Lockheed Martin 2005 Annual Report Download - page 37

   
Lockheed฀Martin฀Corporation

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฀ 2005,฀we฀used฀ $133฀million฀of฀
cash฀for฀the฀early฀retirement฀and฀scheduled฀repayment฀of฀long-
term฀debt.฀In฀2004,฀we฀used฀$1.1฀billion฀of฀cash฀for฀the฀early฀
retirement฀and฀scheduled฀repayment฀of฀long-term฀debt.฀Of฀that฀
amount,฀ $951฀ million฀ related฀ to฀ the฀ early฀ retirement฀ of฀ debt฀
through฀ tender฀ offers฀ for฀ which฀ we฀ incurred฀ $163฀ million฀ of฀
associated฀ costs.฀ 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.฀We฀used฀the฀
proceeds฀of฀that฀issuance,฀along฀with฀cash฀from฀operations,฀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฀
in฀2003.฀
Share฀repurchases฀and฀dividends—We฀also฀used฀cash฀in฀each฀
of฀the฀last฀three฀years฀for฀common฀share฀repurchase฀activity฀as฀
follows:฀ $1,222฀ million฀ for฀ 19.7฀ million฀ common฀ shares฀ in฀
2005,฀of฀which฀$1,211฀million฀for฀19.5฀million฀of฀those฀com-
mon฀ shares,฀ as฀ well฀ as฀ $99฀ million฀ for฀ 1.8฀ million฀ common฀
shares฀ purchased฀ in฀ 2004,฀ was฀ settled฀ during฀ the฀ year;฀ $772฀
million฀for฀14.7฀million฀common฀shares฀in฀2004,฀of฀which฀$673฀
million฀for฀12.9฀million฀common฀shares฀was฀settled฀during฀the฀
year;฀ and฀ $482฀ million฀ in฀ 2003฀ for฀ 10.7฀ million฀ common฀
shares.฀These฀purchases฀were฀made฀ under฀a฀share฀repurchase฀
program฀in฀place฀for฀the฀repurchase฀of฀up฀to฀88฀million฀shares฀
of฀our฀common฀stock฀from฀time-to-time฀at฀management’s฀dis-
cretion,฀ including฀ 45฀ million฀ shares฀ that฀ were฀ authorized฀ for฀
repurchase฀ under฀ the฀ program฀ in฀ September฀ 2005.฀ As฀ of฀
December฀31,฀2005,฀we฀had฀repurchased฀a฀total฀of฀46.1฀million฀
shares฀under฀ the฀ program,฀and฀ there฀ remained฀approximately฀
41.9฀million฀shares฀that฀may฀be฀repurchased฀in฀the฀future.
The฀payment฀of฀dividends฀on฀our฀common฀shares฀is฀one฀of฀
the฀key฀components฀of฀our฀balanced฀cash฀deployment฀strategy.฀
Shareholders฀ were฀ paid฀ cash฀ dividends฀ of฀ $462฀ million฀ in฀
2005,฀$405฀million฀in฀2004฀and฀$261฀million฀in฀2003.฀We฀have฀
increased฀our฀quarterly฀dividend฀rate฀in฀each฀of฀the฀last฀three฀
years.฀We฀paid฀a฀quarterly฀dividend฀of฀$0.25฀per฀share฀during฀
each฀of฀the฀first฀three฀quarters฀of฀2005฀and฀$0.30฀per฀share฀for฀
the฀last฀quarter฀of฀2005.฀We฀paid฀a฀quarterly฀dividend฀of฀$0.22฀
per฀ share฀ during฀each฀ of฀the฀first฀ three฀ quarters฀of฀2004฀ and฀
$0.25฀per฀share฀for฀the฀last฀quarter฀of฀2004.฀In฀2003,฀we฀paid฀
quarterly฀dividends฀of฀$0.12฀per฀share฀during฀each฀of฀the฀first฀
three฀ quarters฀ of฀ the฀ year฀ and฀ $0.22฀ per฀ share฀ for฀ the฀ last฀
quarter฀of฀2003.

