Lockheed Martin 2004 Annual Report Download - page 35

LIQUIDITY AND CASH FLOWS
Our management has set forth strategic cash deployment objec-
tives to help ensure that we keep a focus toward growing our
core business and increasing shareholder value, and that we are
in a position to take advantage of opportunities to do so when
they arise. Those objectives include internal investment in our
business (e.g., capital expenditures, independent research and
development), share repurchases, increases in dividends, debt
reductions, and selected acquisitions of businesses consistent
with our strategy. The following discussion highlights our cash
activities over the past three years as well as our future plans.
Operating Activities
Cash from operations continues to be the primary source of
funds for financing our activities. Cash from operations
amounted to $2.9 billion in 2004, $1.8 billion in 2003 and $2.3
billion in 2002. Our earnings, adjusted for non-cash items such
as depreciation and amortization and impairment charges, were
the driving force behind these cash flows. Our working capital
has continued to be a focus of our cash management processes,
particularly with our sales having increased by $11.5 billion
over the last three years. We attribute this performance to our
continued discipline in managing our cash conversion cycle,
including the negotiation of performance-based progress
payment or advance payment terms in our contracts, inventory
management, and billing and collection activities. We continue
to leverage the billing and collection processes of our Shared
Services centers, including the emphasis on electronic
interfaces with our U.S. Government customers. Cash from
operations is net of internal investments we have made in our
business relative to independent research and development and
bid and proposal activities aggregating $962 million in 2004,
$903 million in 2003 and $830 million in 2002. During 2004
and 2003, we made discretionary prepayments of $485 million
and $450 million, respectively, to pre-fund our pension plan
trusts that reduced cash from operations. Such payments were
made to reduce our cash funding requirements in the subse-
quent year. Our 2002 cash from operations included $117 mil-
lion from the settlement of a research and development tax
credit claim. We expect our cash from operations to continue to
be strong over the next two years.
Investing Activities
Capital expenditures — Capital expenditures for property, plant
and equipment amounted to $769 million in 2004, $687 million
in 2003 and $662 million in 2002. We expect our capital expen-
ditures to increase over the next two years consistent with the
expected growth in our business.
Acquisitions, divestitures and other activities — In addition to
our internal investment in capital expenditures and independent
research and development activities, we also selectively identify
businesses for potential acquisition. During 2004, we paid $91
million for businesses to strengthen our capabilities in provid-
ing services to defense and other government customers.
During 2003, we paid approximately $645 million for two busi-
nesses to strengthen our capabilities in providing IT services to
defense, intelligence and other government customers. We also
paid $130 million in 2003 related to our guarantee of Space
Imaging, LLC’s borrowings under its credit facility.
During the past three years, we have divested non-core
businesses, primarily those serving commercial markets. We
received cash of approximately $90 million in 2004 from the
sale of our COMSAT General business, $110 million in 2003
from the sale of our commercial IT business and $134 million
in 2002 from the sale of certain discontinued telecommunica-
tion businesses.
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Lockheed Martin Corporation
0
600
1,200
1,800
2,400
$3,000
Net Cash Provided by Operating Activities
(In millions)
2004 2003 2002