Lockheed Martin 1999 Annual Report Download - page 27

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
December 31, 1999
in cash provided by operations during 1999 compared to
1998 resulted from the decrease in earnings before cumu-
lative effect of change in accounting between the periods
and increased working capital requirements. The significant
increase in cash provided by operations during 1998 com-
pared to 1997 was a result of improved operating cash
flow and reduced net federal income tax payment activity.
Investing Activities
The Corporation used $1.6 billion in cash for investing activ-
ities during 1999, compared to $455 million used during
1998 and $185 million provided during 1997. For the
three years presented, cash used for additions to property,
plant and equipment declined four percent in 1999 after a
seven percent decrease in 1998. During 1999, $1.2 billion
was used to acquire the Corporation’s 49 percent interest in
COMSAT, as discussed previously, which was the primary
reason for the increase in the use of cash in 1999 compared
to 1998. Also in 1999, $263 million of cash was provided
related to the sale of the Corporation’s remaining interest in
L-3, which was partially offset by $103 million of cash used
for additional investments in Astrolink International, LLC and
other acquisition and divestiture activities. During 1998,
$134 million of net cash was provided by divestiture and
acquisition activities. In 1997, cash was principally provided
by the disposition of the Armament Systems and Defense
Systems businesses and the repositioning of 10 business
units to form L-3 in March 1997.
Financing Activities
Financing activities provided $731 million in cash during
1999, compared to $1.3 billion used during 1998 and
$1.4 billion used during 1997. The $2.0 billion increase in
cash provided by financing activities in 1999 as compared
to the cash used during 1998 reflects the Corporation’s
issuance of $3.0 billion in long-term debt securities in the
fourth quarter of 1999, partially offset by repayments of
long-term debt totaling $1.1 billion and a net decrease of
$868 million in short-term borrowings outstanding. The
debt issuance, which represented the entire amount regis-
tered under its previously filed shelf registration statement,
included Notes and Debentures ranging in maturity from six
years to 30 years, with interest rates ranging from 7.95%
to 8.5%. The proceeds from the debt issuance were used
for general corporate purposes, including the repayment of
commercial paper and borrowings under the Corporation’s
short-term and long-term credit facilities. During 1998,
operating activities generated significantly more cash,
which allowed the Corporation to reduce its total debt by
more than $1.0 billion. During 1997, the Corporation also
was able to decrease its short-term borrowings significantly,
while long-term debt was increased to finance the GE
Transaction. Approximately $52 million of long-term debt
will mature in 2000.
The Corporation paid dividends of $345 million in
1999 compared to $310 million and $299 million during
1998 and 1997, respectively. During the first quarter
of 2000, the Corporation’s Board of Directors approved
management’s recommendation to reduce the quarterly
cash dividend per common share from $.22 per share,
or $.88 annually, to $.11 per share, or $.44 annually. The
decreased dividend will be effective for dividends declared
in the first quarter of 2000.
Other
The Corporation receives advances on certain contracts to
finance inventories. At December 31, 1999, approximately
$1.85 billion in advances and progress payments related
to work in process were received from customers and
recorded as a reduction to inventories in the Corporation’s
Consolidated Balance Sheet. Also at December 31, 1999,
approximately $486 million of customer advances and
progress payments were recorded in receivables as an
offset to unbilled costs and accrued profits. Approximately
$4.7 billion of customer advances and amounts in excess
of costs incurred, which are typically from foreign govern-
ments and commercial customers, are included in current
liabilities at the end of 1999.
Capital Structure and Resources
Total debt, including short-term borrowings, increased by
$1.1 billion during 1999 from approximately $10.9 billion
at December 31, 1998. This increase was comprised of the
issuance of $3.0 billion in long-term debt securities, offset
by repayments of long-term debt of $1.1 billion and net
repayments of short-term debt of $868 million. The Corpo-
ration’s long-term debt is primarily in the form of publicly
issued, fixed-rate notes and debentures. At year-end 1999,