Lockheed Martin 1996 Annual Report Download - page 63

Lockheed Martin Corporation
The Corporation receives advances on certain contracts
and uses them to finance the inventories required to com-
plete the contracted work. Approximately $2.4 billion of
advances related to work in process at December 31,1996
have been received from customers and were recorded as
reductions of inventories in the Corporation's consolidated
financial statements. In addition, advances of approximately
$2.6 billion at the end of 1996 have been recognized as cur-
rent liabilities, mostly related to contracts with foreign gov-
ernments and commercial customers.
Capital Structure and Resources
Long-term debt, including current maturities, increased to
approximately $10.4 billion at the end of 1996 from approxi-
mately $3.7 billion at the end of 1995. Total debt (including
short-term borrowings) represented approximately 63 per-
cent of total capitalization at December 31,1996, compared
with 37 percent at December 31, 1995. Most of the Corpora-
tion's debt is in the form of publicly issued, fixed-rate Notes
Payable and Debentures. Included in long-term debt at
December 31,1996 are $1.2 billion of debt obligations of the
former Loral Corporation. Stockholders' equity grew to
nearly $6.9 billion at December 31, 1996 from approxi-
mately $6.4 billion one year ago. Stockholders' equity
activity for 1996 included a reduction of $750 million in
connection with the exchange of the Corporation's
common stock for its Materials shares.
During 1996, in contemplation of the Loral Transaction,
the Corporation arranged revolving credit facilities of $10
billion through a syndicate of commercial banks. The credit
facilities consisted of a 364-day unsecured revolving credit
facility in the amount of $5 billion (the Short-Term Credit
Facility) and a 5-year unsecured revolving credit facility in
the amount of $5 billion (the 5-Year Credit Facility). In con-
nection with the establishment of these credit facilities, the
Corporation and Loral each terminated their previously
existing revolving credit facilities.
Approximately $6.6 billion of commercial paper was
issued and approximately $1 billion was borrowed under the
5-Year Credit Facility to finance the Loral Transaction on the
closing date. As stated previously, the Corporation issued
$5 billion in debt securities during the second quarter of
1996, the net proceeds from which were used to repay the
$1 billion borrowed under the 5-Year Credit Facility and to
reduce the amount of commercial paper outstanding. On
July 26, 1996, the Corporation terminated the Short-Term
Credit Facility. On December 20, 1996, the Corporation
amended its 5-Year Credit Facility to reduce the amount
from $5 billion to $3.5 billion (the Amended 5-Year Credit
Facility). The Corporation also entered into a one-year
credit facility in the amount of $1.5 billion (together, the
Credit Facilities).
No borrowings were outstanding under the Credit Facil-
ities at December 31, 1996. However, the Amended 5-Year
Credit Facility supports commercial paper borrowings of
approximately $2.4 billion outstanding at December 31,
1996. Of this amount, $1.25 billion has been classified as
long-term debt in the Corporation's consolidated balance
sheet based on management's ability and intention to main-
tain this debt outstanding for at least one year. On January 2,
1997, the Corporation received $450 million in connection
with the sale of its Armament Systems and Defense Systems
business units to General Dynamics. The net proceeds were
used to further reduce the amount of commercial paper
outstanding.
During the third quarter of 1996, the Corporation
entered into interest rate swap agreements to fix the interest
rates on $875 million of its commercial paper borrowings.
These agreements will mature during 1997. The Corporation
is exposed to the risk of nonperformance by the intermedi-
aries to those agreements, though such nonperformance is
not anticipated.
The Corporation has entered into standby letter of
credit agreements and other arrangements with financial
institutions primarily relating to the guarantee of future
performance on certain contracts. In connection with the
Loral Transaction, the Corporation assumed the obligations
of Loral as guarantor under the Revolving Credit Agreement
of Globalstar, L.P., an affiliate of Loral SpaceCom, up to
a maximum principal amount of $250 million, subject to
the assumption by certain of the Globalstar partners of a
portion of the Corporation's obligations as guarantor. At
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