1995 Annual Report - Lockheed Martin

M a n a g e m e n t ' s D i s c u s s i o n a n dA n a l y s i s o f F i n a n c i a l C o n d i t i o n a n dR e s u l t s o f O p e r a t i o n sOn March 15, 1995, following the approval of the stockholders of each corporation, LockheedCorporation (Lockheed) and Martin Marietta Corporation (Martin Marietta) consummated atransaction (the Business Combination) pursuant to which Lockheed and Martin Marietta becamewholly-owned subsidiaries of a newly created holding corporation, Lockheed Martin Corporation(Lockheed Martin or the Corporation). The Business Combination qualified for the pooling ofinterests method of accounting (see Note 2). Subsequent to the Business Combination, Lockheed,Martin Marietta and certain other subsidiaries were merged with and into the Corporation. Thediscussion which follows reflects the combined financial condition and results of operations ofLockheed Martin, and should be read in conjunction with the audited consolidated financial statementsincluded herein.Recent DevelopmentsOn January 7, 1996, the Corporation entered into an Agreement and Plan of Merger (the MergerAgreement) with Loral Corporation (Loral) for a series of interrelated transactions with a totalestimated value of approximately $9.4 billion. Loral is a leading supplier of advanced electronicsystems, components and services to U.S. and foreign governments for defense and non-defensepurposes. Under the terms of the Merger Agreement, the Corporation intends to acquire the defenseelectronics and systems integration businesses and certain other businesses of Loral for approximately$9.1 billion, including $2.1 billion of assumed debt. Of the total, approximately S7 billion willbe paid directly to Loral shareholders by the Corporation through a tender offer for all outstandingshares of Loral common stock for $38.00 per share in cash. Following the consummation of thetender offer, Loral will distribute, for each share of Loral common stock previously held, one shareof common stock of a newly-formed company, Loral Space & Communications, Ltd. (Loral Space),which will own substantially all of the space and satellite telecommunications interests of Loral.Finally, the Corporation will invest $344 million in Loral Space for the acquisition of shares ofpreferred stock that are convertible into 20 percent of Loral Space's common stock on a fully dilutedbasis. The Corporation's offer is contingent, among other things, on the tendering of two-thirds ofLoral's outstanding shares and on regulatory approvals, and is expected to close in the first half of1996. If the business combination with Loral is consummated, the purchase method of accountingwill be used to record the transactions, resulting in a combined entity with anticipated annual netsales of approximately $30 billion. As more fully described in the Capital Structure and Resourcessection below, management intends to arrange through a syndicate of banks two credit facilitiestotalling $10 billion which would be available to finance the transactions. If the business combinationwith Loral is consummated, these credit facilities would replace the $1.5 billion revolving creditfacility in effect at December 31, 1995.44