Lockheed Martin 2001 Annual Report Download - page 51

Lockheed Martin Corporation
December 31, 2001
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In July 2001, COMSAT, a wholly-owned subsidiary
of the Corporation, redeemed $200 million in principal
amount of the 8.125% Cumulative Monthly Income Preferred
Securities (MIPS) previously issued by a wholly-owned sub-
sidiary of COMSAT. The MIPS were redeemed at par value
of $25 per share plus accrued and unpaid dividends to the
redemption date. The redemption did not result in an extraor-
dinary gain or loss on the early extinguishment of debt.
Also in 2001, the Corporation repaid approximately
$1.26 billion of notes outstanding which had been issued
to a wholly-owned subsidiary of General Electric Company.
The notes would have been due November 17, 2002. The
early repayment of the notes did not result in an extraordi-
nary gain or loss on the early extinguishment of debt.
In December 2000, the Corporation purchased approxi-
mately $1.9 billion in principal amount of debt securities
included in tender offers for six issues of notes and deben-
tures. The repurchase of the debt securities resulted in an
extraordinary loss on early extinguishment of debt, net of
$61 million in income tax benefits, of $95 million.
In the fourth quarter of 2001, the Corporation entered
into interest rate swaps to swap fixed interest rates on
approximately $670 million of its long-term debt for vari-
able interest rates based on LIBOR. At December 31, 2001,
the fair values of interest rate swap agreements outstand-
ing, as well as the amounts of gains and losses recorded
during the year, were not material.
The registered holders of $300 million of 40 year
Debentures issued in 1996 may elect, between March 1
and April 1, 2008, to have their Debentures repaid by
the Corporation on May 1, 2008.
A leveraged employee stock ownership plan (ESOP)
incorporated into the Corporation’s salaried savings plan
borrowed $500 million through a private placement of
notes in 1989. These notes are being repaid in quarterly
installments over terms ending in 2004. The ESOP note
agreement stipulates 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 in the Corporation’s consolidated balance sheet.
At the end of 2001, the Corporation had in place a
$1.0 billion 1-year revolving credit facility and a $1.5 bil-
lion 5-year revolving credit facility (the Credit Facilities).
Borrowings under the Credit Facilities would be unsecured
and bear interest at rates based, at the Corporation’s option,
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, compliance by the Corpo-
ration with various representations, warranties and covenants,
including, but not limited to, covenants limiting the ability
of the Corporation and certain of its subsidiaries to encum-
ber their assets and a covenant not to exceed a maximum
leverage ratio. No borrowings were outstanding under the
Credit Facilities at December 31, 2001.
The Corporation’s long-term debt maturities for the
five years following December 31, 2001 are: $89 million
in 2002; $780 million in 2003; $142 million in 2004;
$15 million in 2005; $780 million in 2006; and $5,705
million thereafter.
Certain of the Corporation’s other financing agreements
contain restrictive covenants relating to debt, limitations on
encumbrances and sale and lease-back transactions, and
provisions which relate to certain changes in control.
The estimated fair values of the Corporation’s long-
term debt instruments at December 31, 2001, aggregated
approximately $8.2 billion, compared with a carrying
amount of approximately $7.5 billion. The fair values were
estimated based on quoted market prices for those instru-
ments publicly traded. For privately placed debt, the fair
values were estimated based on the quoted market prices
for similar issues, or on current rates offered to the
Corporation for debt with similar remaining maturities.
Unless otherwise indicated elsewhere in the Notes to
Consolidated Financial Statements, the carrying values of
the Corporation’s other financial instruments approximate
their fair values.
In June 2000, the Corporation was notified that
Globalstar, L.P. (Globalstar) failed to repay borrowings of
$250 million under a revolving credit agreement on which
Lockheed Martin was a partial guarantor. In connection
with its contractual obligation under the guarantee, on June
30, 2000, the Corporation paid $207 million to the lend-
ing institutions from which Globalstar had borrowed, which
included applicable interest and fees. On that same date,
Loral Space, under a separate indemnification agreement
between the Corporation and Loral Space, paid Lockheed
Martin $57 million. The Corporation is entitled to repay-
ment by Globalstar of the remaining $150 million paid
under the guarantee, but has not as yet reached agreement
with respect to the form and timing of such repayment. In
light of the uncertainty of the situation regarding the
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