Lockheed Martin 2003 Annual Report Download - page 36

Investing Activities
Capital expenditures — Capital expenditures for property, plant
and equipment amounted to $687 million in 2003, $662 million
in 2002 and $619 million in 2001. We expect our capital expen-
ditures to increase over the next 2 years consistent with the
expected growth in our business.
Acquisitions and divestitures — In addition to our internal
investment in capital expenditures and independent research
and development activities, we also selectively identify
businesses for potential acquisition. During 2003, we paid
approximately $645 million for two businesses that will
strengthen our capabilities in providing IT services to defense,
intelligence and other government customers. Relative to our
pending acquisition of Titan, we plan to finance the cash
portion of the transaction principally using existing cash and
short-term investment holdings.
During the past 3 years, we have divested non-core busi-
nesses, primarily those serving commercial markets. We
received cash of approximately $110 million in 2003 from the sale
of our commercial IT business, $134 million in 2002 from the sale
of certain discontinued telecommunications businesses and
$825 million in 2001 from the sale of IMS.
In December 2003, Inmarsat Ventures, Ltd., a venture in
which we held a 14% interest, was acquired by a consortium of
private equity firms in a leveraged buyout transaction. In
exchange for our interest, we received cash of $114 million and
a 14% ownership interest in the new Inmarsat holding company,
Inmarsat Holdings, Ltd., valued at $96 million. We recorded a
deferred gain of $42 million from the transaction, which we
would expect to recognize at such time as we sell all or a portion
of our interest in the new company.
Financing Activities
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 2003, we issued $1.0 billion of floating
rate convertible senior debentures that bear interest at three-
month LIBOR less 25 basis points, reset quarterly (the interest
rate on this debt at December 31, 2003 was 0.93%). We used the
proceeds from that issuance, along with cash provided by oper-
ations, to repay $2.2 billion of debt in advance of its maturity
and retire other high cost debt. We used $175 million of cash for
debt issuance and repayment costs to complete those transactions.
Interest rates on the debt we retired early ranged from 7.25% to
8.375%. We also used $110 million in 2002 and $2.6 billion in
2001, to repay our long-term debt. The result has been a
decrease in our total debt balance from $9.9 billion at
December 31, 2000 to $6.2 billion at December 31, 2003, and a
decrease in interest paid from $707 million in 2001 to $519 million
in 2003. We expect interest payments to decline further in 2004
when the full impact of the debt repayment and refinancing
activities in 2003 will be reflected in our operating results.
Scheduled debt maturities are $136 million in 2004 and $15 mil-
lion in 2005. We currently do not expect any material early
repayments of long-term debt over the next 2 years.
Share repurchases and dividends — We also used cash to
opportunistically repurchase 10.7 million of our common
shares for $482 million in 2003 and 1.0 million of our common
shares for $50 million in 2002. These transactions were pursuant
to our share repurchase program initiated in 2002. In February
2004, an additional 20 million shares were authorized for repur-
chase under the program. As a result of the increase, a total of
31.3 million shares may be repurchased in the future under the
program.
Shareholders were paid dividends of $261 million in 2003,
$199 million in 2002 and $192 million in 2001. We paid a quar-
terly dividend of $0.12 per share during each of the first three
quarters of 2003 and $0.22 per share for the last quarter of
2003. Quarterly dividends of $0.11 per share were paid during
2002 and 2001.
We are currently expecting to deploy a majority of the cash
we generate from operations over the next 2 years (after capital
expenditures) to repurchase shares and pay dividends.
CAPITAL STRUCTURE AND RESOURCES
At December 31, 2003, our total long-term debt amounted to
$6.2 billion. Our long-term debt is mainly in the form of pub-
licly issued notes and debentures. The newly issued $1.0 billion
of convertible debentures discussed in more detail below has a
floating interest rate based on LIBOR. The balance of our long-
term debt bears interest at fixed rates. Through our repayment
activities, our long-term debt balance has declined from a bal-
ance of $9.9 billion at December 31, 2000. During the last 3
years, we improved our debt-to-total capital ratio from 58% at
December 31, 2000 to 48% at December 31, 2003.
Lockheed Martin Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
December 31, 2003
34