Lockheed Martin 2003 Annual Report Download - page 57

Lockheed Martin Corporation
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Also in August 2003, the Corporation issued $1.0 billion in
floating rate convertible debentures due in 2033. The deben-
tures bear interest at a rate equal to three-month LIBOR less 25
basis points, reset quarterly. The interest rate in effect at
December 31, 2003 was 0.93%. Interest on the debentures is
payable quarterly through August 15, 2008, after which the
interest will accrue as part of the value of the debenture and will
be payable, along with the principal amount of the debenture, at
maturity. The debentures are convertible by their holders into
the Corporation’s common stock in certain limited circum-
stances as outlined in the indenture agreement. Absent certain
events not currently anticipated, the debentures are not convert-
ible unless the price of the Corporation’s common stock is
greater than or equal to 130% of the applicable conversion price
for a specified period during a quarter. The conversion price
was $75.79 per share at December 31, 2003, and is expected to
change over time as provided for in the indenture agreement.
Upon conversion, the Corporation has the right to deliver, in
lieu of common stock, cash or a combination of cash and com-
mon stock, and also has the right to redeem any or all of the
debentures at any time after August 15, 2008.
In the first quarter of 2003, the Corporation issued irrevo-
cable redemption notices to the trustees for two issuances of
callable debentures totaling $450 million. This amount was
included in current maturities of long-term debt on the balance
sheet at December 31, 2002. One notice was for $300 million
of 7.875% debentures due on March 15, 2023, which were
repaid on March 15, 2003. The second notice was for $150 mil-
lion of 7.75% debentures due on April 15, 2023, which were
repaid on April 15, 2003. The Corporation recorded a loss, net
of state income tax benefits, of $19 million in other income and
expenses related to the early repayment of the $450 million of
debt. The loss reduced 2003 net earnings by $13 million ($0.03
per diluted share).
In December 2002, the Corporation recorded a charge, net
of state income tax benefits, of $163 million related to its
investment in Space Imaging, LLC and its guarantee of up to
$150 million of Space Imaging’s borrowings under a credit facil-
ity that matured on March 30, 2003. The charge was recorded in
light of the Corporation’s decision, and the decision of its other
major partner in the joint venture, not to provide further funding,
its assessment that Space Imaging will likely not be able to repay
their obligation under the credit facility when due, and the
uncertainties as to whether Space Imaging would be successful
in obtaining the additional investment necessary to fund replace-
ment satellites consistent with their business plans. On March
31, 2003, the Corporation paid $130 million to acquire Space
Imaging’s outstanding borrowings under Space Imaging’s credit
facility, and the guarantee was eliminated. The Corporation
therefore reversed, net of state income taxes, approximately $19
million of the charge recorded in December 2002, representing
the unutilized portion of the credit facility covered by its guar-
antee. This gain increased first quarter 2003 net earnings by $13
million ($0.03 per diluted share).
In September 2001, the Corporation redeemed approximate-
ly $117 million of 7% debentures ($175 million at face value)
due in 2011 which were originally sold at approximately 54% of
their principal amount. The debentures were redeemed at face
value, resulting in a 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).
The registered holders of $300 million of 40-year deben-
tures 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) incor-
porated into the Corporation’s salaried savings plan borrowed
$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 stipulates 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 consolidated balance sheet.
At December 31, 2003, the Corporation had in place a $1.5
billion revolving 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 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 various representa-
tions, 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.