Lockheed Martin 1996 Annual Report Download - page 77

Lockheed Martin Corporation
that, in the event that the ratings assigned to the Corporation's long-
term senior unsecured debt are below investment grade, holders of
the notes may require the Corporation to purchase the notes and
pay accrued interest. These notes are obligations of the ESOP but
are guaranteed by the Corporation and included as debt on the
Corporation's consolidated balance sheet.
On December 20, 1996, the Corporation amended its 5-Year
Credit Facility to reduce its 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
(collectively, the Credit Facilities). Borrowings under the Credit
Facilities would be unsecured and bear interest, at the
Corporation's option, at rates based on the Eurodollar rate or a
bank Base Rate (as defined). Each bank's obligation to make loans
under the Credit Facilities is subject to, among other things, com-
pliance by the Corporation with various representations, war-
ranties, covenants and agreements, including, but not limited to,
covenants limiting the ability of the Corporation and certain of its
subsidiaries to encumber their assets and a covenant not to exceed a
maximum leverage ratio.
No borrowings were outstanding under the Credit Facilities at
December 31, 1996. However, the Amended 5-Year Credit Facility
supports commercial paper borrowings of approximately $2.4 bil-
lion outstanding at December 31, 1996, of which approximately
$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 maintain this debt outstanding for at least
one year. 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 effects of these interest rate swap agree-
ments are recorded periodically as an adjustment to interest
expense related to commercial paper borrowings. The Corporation
is exposed to the risk of nonperformance by the intermediaries to
these agreements, though such nonperformance is not anticipated.
Excluding commercial paper classified as long term, the
Corporation's long-term debt maturities for the five years following
December 31, 1996, are: $180 million in 1997; $875 million in 1998;
$850 million in 1999; $44 million in 2000; $799 million in 2001;
and $6,370 million thereafter.
Certain of the Corporation's other financing agreements con-
tain restrictive covenants relating to debt, limitations on encum-
brances, and sale and lease-back transactions, and provisions which
relate to certain changes in control.
SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," and SFAS No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments,"
require the disclosure of the fair value of financial instruments,
including assets and liabilities recognized and not recognized on
the consolidated balance sheet, for which it is practicable to esti-
mate fair value. Unless otherwise indicated elsewhere in the notes
to the consolidated financial statements, the carrying value of the
Corporation's financial instruments approximates fair value. The
estimated fair values of the Corporation's long-term debt instru-
ments at December 31, 1996, aggregated approximately $10.7 bil-
lion, compared with a carrying amount of approximately $10.4 bil-
lion on the consolidated balance sheet. The fair values were
estimated based on quoted market prices for those instruments
publicly traded. For privately placed debt, the fair values were esti-
mated based on the quoted market prices for similar issues, or on
current rates offered to the Corporation for debt of the same
remaining maturities.
Interest payments were $655 million in 1996, $275 million in
1995 and $276 million in 1994.
Note 9 — Income Taxes
The provision for federal and foreign income taxes consisted of the
following components:
(In millions)
Federal income taxes:
Current
Deferred
Total federal income taxes
Foreign income taxes
Total income taxes provided
1996
$914
(251)
663
23
$686
1995
$510
(116)
394
13
$407
1994
$538
73
611
9
$620
Net provisions for state income taxes are included in general
and administrative expenses, which are primarily allocable to gov-
ernment contracts. Such state income taxes were $45 million for
1996, $86 million for 1995 and $50 million for 1994.
The Corporation's effective income tax rate varied from the
statutory federal income tax rate because of the following tax
differences:
Statutory federal tax rate
Increase (reduction) in tax rate from:
Nondeductible amortization
Revisions to prior years'
estimated liabilities
Divestitures
Other, net
1996
35.0%
4.2
(1.6)
(5.6)
1.8
33.8%
1995
35.0%
3.2
(3.4)
—
2.6
37.4%
1994
35.0%
2.1
(.9)
—
.8
37.0%