Lockheed Martin 1998 Annual Report Download - page 42

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998
Information regarding options outstanding at December 31, 1998 follows (number of options in thousands):
Options Outstanding Options Exercisable
Weighted Average
Range of Number of Weighted Average Remaining Number of Weighted Average
Exercise Prices Options Exercise Price Contractual Life Options Exercise Price
Less than $25.00 5,912 $17.91 4.1 5,912 $17.91
$25.00–$39.99 7,080 34.18 6.8 7,080 34.18
$40.00–$50.00 5,072 45.53 8.0 2,437 45.57
Greater than $50.00 4,983 52.09 10.0 26 53.71
Total 23,047 $36.38 7.1 15,455 $29.78
All stock-based incentive awards granted in 1998, 1997 and
1996 under the Omnibus Plan were stock options which have
10 year terms, and virtually all of which 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 1998, 1997 and 1996,
respectively: risk-free interest rates of 5.39 percent, 6.36 percent
and 5.58 percent; dividend yields of 1.9 percent, 1.5 percent and
1.7 percent; volatility factors related to the expected market price
of the Corporation’s common stock of .174, .163 and .186; and a
weighted average expected option life of five years. The weighted
average fair values of options granted during 1998, 1997 and 1996
were $10.96, $10.94 and $8.62, 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) 1998 1997 1996
Pro forma net earnings $ 965 $1,267 $1,322
Pro forma earnings (loss) per share:
Basic $2.56 $ (1.65) $ 3.34
Diluted $2.53 $ (1.65) $ 2.99
Note 14—Post-Retirement Benefit Plans
Effective January 1, 1998, the Corporation adopted SFAS No. 132,
“Employers’ Disclosures about Pension and Other Post-retirement
Benefits.” SFAS No. 132 revised disclosure requirements for pension
and other post-retirement benefit plans; however, it did not change
the measurement or recognition provisions of existing accounting
literature. In accordance with SFAS No. 132, prior year disclosures
relating to pension and post-retirement benefit plans have been
restated for comparative purposes.
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 $226 million in 1998, $212 million in 1997 and
$202 million in 1996.
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 ful-
filled 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 $23 million, $26 million
and $29 million in 1998, 1997 and 1996, respectively. Dividends
received by the ESOP with respect to unallocated shares held are
used for debt service. The ESOP held approximately 39.8 million
issued shares of the Corporation’s common stock at December 31,
1998, of which approximately 27.1 million were allocated and 12.7
million were unallocated. Unallocated common shares held by the
ESOP are considered outstanding for voting and other Corporate
purposes, but excluded from weighted average outstanding shares
in calculating earnings per share. For 1998, 1997 and 1996, the
weighted average unallocated ESOP shares excluded in calculating
earnings per share totaled approximately 13.6 million, 15.8 million
and 18.2 million common shares, respectively. The fair value of the
unallocated ESOP shares at December 31, 1998 was approximately
$540 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, 1998.