At฀ December฀ 31,฀ 2005฀ our฀ total฀ long-term฀ debt฀ amounted฀ to฀
$5.0฀billion.฀Our฀long-term฀debt฀is฀almost฀entirely฀in฀the฀form฀
of฀ publicly฀ issued฀ notes฀ and฀ debentures.฀ The฀ majority฀ of฀ our฀
long-term฀debt฀bears฀interest฀at฀fixed฀rates;฀however,฀$1.0฀bil-
lion฀ of฀ convertible฀ debentures฀ issued฀ in฀ 2003฀ have฀ a฀ floating฀
interest฀rate฀based฀on฀LIBOR.฀In฀2005,฀we฀repaid฀$133฀million฀
of฀ long-term฀ debt,฀ including฀ scheduled฀ and฀ early฀ debt฀ repay-
ments.฀ Through฀ our฀ repayment฀ activities,฀ our฀ long-term฀ debt฀
balance฀has฀declined฀over฀the฀last฀five฀years฀from฀$9.9฀billion฀
at฀December฀31,฀2000.฀We฀improved฀our฀debt-to-total฀capital-
ization฀ ratio฀ from฀ 58%฀ at฀ December฀ 31,฀ 2000฀ to฀ 39%฀ at฀
December฀31,฀2005.
Net Sales
(In billions)
Net Sales
(In billions)
0
5
10
15
20
25
30
35
40
0
5
10
15
20
25
30
35
$40
Operating Profit
(In millions)
0
500
1000
1500
2000
2500
3000
3500
0
500
1,000
1,500
2,000
2,500
3,000
$3,500
Net Cash Provided by Operating Activities
(In millions)
0
500
1000
1500
2000
2500
3000
3500
0
500
1,000
1,500
2,000
2,500
3,000
$3,500
 2004 2003
Aeronautics
Electronic Systems
Space Systems
IS&S
I&TS
Segment Operating Profit
(In millions)
 2004 2003
Aeronautics
Electronic Systems
Space Systems
IS&S
I&TS
Net Cash Provided By Operating Activities
(In millions)
 2004 2003
Debt-To-Total Capital Ratio
(In percent)
0.0
0.1
0.2
0.3
0.4
0.5
0%
10%
20%
30%
40%
50%
Debt-To-Total Capital Ratio
 2004 2003
0%
3%
6%
9%
12%
15%
Revised Return On Invested Capital Ratio(1)
 2004 2003
Return On Invested Capital
(In percent)
0.00
0.03
0.06
0.09
0.12
0.15
Negotiated Backlog
(In billions)
Negotiated Backlog
(In billions)
0
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
$80
 2004 2003
Aeronautics
Electronic Systems
Space Systems
IS&S
I&TS
(1) Calculation was revised in 2005. See Note (f) to
the Consolidated Financial Data—Five Year
Summary on page 74 for additional information
on the calculation.
Our฀ stockholders’฀ equity฀ amounted฀ to฀ $7.9฀ billion฀ at฀
December฀ 31,฀ 2005,฀ an฀ increase฀ of฀ $846฀ million฀ from฀
December฀31,฀2004.฀The฀increase฀came฀from฀net฀earnings฀and฀
stock฀ plan฀ activities฀ partially฀ offset฀ by฀ our฀ share฀ repurchases฀
and฀payment฀of฀dividends.฀
Return฀on฀invested฀capital฀(ROIC)฀improved฀by฀370฀basis฀
points฀during฀2005฀to฀14.5%.฀We฀define฀ROIC฀as฀net฀income฀
plus฀after-tax฀interest฀expense฀divided฀by฀average฀invested฀cap-
ital฀(stockholders’฀equity฀plus฀debt),฀after฀adjusting฀stockhold-
ers’฀ equity฀ by฀ adding฀ back฀ our฀ minimum฀ pension฀ liability฀
balance.฀ We฀ believe฀ that฀ reporting฀ ROIC฀ provides฀ investors฀
with฀ greater฀ visibility฀ into฀ how฀ effectively฀ Lockheed฀ Martin฀
uses฀ the฀ capital฀ invested฀ in฀ its฀ operations.฀ We฀ use฀ ROIC฀ to฀
evaluate฀ multi-year฀ investment฀ decisions฀ and฀ as฀ a฀ long-term฀