (340) 31.66
December 31, 1996 14,646 19,316 25.33
Granted (5,796) 5,796 45.60
Exercised — (3,519) 20.86
Terminated 654 (716) 40.84
December 31, 1997 9,504 20,877 31.18
Additions 17,000 — —
Granted (5,090) 5,090 52.06
Exercised — (2,697) 24.70
Terminated 220 (223) 49.03
December 31, 1998 21,634 23,047 $36.38
Approximately 15.5 million, 13.0 million and 11.4 million out-
standing options were exercisable at December 31, 1998, 1997 and
1996, respectively.