Lockheed Martin 2002 Annual Report Download - page 37

FORTY-FOUR
Lockheed Martin Corporation
MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
December 31, 2002
Debt retirements in 2000 were mainly attributable to our
completing tender offers for some of our long-term debt dur-
ing the fourth quarter of 2000. We used $2.1 billion to con-
summate the tender offers, resulting in the early repayment of
$1.9 billion in long-term debt and an unusual loss, net of state
income tax benefits, of $146 million, or $95 million after tax.
We paid dividends of $199 million in 2002, $192 million
in 2001 and $183 million in 2000.
Other
We receive advances on some contracts to finance inventories.
At December 31, 2002 and 2001, approximately $4.3 billion
and $2.9 billion, respectively, in advances, performance-based
payments and progress payments for work in process were
received from customers and recorded as a reduction to inven-
tories in our balance sheet. Also at December 31, 2002 and
2001, $466 million and $566 million, respectively, of customer
advances, performance-based payments and progress pay-
ments were recorded in receivables as a reduction to unbilled
costs and accrued profits. Approximately $4.5 billion and $5.0
billion of customer advances and amounts in excess of costs
incurred, which are usually from foreign governments and
commercial customers, were included in current liabilities at
the end of 2002 and 2001, respectively (see Note 1).
CAPITAL STRUCTURE AND RESOURCES
Total debt increased by $71 million during 2002 from a bal-
ance of $7.5 billion at December 31, 2001. Current maturities
of long-term debt at December 31, 2002 included $450 million
of debentures we called in 2003 to be repaid early and $150
million of debt we recorded relating to our guarantee of Space
Imaging, LLC’s existing credit facility (see the related discus-
sions below). Our long-term debt is mainly in the form of pub-
licly issued, fixed-rate notes and debentures. At December 31,
2002, we held cash and cash equivalents of $2.7 billion, some
of which will be used to meet scheduled long-term debt matu-
rities in 2003.
Total stockholders’ equity was $5.9 billion at December 31,
2002, a decrease of $578 million from December 31, 2001.
This decrease was mainly attributable to our recognition of an
additional minimum pension liability, which reduced stock-
holders’ equity on an after-tax basis by $1.5 billion, the payment
of dividends of $199 million and the repurchase of 1 million
shares of common stock for $50 million. Stock option and
ESOP activity of $752 million and net earnings of $500
million during the year partially offset the decline. As a result
of the above factors, our total debt-to-capitalization ratio
increased from 53.8% at December 31, 2001 to 56.4% at
December 31, 2002.
In 2003, in order to reduce interest expense and improve
our debt-to-capitalization ratio, we decided to issue irrevoca-
ble redemption notices to the trustees for two issuances of
callable debentures totaling $450 million. These debentures
have interest rates that are higher than current market rates. One
notice was for $300 million of 7.875% debentures due on
March 15, 2023, which were callable on or after March 15,
2003. The second was for $150 million of 7.75% debentures
due on April 15, 2023, which were callable on or after April 15,
2003. We expect to repay amounts due on March 15, 2003 and
April 15, 2003, respectively. Therefore, we have included the
$450 million in current maturities of long-term debt on our
balance sheet at December 31, 2002. We expect to incur a loss
on the early repayment of the debt, net of state income tax ben-
efits, of approximately $16 million, or $10 million after tax.
At the end of 2002, we had in place a $1.5 billion revolv-
ing credit facility; no borrowings were outstanding. This credit
facility will expire in November 2006. Borrowings under the
credit facility would be unsecured and bear interest at rates
based, at our option, on the Eurodollar rate or a bank Base
Rate (as defined). Each bank’s obligation to make loans under
the credit facility is subject to, among other things, our compli-
ance with various representations, warranties and covenants,
including covenants limiting our ability and the ability of cer-
tain of our subsidiaries to encumber our assets, and a covenant
not to exceed a maximum leverage ratio. In October 2002, we
terminated our $1.0 billion 1-year credit facility.
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,
2002. 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 (SEC) to pro-
vide 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 capi-
tal needs, capital expenditures, acquisitions and any other gen-
eral corporate purpose.