Lockheed Martin 2002 Annual Report Download - page 59

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Lockheed Martin Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
In September 2001, the Corporation redeemed approxi-
mately $117 million of 7% debentures ($175 million at face
value) due in 2011 which were originally sold at approxi-
mately 54% of their principal amount. The debentures were
redeemed at face value, resulting in an unusual loss, net of
state income tax benefits, of $55 million which was included
in other income and expenses. The loss reduced net earnings
by $36 million ($0.08 per diluted share).
In July 2001, COMSAT, a wholly-owned subsidiary of the
Corporation, redeemed $200 million in principal amount of
the 8.125% Cumulative Monthly Income Preferred Securities
(MIPS) previously issued by a wholly-owned subsidiary of
COMSAT. The MIPS were redeemed at par value of $25 per
share plus accrued and unpaid dividends to the redemption
date. The redemption did not result in an unusual gain or loss
on the early repayment of debt.
Also in 2001, the Corporation repaid approximately $1.26
billion of notes outstanding which had been issued to a
wholly-owned subsidiary of General Electric Company. The
notes would have been due November 17, 2002. The early
repayment of the notes did not result in an unusual gain or loss
on the early repayment of debt.
In December 2000, the Corporation purchased approxi-
mately $1.9 billion in principal amount of debt securities
included in tender offers for six issues of notes and deben-
tures. The repurchase of the debt securities resulted in a loss,
net of income tax benefits, of $156 million which was
included in other income and expenses. The loss reduced net
earnings by $95 million ($0.24 per diluted share).
The Corporation has entered into interest rate swaps to
swap fixed interest rates on approximately $920 million of its
long-term debt for variable interest rates based on LIBOR. At
December 31, 2002, the fair values of interest rate swap agree-
ments outstanding, as well as the amounts of gains and losses
recorded during the year, were not material.
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)
incorporated into the Corporation’s salaried savings plan bor-
rowed $500 million through a private placement of notes in
1989. These notes are being repaid in quarterly installments
over terms ending in 2004. The ESOP note agreement stipu-
lates that, in the event that the ratings assigned to the
Corporation’s long-term senior unsecured debt are below
investment grade, holders of the notes may require the
Corporation to purchase the notes and pay accrued interest.
These notes are obligations of the ESOP but are guaranteed by
the Corporation and included as debt in the Corporation’s con-
solidated balance sheet.
At December 31, 2002, the Corporation had in place a
$1.5 billion revolving credit facility; no borrowings were out-
standing. This credit facility will expire in November 2006.
Borrowings under the credit facility would be unsecured and
bear interest at rates based, at the Corporation’s 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, the Corporation’s compliance with vari-
ous representations, warranties and covenants, including
covenants limiting the ability of the Corporation and certain of
its subsidiaries to encumber assets and a covenant not to
exceed a maximum leverage ratio. In October 2002, the
Corporation terminated its $1.0 billion 1-year credit facility.
The Corporation’s long-term debt maturities for the five
years following December 31, 2002 are: $1,365 million in
2003; $141 million in 2004; $15 million in 2005; $783 million
in 2006; $33 million in 2007; and $5,220 million thereafter.
Certain of the Corporation’s other financing agreements
contain restrictive covenants relating to debt, limitations on
encumbrances and sale and lease-back transactions, and provi-
sions which relate to certain changes in control.
The estimated fair values of the Corporation’s long-term
debt instruments at December 31, 2002, aggregated approxi-
mately $9.0 billion, compared with a carrying amount of
approximately $7.6 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
similar remaining maturities. Unless otherwise indicated
elsewhere in the notes to the financial statements, the carrying
values of the Corporation’s other financial instruments approx-
imate their fair values.