Lockheed Martin 2007 Annual Report Download - page 60

Financing Activities
Share issuances, repurchases and dividends – Cash received from the issuance of our common stock during the years
ended December 31, 2007, 2006 and 2005 totaled $350 million, $627 million and $406 million. Those activities resulted in
the issuance of 7.1 million shares, 13.6 million shares and 9.7 million shares during the respective periods.
During 2007, 2006 and 2005, we used cash of $2,127 million, $2,115 million and $1,310 million for common share
repurchase activity (see Note 10). Our share repurchase program authorizes the repurchase of up to 128 million shares of our
common stock from time-to-time at management’s discretion, including 20 million of additional shares our Board authorized
for repurchase in 2007. As of December 31, 2007, we had repurchased a total of 95.3 million shares under the program, and
there remained approximately 32.7 million shares that may be repurchased in the future.
The payment of dividends on our common shares is one of the key components of our balanced cash deployment
strategy. Shareholders were paid cash dividends of $615 million in 2007, $538 million in 2006 and $462 million in 2005. We
have increased our quarterly dividend rate in each of the last three years. We declared quarterly dividends: in 2007 of $0.35
per share during each of the first three quarters and $0.42 per share for the last quarter; in 2006 of $0.30 per share during
each of the first three quarters and $0.35 per share for the last quarter; and in 2005 of $0.25 per share during each of the first
three quarters and $0.30 per share for the last quarter.
Issuance and repayment of Long-term debt – Cash provided from operations has been our principal source of funds to
reduce our Long-term debt. In 2007, we repaid $32 million of Long-term debt based on scheduled maturities. During 2006,
we paid $353 million to complete an exchange of debt and $210 million related to scheduled debt repayments. In 2005, we
used $145 million of cash for the early retirement and scheduled repayment of Long-term debt.
Capital Structure and Resources
At December 31, 2007, we held Cash and cash equivalents of approximately $2.6 billion and Short-term investments of
$333 million. Our Long-term debt, net of unamortized discounts, amounted to $4.4 billion. Our Long-term debt is mainly in
the form of publicly issued notes and debentures. We have $1.0 billion of convertible debentures that have a floating interest
rate based on LIBOR; however, at December 31, 2007, we had an agreement in place to swap variable interest rates on the
debentures for a fixed interest rate. With this swap agreement, our entire Long-term debt portfolio effectively bears interest at
fixed rates.
In the fourth quarter of 2007, the price of our common stock exceeded 130% of the $73.25 conversion price on our $1.0
billion of convertible debentures for the specified period of time, and therefore holders of the debentures may elect to convert
them during the quarter ending March 31, 2008 (see Note 7). The right to convert the debentures based on our stock price is
re-evaluated each quarter. We have irrevocably agreed to pay only cash in lieu of common stock for the accreted principal
amount of the debentures relative to our conversion obligations, but have retained the right to satisfy the conversion
obligations in excess of the accreted principal amount in cash or common stock. The conversion obligation in excess of the
accreted principal amount at December 31, 2007 totaled approximately $437 million. If that amount had been settled in
shares on that date, we would have been required to issue 4.2 million shares of our common stock. We have the right to
redeem any or all of the debentures at any time after August 15, 2008.
We also have outstanding $300 million of 40-year debentures issued in 1996 that bear interest of 7.20%, the registered
holders of which may elect, between March 1 and April 1, 2008, to have their debentures repaid on May 1, 2008. We have
continued to classify these debentures and the $1.0 billion of convertible debentures discussed above as long-term based on
our ability and intent to maintain the debt outstanding for at least one year. Our ability to do so is demonstrated by our $1.5
billion revolving credit facility which expires in June 2012 (see discussion below). There were no borrowings outstanding
under the credit facility on December 31, 2007.
In August 2006, we issued $1.1 billion of new 6.15% Notes due 2036 (the New Notes). The New Notes were issued in
exchange for certain other of our then outstanding debt securities, and cash consideration of $343 million. Holders also
received a cash payment representing accrued and unpaid interest on the previous notes. The cash consideration of $343
million, which is included in the Statement of Cash Flows in financing activities, is being amortized over the life of the New
Notes as a discount using the effective interest method and recorded in interest expense. The New Notes are included on our
Balance Sheet net of the unamortized discount under the caption Long-term debt, net. The expenses associated with the
exchange, net of state income tax benefits, totaled $16 million and were recorded in Other non-operating income (expense),
net. They reduced Net earnings in 2006 by $11 million ($0.03 per share).
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