Lockheed Martin 2004 Annual Report Download - page 37

CAPITAL STRUCTURE AND RESOURCES
At December 31, 2004, our total long-term debt amounted to
$5.1 billion. Our long-term debt is mainly in the form of publicly
issued notes and debentures. Our long-term debt bears interest at
fixed rates, except for $1.0 billion of convertible debentures
issued in 2003 with a floating interest rate based on LIBOR (dis-
cussed in more detail below). Through our repayment activities,
our long-term debt has declined from a balance of $9.9 billion at
December 31, 2000. We improved our debt-to-total capital ratio
from 58% at December 31, 2000 to 42% at December 31, 2004.
Our stockholders’ equity amounted to $7.0 billion at
December 31, 2004, an increase of $265 million from
December 31, 2003. The increase resulted from net earnings
and stock plan activities partially offset by our payment of div-
idends, an increase in our minimum pension liability and share
repurchase activity.
Return on invested capital (ROIC) improved by 120 basis
points during 2004 to 11.9%. We define ROIC as net income
plus after-tax interest expense divided by average invested capi-
tal (stockholders’ equity plus debt). We believe that reporting
ROIC provides investors with greater visibility into how effec-
tively Lockheed Martin uses the capital invested in its opera-
tions. We use ROIC to evaluate multi-year investment decisions
and as a long-term performance measure. We also plan to use
ROIC as a factor in evaluating management performance for
incentive compensation purposes in 2005. ROIC is not a meas-
ure of financial performance under generally accepted account-
ing principles in the U.S., and may not be defined and calculated
by other companies in the same manner. ROIC should not be
considered in isolation or as an alternative to net earnings as an
indicator of performance. See Consolidated Financial Data —
Five Year Summary on page 69 for additional information con-
cerning how we calculate ROIC.
In 2004, we repaid a total of $1.1 billion of long-term debt,
including scheduled and early debt repayments. Through the
completion of tender offers, we repaid debt totaling $951 mil-
lion: $285 million (73%) of our outstanding 7.70% Notes due
June 15, 2008 and $666 million (67%) of our outstanding
8.20% Notes due December 1, 2009. In connection with these
early repayments, we recorded charges in 2004, net of state
income tax benefits, totaling $154 million. The charges reduced
net earnings by $100 million ($0.22 per share).
At December 31, 2004, we had in place a $1.5 billion revolv-
ing credit facility, which expires in July 2009, and a $500 million
revolving credit facility, which expires in July 2005. There were
no borrowings outstanding under either facility at December 31,
2004. Borrowings under the credit facility would be unsecured
and bear interest at rates based, at our option, on the Eurodollar
rate or a defined bank Base Rate. Each bank’s obligation to make
loans under the credit facility is subject to, among other things,
our compliance with various representations, warranties and
covenants, including covenants limiting our ability and the abil-
ity of certain of our subsidiaries to encumber our assets, and a
covenant not to exceed a maximum leverage ratio.
We have agreements in place with banking institutions to
provide for the issuance of commercial paper. There were no
commercial paper borrowings outstanding at December 31,
2004. If we were to issue commercial paper, the borrowings
would be supported by the $1.5 billion credit facility.
We have an effective shelf registration statement on file
with the Securities and Exchange Commission to provide for the
issuance of up to $1 billion in debt securities. If we were to issue
debt under this shelf registration, we would expect to use the net
proceeds for general corporate purposes. These purposes may
include repayment of debt, working capital needs, capital expen-
ditures, acquisitions and any other general corporate purpose.
We actively seek to finance our business in a manner that
preserves financial flexibility while minimizing borrowing
costs to the extent practicable. Our management continually
reviews changes in financial, market and economic conditions
to manage the types, amounts and maturities of our indebted-
ness. We may at times refinance existing indebtedness, vary our
mix of variable-rate and fixed-rate debt, or seek alternative
financing sources for our cash and operational needs.
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Lockheed Martin Corporation
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