Lockheed Martin 1997 Annual Report Download

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Annual Report 1997

Table of contents

  • Page 1
    Annual Report 1997

  • Page 2
    ... certain other assets, and costs for facility closings and transfers of programs. These charges decreased net earnings by $209 million, or $.94 per diluted share. Contents To Our Shareholders 1997 Achievements Financial Section Corporate Directory General Information On the Cover: From the depths...

  • Page 3
    ... and Chief Operating Officer Dear Fellow Shareholders Upon the completion of the merger forming Lockheed Martin Corporation, we set forth five goals for the new corporation: Enhance our position as one of the leaders in the aerospace/defense industry Achieve significant cost reductions to increase...

  • Page 4
    ... informed by the Department of Justice (DOJ) that the DOJ was fundamentally opposed to the merger. The Corporation has committed that it will not close on its combination with Northrop Grumman prior to April 24, 1998 and Lockheed Martin has led the consolidation of the industry, growing net sales...

  • Page 5
    ... savings accrue to the government. Generate substantial cash flow and deploy it to enhance shareholder value - In 1997, the Corporation generated over $1.6 billion in cash, consisting of $900 million in free cash flow from operations and $750 million in after-tax proceeds from divestitures. While...

  • Page 6
    ... the Corporation's convertible preferred stock held by the General Electric Company. This transaction resulted in approximately 29 million equivalent common shares being reacquired. Combined with the Martin Marietta Materials exchange in 1997) which are described in detail in management's financial...

  • Page 7
    ... outside Lockheed Martin. The Corporation faces an intensely competitive environment in our key businesses, a new set of competitors and global market dynamics in our closely-related target areas of information services and commercial space, along with overall higher standards of shareholder returns...

  • Page 8
    ... million in cash flow to redeploy toward growing shareholder value. Inventory Management - As a premier high-technology systems provider, the Corporation has historically procured goods and services totaling about 50 percent of net annual sales. The financial and operational benefits from forging...

  • Page 9
    ...M. Tellep, the first Chairman and Chief Executive Officer of Lockheed Martin, for his dedicated and exemplary service to the Corporation and its Board of Directors. Dan has decided not to seek re-election to the Board in order to spend more time with his family in California. While we take pride in...

  • Page 10
    ...the New Scottish Centre, a new air traffic control facility. Sky Solutions is owned by Lockheed Martin and Bovis Ltd. The U.S. Patent and Trademark Office awards Lockheed Martin contract for maintenance. information systems development and 100 percent Mission Success on eight Space Shuttle missions...

  • Page 11
    ... program. Deliver first operational Block 30 EC-130H Compass Call electronic warfare aircraft. Successful transition of Big Safari maintenance and modification work from Ontario plant to Palmdale; close Ontario plant as part of facilities consolidations. Receive U.S. Air Force contract to develop...

  • Page 12
    ... Management's Discussion and Analysis of Financial Condition and Results of Operations The Corporation's Responsibility for Financial Reporting Report of Ernst & Young LLP, Independent Auditors Consolidated Statement of Earnings Consolidated Statement of Cash Flows Consolidated Balance Sheet...

  • Page 13
    ... its one-year revolving credit facility from $1.5 billion to $2.5 billion. The operations of Northrop Grumman are expected to be reported in the Electronics, Information & Services, Aeronautics, and Energy and Other segments. Transaction Agreement with General Electric Company On July 3, 1997, the...

  • Page 14
    Management's Discussion and Analysis of Financial Condition and Results of Operations • Continued of the Corporation's 1997 net sales, Lockheed Martin's investment in a telecommunications partnership, and approximately $1.6 billion in cash. The cash included in the exchange was initially financed...

  • Page 15
    ...of operations for 1996 or 1997. At December 31,1996, $450 million, representing the net assets of the two business units, was included in other current assets. On a combined basis, the Materials exchange and the Armament Systems and Defense Systems divestiture noted above increased 1996 net earnings...

  • Page 16
    ...related to costs for facility closings and transfers of programs resulting from management's decision to include the operations of Tactical Systems in the Electronics, Information & Services, and Energy and Other segments. During the first quarter of 1995, the Corporation recorded a pretax charge of...

  • Page 17
    ... for the after-tax effect of the Corporation's divestiture of its Armament Systems and Defense Systems business units. On a combined basis, the Materials exchange and the divestiture noted above increased 1996 net earnings by $351 million, or $1.59 per diluted share. The 1996 reported amounts also...

