1995 Annual Report - Lockheed Martin

Lockheed Martin CorporationU.S. Government regulations, certain costs incurredfor consolidation actions that can be demonstratedto result in savings in excess of the cost to implementcan be amortized for government contractingpurposes and included in future pricing of theCorporation's products and services. TheCorporation anticipates that a substantial portionof the total costs of the consolidation plan will bereflected in future sales and cost of sales. TheCorporation recorded a pretax charge of $525 millionfor the consolidation plan which represents theportion of the accrued costs and net realizable valueadjustments that are not probable of recovery. Theafter-tax effect of these charges was $436 million, or$1.96 per common share assuming full dilution. Asof December 31, 1995, the total merger related andconsolidation plan expenditures were approximately$208 million which primarily relate to the BusinessCombination, the elimination of positions and theclosure of foreign and domestic marketing offices.Approximately $400 million of accrued merger andconsolidation costs are included in other currentliabilities at December 31, 1995.Other costs of the consolidation plan, whichinclude relocation of personnel and programs,retraining, process re-engineering and certain capitalexpenditures, among others, generally will berecognized when incurred. The Corporation currentlyanticipates that the remaining consolidationcosts will be incurred by the end of 1997.Note 3 - Transaction Agreement withLoral CorporationIn January 1996, the Corporation entered into anAgreement and Plan of Merger (the MergerAgreement), dated as of January 7, 1996, with LoralCorporation (Loral) for a series of interrelatedtransactions with a total estimated value of approximately$9.4 billion. Under the terms of the MergerAgreement, the Corporation intends to acquire thedefense electronics and systems integration businessesand certain other businesses of Loral forapproximately $9.1 billion, including $2.1 billion ofassumed debt. Of the total, approximately $7 billionwill be paid directly to Loral shareholders by theCorporation through a tender offer for all outstandingshares of Loral common stock for $38.00 pershare in cash. A Schedule 14D-1 relating to the tenderoffer was filed with the Securities and ExchangeCommission on January 12, 1996. Following theconsummation of the tender offer, Loral will distribute,for each share of Loral common stockpreviously held, one share of common stock of anewly-formed company, Loral Space &Communications, Ltd. (Loral Space), which willown substantially all of the space and satellitetelecommunications interests of Loral. Finally,the Corporation will invest $344 million in LoralSpace for the acquisition of shares of preferredstock that are convertible into 20 percent of LoralSpace's common stock on a fully diluted basis. TheCorporation's offer is contingent, among otherthings, on the tendering of two-thirds of Loral'soutstanding shares and on regulatory approvals, andis expected to close in the first half of 1996. If thebusiness combination with Loral is consummated,the purchase method of accounting will be usedto record the transactions.In connection with the transactions, theCorporation intends to arrange with a syndicateof banks to obtain credit facilities of $10 billion (theNew Credit Facilities), comprised of a $5 billionfive-year unsecured revolving credit facility anda $5 billion 364-day unsecured revolving creditfacility. The New Credit Facilities would be availableto finance the purchase of Loral's commonstock, to fund the $344 million investment in LoralSpace, to refinance a portion of Loral's existing debt,to pay related transaction expenses, to provide forfuture working capital needs and for general corporatepurposes. Alternatively, the Corporation mayobtain all or a portion of the necessary financingthrough the issuance of commercial paper backed bythe New Credit Facilities. If the business combinationwith Loral is consummated, the Credit Facilityin effect at December 31, 1995 (see Note 8) willbe terminated and replaced with the New CreditFacilities. Following the closing of the transactions,it is anticipated that the Corporation will refinanceall or a portion of the borrowings under the NewCredit Facilities with funds raised in the public orprivate securities markets.Note 4 - AcquisitionsOn May 1, 1994, the Corporation completed itsacquisition of the Space Systems Division ofGeneral Dynamics Corporation (the Space SystemsDivision) for cash. This transaction was recordedunder the purchase method of accounting. Operationsof the Space Systems Division have beenincluded in the Corporation's Space & StrategicMissiles segment from the closing date. Pro formafinancial data related to this transaction has not beenpresented, based on materiality considerations.On April 2, 1993, the Corporation consummateda transaction (the GE Transaction) with