Lockheed Martin 2004 Annual Report Download - page 56

Lockheed Martin Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
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December 1, 2009. The Corporation recorded a charge, net of
state income tax benefits, totaling $154 million in other income
and expenses related to the tender offers. The charge reduced
2004 net earnings by $100 million ($0.22 per share).
In the third quarter of 2003, the Corporation completed a
tender offer to purchase for cash any and all of its outstanding
7.25% notes due May 15, 2006 and 8.375% debentures due
June 15, 2024. The Corporation retired a total principal amount
of $720 million of the notes and debentures. In addition, the
Corporation repurchased $251 million of outstanding long-
term debt in the open market. The Corporation recorded a
charge, net of state income tax benefits, totaling $127 million
in other income and expenses related to the tender offer and open
market purchases. The charge reduced 2003 net earnings by $83
million ($0.18 per share). Earlier in 2003, the Corporation issued
irrevocable redemption notices for and repaid two issuances of
callable debentures totaling $450 million. The Corporation
recorded a charge in other income and expenses, net of state
income tax benefits, of $19 million related to the early repayment
of these two issuances of debt. The charge reduced 2003 net earn-
ings by $13 million ($0.03 per share).
In August 2003, the Corporation issued $1.0 billion in
floating rate convertible debentures due in 2033. The deben-
tures bear interest at a rate equal to three-month LIBOR less 25
basis points, reset quarterly. The interest rate in effect at
December 31, 2004 was 2.04%. Interest on the debentures is
payable quarterly through August 15, 2008, after which the
interest will accrue as part of the value of the debenture and will
be payable, along with the principal amount of the debenture, at
maturity. The debentures are convertible by holders into shares
of the Corporation’s common stock on a contingent basis under
the circumstances described in the indenture related to these
securities as discussed below. Absent certain events not cur-
rently anticipated, the debentures are not convertible unless the
price of the Corporation’s common stock is greater than or
equal to 130% of the applicable conversion price for a specified
period during a quarter. The conversion price was $75.00 per
share at December 31, 2004, and is expected to change over
time as provided for in the indenture agreement.
In December 2004, the Corporation entered into a First
Supplemental Indenture with respect to these securities. Under
the terms of the First Supplemental Indenture, the Corporation
has irrevocably elected and agreed to pay only cash in lieu of
common stock for the accreted principal amount of the deben-
tures in respect of its conversion obligations described above.
The Corporation previously had the right to elect to pay cash or
common stock, or a combination of cash and common stock,
for the accreted principal amount. The Corporation has retained
the right, however, to elect to satisfy any and all conversion
obligations in excess of the accreted principal amount of the
debentures in cash or common stock or a combination of cash
and common stock. The Corporation also has the right to redeem
any or all of the debentures at any time after August 15, 2008.
In December 2002, the Corporation recorded a charge, net of
state income tax benefits, of $163 million related to its investment
in Space Imaging, LLC and its guarantee of up to $150 million of
Space Imaging’s borrowings under a credit facility that matured
on March 30, 2003. On March 31, 2003, the Corporation paid
$130 million to acquire Space Imaging’s outstanding borrowings
under Space Imaging’s credit facility, and the guarantee was elim-
inated. The Corporation therefore reversed, net of state income
taxes, approximately $19 million of the charge recorded in
December 2002, representing the unutilized portion of the credit
facility covered by its guarantee. This gain increased 2003 net
earnings by $13 million ($0.03 per share).
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) incor-
porated into the Corporation’s salaried savings plan borrowed
$500 million through a private placement of notes in 1989. These
notes were repaid in quarterly installments concluding in 2004.
At December 31, 2004, the Corporation had in place a $1.5
billion revolving 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 facil-
ity at that date. 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 defined Base Rate.
Each bank’s obligation to make loans under the credit facilities
is subject to, among other things, the Corporation’s compliance
with various representations, warranties and covenants, including
covenants limiting the ability of the Corporation and certain of