Lockheed Martin 2007 Annual Report Download - page 84

declaration date of the distribution; and the credit rating assigned to the debentures by either Moody’s or Standard & Poor’s
is lower than Ba1 or BB+.
The conversion price was $73.25 per share at December 31, 2007, and is expected to change over time as provided for
in the indenture agreement. We adjust the conversion price when certain events occur including, but not limited to, the
following: the payment of dividends and other distributions on our common stock, payable exclusively in shares of our stock;
the issuance to all holders of our common stock of rights that allow them to purchase shares of common stock at less than
market price during a specified period; distributions we make consisting exclusively of cash to all holders of our common
stock, excluding any quarterly cash dividend that does not exceed $0.12 per share.
We have irrevocably elected and agreed to pay only cash in lieu of common stock for the accreted principal amount of
the debentures relative to the conversion obligations described above. We have retained the right, however, to elect to satisfy
the conversion obligations in excess of the accreted principal amount of the debentures in cash or common stock or a
combination of cash and common stock. There is no amount exceeding the accreted principal until the market price of our
stock exceeds the conversion price. This occurred for the first time in 2007; accordingly, the debentures had no impact on the
calculation of diluted earnings per share prior to 2007 (see Note 3). We also have the right to redeem any or all of the
debentures at any time after August 15, 2008.
In the fourth quarter of 2007, the price of our common stock exceeded 130% of the $73.25 conversion price for the
specified period of time, and therefore holders of the debentures may elect to convert them during the quarter ending
March 31, 2008 (see Note 3). The right to convert the debentures based on our stock price is re-evaluated each quarter. In
addition, the registered holders of $300 million of 40-year debentures issued in 1996 that bear interest of 7.20% may elect,
between March 1 and April 1, 2008, to have their debentures repaid on May 1, 2008. We have continued to classify these
debentures and the $1.0 billion of convertible debentures discussed above as long-term based on our ability and intent to
maintain the debt outstanding for at least one year. Our ability to do so is demonstrated by our $1.5 billion revolving credit
facility discussed below.
At December 31, 2007, we had in place a $1.5 billion revolving credit facility which expires in June 2012. There were
no borrowings outstanding under the facility at December 31, 2007. Borrowings under the credit facility would be unsecured
and bear interest at rates based, at our option, on the Eurodollar rate or a bank defined Base Rate. Each bank’s obligation to
make loans under the credit facility is subject to, among other things, our compliance with various representations, warranties
and covenants, including covenants limiting our ability and certain of our subsidiaries to encumber assets and a covenant not
to exceed a maximum leverage ratio.
In 2006, we entered into an agreement to swap variable interest rates on our $1.0 billion of convertible debentures with
floating rates based on LIBOR for a fixed interest rate through August 15, 2008. We designated the agreement as a cash flow
hedge of the forecasted LIBOR-based variable interest payments. Based on our evaluation at the inception of the hedging
agreement and thereafter, we expect the hedging relationship to be highly effective in achieving the offsetting cash flows
attributable to the hedged variable interest payments, resulting in a fixed net interest expense reported on the Statement of
Earnings. We determined that the hedging relationship remained effective at December 31, 2007. We adjust the fair value of
the interest rate swap agreement at each Balance Sheet date, with a corresponding adjustment to Other comprehensive
income (loss). At December 31, 2007, the fair value of the interest rate swap agreement was not material.
Our scheduled Long-term debt maturities following December 31, 2007 are: $104 million in 2008; $242 million in
2009; $1 million in 2010; $1 million in 2011; $1 million in 2012; and $4,400 million thereafter. These amounts do not
include the $342 million unamortized discount recorded in connection with the debt exchange in 2006.
The estimated fair values of our Long-term debt instruments at December 31, 2007, aggregated approximately $5.7
billion, compared with a carrying amount of approximately $4.7 billion, excluding the $342 million unamortized discount.
The fair values were estimated based on quoted market prices. Unless otherwise indicated elsewhere in the notes to the
financial statements, the carrying values of our other financial instruments approximate their fair values.
Interest payments were $327 million in 2007, $337 million in 2006, and $356 million in 2005.
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