  • Page 18
    ... Systems businesses to General Dynamics, the repositioning of non-core businesses as L-3 Communications Corporation, and the exchange of non-core businesses and cash for GE's preferred stock holdings in the Corporation. In addition, the Corporation transferred its Space Shuttle processing operations...

  • Page 19
    ... development of competing products, technological feasibility, product obsolescence and the risks inherent in conducting business internationally. The Corporation has advanced funds to a foreign subcontractor for the manufacture of launch vehicles and related launch services. At December 31,1997...

  • Page 20
    ... the Lockheed Martin business segments for each of the three years in the period ended December 31, 1997, which correspond to the segment information presented in Note 17 to the consolidated financial statements. (In millions) Net Sales Space & Strategic Missiles Electronics Information & Services...

  • Page 21
    ... to 1995. The 1997 net sales amount reflects the inclusion of a full year of the operations of certain Tactical Systems companies versus nine months in 1996. However, this increase is offset by the divestiture of the Corporation's Armament Systems and Defense Systems businesses to General Dynamics...

  • Page 22
    ... Missiles Electronics Information & Services Aeronautics Energy and Other Net sales of this segment decreased significantly in 1997 compared to 1996, and by 10 percent in 1996 compared to 1995. The net sales decreases for both periods were principally the result of the divestiture of Materials...

  • Page 23
    ... of the Tactical Systems companies, backlog in 1996 for the segment would have decreased by three percent compared to 1995. This decrease was principally the result of the net effect of close-outs of completed government electronics contracts during the year. Total Information & Services backlog...

  • Page 24
    ... Facilities at December 31, 1997. However, the Credit Facilities support commercial paper borrowings of approximately $1.5 billion outstanding at December 31, 1997. Of this amount, $1.0 billion has been classified as long-term debt in the Corporation's consolidated balance sheet based on management...

  • Page 25
    ... the Corporation. Consistent with the Corporation's desire to generate cash to reduce debt, management anticipates that, subject to prevailing financial, market and economic conditions, the Corporation may divest other non-core businesses or surplus properties. Environmental Matters water purveyors...

  • Page 26
    ... 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...

  • Page 27
    ... their annual audit. The Corporation's management recognizes its responsibility to foster a strong ethical climate. Management has issued written policy statements which document the Corporation's business code of ethics. The importance of ethical behavior is regularly communicated to all employees...

  • Page 28
    ...audited the accompanying consolidated balance sheet of Lockheed Martin Corporation as of December 31, 1997 and 1996, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements...

  • Page 29
    Lockheed Martin Corporation Consolidated Statement of Earnings (In millions, except per share data) Net sales Costs and expenses: Cost of sales Merger related and consolidation expenses Earnings from operations Other income and expenses, net Interest expense Earnings before income taxes Income tax ...

  • Page 30
    ... incurred Salaries, benefits and payroll taxes Income taxes Other Net cash provided by operating activities Investing Activities Additions to properties, net of purchased operations Loral Transaction Divestiture of L-3 companies Divestiture of Armament Systems and Defense Systems Other acquisition...

  • Page 31
    Lockheed Martin Corporation Consolidated Balance Sheet December 31, (In millions) Assets Current assets: Receivables Inventories Deferred income taxes Other current assets Total current assets Property, plant and equipment Intangible assets related to contracts and programs acquired Cost in excess ...

  • Page 32
    ... ESOP activity Balance at December 31, 1995 N e t earnings Dividends declared on preferred stock ($3.00 per share) Dividends declared on common stock ($1.60 per share) Stock awards and options, and ESOP activity Stock exchanged for Materials shares Balance at December 31, 1996 Net earnings Dividends...

  • Page 33
    ...Financial Statements December 3I, 1997 Note 1 - Summary of Significant Accounting Policies Organization - Lockheed Martin Corporation (Lockheed Martin or the Corporation) is engaged in the design, manufacture, integration and operation of a broad array of products and services ranging from aircraft...

  • Page 34
    ... losses on these contracts are which publicly-held companies report financial and descriptive recognized in income when the hedged transactions occur. At information about their operating segments in financial statements December 31, 1997, the amounts of forward exchange contracts for both interim...

  • Page 35
    ... Note 4 - Other Acquisitions and Divestitures Note 3 - Transaction Agreement with General Electric Company On November 3, 1997, the Corporation announced a definitive agreement with General Electric Company (GE) under which Lockheed Martin would exchange the stock of a newly formed subsidiary, LMT...

