Lockheed Martin 2004 Annual Report Download - page 57

its subsidiaries to encumber assets and a covenant not to exceed
a maximum leverage ratio.
The Corporation’s scheduled long-term debt maturities for
the five years following December 31, 2004 are: $15 million in
2005; $237 million in 2006; $32 million in 2007; $105 million
in 2008; $327 million in 2009; and $4,403 million thereafter.
The estimated fair values of the Corporation’s long-term
debt instruments at December 31, 2004, aggregated approxi-
mately $6.3 billion, compared with a carrying amount of
approximately $5.1 billion. The fair values were estimated
based on quoted market prices for those instruments that are
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 sim-
ilar remaining maturities. Unless otherwise indicated elsewhere
in the notes to the financial statements, the carrying values of
the Corporation’s other financial instruments approximate their
fair values.
Interest payments were $420 million in 2004, $519 million
in 2003 and $586 million in 2002.
NOTE 9 — INCOME TAXES
The provision for federal and foreign income taxes attributable
to continuing operations consisted of the following components:
(In millions) 2004 2003 2002
Federal income taxes:
Current $445 $ (14) $ 469
Deferred (58) 467 (463)
Total federal income taxes 387 453 6
Foreign income taxes 11 26 38
Total income taxes provided $398 $479 $ 44
Net provisions for state income taxes are included in gen-
eral and administrative expenses, which are primarily allocable
to government contracts. The net state income tax expense was
$78 million for 2004 and $38 million for 2003; and the net state
income tax benefit was $7 million for 2002.
A reconciliation of income tax expense computed using the
U.S. federal statutory income tax rate of 35% to actual income
tax expense is as follows:
(In millions) 2004 2003 2002
Income tax expense at the U.S. federal
statutory tax rate $ 582 $536 $202
(Reduction) increase in tax expense from:
Closure of IRS examinations (144) — (24)
Extraterritorial income exclusion benefit (43) (46) (42)
Revisions to prior years’ estimated
liabilities (4) (28) (38)
R&D tax credit settlement —— (90)
Other, net 717 36
Actual income tax expense $ 398 $479 $ 44
The reduction in income tax expense of $144 million in
2004 from the closure of an IRS examination primarily resulted
from the examination of tax periods through December 31, 2002.
In 2004, the American Jobs Creation Act (the Act) was
passed. Over a transition period beginning with 2005, the Act
phases out the Extraterritorial income (ETI) exclusion benefit
for export sales and phases in a new tax deduction for comput-
ing taxable profits from the sale of products manufactured in
the United States. The Corporation expects that the tax benefits
realized from this new tax legislation will be substantially
equivalent to the benefits realized under the ETI exclusion. In
accordance with FAS 109, Accounting for Income Taxes, and
FSP 109-1, Application of FAS 109 to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs
Creation Act of 2004, the benefit provided by the new tax law
constitutes a special deduction, and accordingly the
Corporation was not required to revalue its deferred tax bal-
ances. The other provisions included in the Act are not expected
to have a significant impact on the Corporation’s tax rate or
payments.
Current income taxes payable of $28 million and $91 mil-
lion at December 31, 2004 and 2003, respectively, are included
in other current liabilities in the consolidated balance sheet.
Lockheed Martin Corporation
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