  • Page 36
    ...related to costs for facility closings and transfers of programs resulting from management's decision to include the operations of Tactical Systems in the Electronics, Information & Services, and Energy and Other segments. During the first quarter of 1995, the Corporation recorded a pretax charge of...

  • Page 37
    ... transferred to GE (approximately $2.8 billion) over the carrying value of the Lockheed Martin preferred stock redeemed ($1.0 billion). The weighted average number of common shares outstanding during the year was used in this calculation. Diluted earnings per share were also computed based on net...

  • Page 38
    ... year. An analysis of general and administrative costs, including research and development costs, included in work in process inventories follows: (In millions) 1997 $ 1996 431 2,154 $ 1995 480 1,704 Type (Maturity Dates) (In millions) Notes (1998-2022) Debentures (2002-2036) Commercial Paper ESOP...

  • Page 39
    ... 31, 1997. However, the Credit Facilities support commercial paper borrowings of approximately $1.5 billion outstanding at December 31, 1997, of which approximately $1.0 billion has been classified as long-term debt in the Corporation's consolidated balance sheet based on management's ability...

  • Page 40
    ...: Accumulated post-retirement benefit obligations Accrued compensation and benefits Merger related and consolidation reserves Contract accounting methods Other Deferred tax liabilities related to: Intangible assets Prepaid pension asset Property, plant and equipment Net deferred tax assets 1997 1996...

  • Page 41
    ... 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 determined as if the Corporation had accounted for...

  • Page 42
    ... for salaried plans are generally based on average compensation and years of service, while those for hourly plans are generally based on negotiated benefits and years of service. Substantially all benefits are paid from funds previously contributed to trustees. The Corporation's funding policy is...

  • Page 43
    ... the end of each year reflect assumptions in effect as of those dates. 1997 Assumptions: Discount rates Expected long-term rate of return on assets 7.5% 9.5 1996 7.8% 9.0 1995 7.5% 8.8 Retiree Medical and Life Insurance Plans Certain health care and life insurance benefits are provided to eligible...

  • Page 44
    ... 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...

  • Page 45
    ... products to commercial and civil customers through its Materials subsidiary. 43 Selected Financial Data by Business Segment (In millions) Net sales Space & Strategic Missiles Electronics Information & Services Aeronautics Energy and Other 1997 $ 8,303 7,069 6,468 6,045 184 $28,069 Operating...

  • Page 46
    ... 5). The Corporation also changed its expected long-term rate of return on benefit plan assets effective October 1, 1997, which decreased pension cost (see Note 14). (b) Earnings per share for 1997 excludes the effects of a deemed preferred stock dividend resulting from the transaction with GE. The...

  • Page 47
    ... Corporation Consolidated Financial Data - Eight Year Summary (In millions, except per share data) Operating Results Net sales Costs and expenses Earnings from operations Other income and expenses, net Interest expense Earnings before income taxes and cumulative effect of changes in accounting...

  • Page 48
    ... General Electric Company Caleb B. Hurtt Retired President and Chief Operating Officer Martin Marietta Corporation Gwendolyn S. King Retired Senior Vice President, Corporate and Public Affairs PECO Energy Company Vincent N. Marafino Retired Executive Vice President Lockheed Martin Corporation...

  • Page 49
    ... and Associate General Counsel Anthony Van Schaick Vice President Leonard L. Victorino Vice President William T Vinson Vice President and Chief Counsel Joseph D. Antinucci Vice President William F. Ballhaus, Jr. Vice President Marcus C. Bennett Executive Vice President and Chief Financial Officer...

  • Page 50
    ... to purchase additional shares through automatic dividend reinvestment and/or voluntary cash investments. For more information, contact our transfer agent, First Chicago Trust Company of New York at 1-800-519-3111. Stockholders may obtain, without charge, a copy of Lockheed Martin's Annual Report on...

  • Page 51
    ... make the communities in which we live better. Shareholders desiring to read "Setting the Standard, Lockheed Martin's Code of Ethics and Business Conduct" or obtain additional information about the Corporation's ethics program may visit the Lockheed Martin homepage on the World Wide Web: http://www...

  • Page 52
    ... Condition and Results of Operations" on pages 11 through 24 of this Annual Report, and "Note 1-Summary of Significant Accounting Policies," "Note 2-Transaction Agreement with Northrop Grumman Corporation" and "Note 16-Commitments and Contingencies" of the Notes to Consolidated Financial Statements...

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    Lockheed Martin Corporation 6801 Rockledge Drive Bethesda, MD 20817