Lockheed Martin Corporation is a well-known producer of advanced aircraft, missiles, and space hardware. Lockheed Martin is most famous for its super-secret research and development division, nicknamed the "Skunk Works." Among the high-tech aircraft developed at the Skunk Works are the SR-71 Blackbird spy plane and the F-117A Stealth fighter.

The consolidated statement of cash flows from Lockheed Martin's 2009 annual report is reproduced below.

When investors and analysts use the term cash flow, they can mean a variety of things. Some common definitions of cash flow are as follows:

(a) Net income + Depreciation

(b) Cash flow from operating activities

(c) Cash flow from operating activities + Cash paid for interest + Cash paid for income taxes

(d) Cash flow from operating activities - Capital expenditures - Dividends

Lockheed Martin Corporation

Consolidated Statement of Cash Flows

Instructions:
1. Using the data from Lockheed's statement of cash flows, compute values for the four measures of cash flow defined above for 2007, 2008, and 2009. Use net earnings as net income. For capital expenditures, use expenditures for property, plant, and equipment.
2. One of the definitions (a) through (d) is sometimes given the title free cash flow because it indicates the amount of discretionary cash generated by a business. Free cash flow is thought of as the amount of cash that an owner can remove from a business without harming its long-term potential. Which of these four definitions do you think applies to free cash flow? Explain.
3. A leveraged buyout (LBO) is the purchase of a company using borrowed money. The idea behind an LBO is to borrow the money, buy the company, and then repay the loan using the cash flow generated by the purchased company. Which of the four definitions of cash flow do you think would be particularly useful to someone considering an LBO? Explain.

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Year ended December 31, (in millions) 2007 Operating Activities Net eanings Adjustments to reconcile net eamings to net cash $3,024 $3,217 $3,033 provided by operating activities: 153 149 (124) Excess tax benefits on stock-based compensation. Deferred income taxes Contributions related to our qualified defined benefit plans (21) 542 (1,482) (92) (109) Changes in operating assets and liabilities: (324) (57) (66) Accounts payable Customer advances and amounts in excess of costs incurred (21) (141) Year ended December 31, (in millions) $677 $639 Net cash provided by operating activities Expenditures for property, plant, and equipment Acquisition of businesses/investments in affiliates Net proceeds from (payments for) short-term investments Net cash used for investing activities Financing Issuances of common stock and related amounts. (1,518) Excess tax benefits on stock-based compensation Issuance of long-term debt, net of related costs Net cash used for financing activities Effect of exchange rate changes on cash and cash equivalents Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental Disclosure Information Cash paid during the year for: $ 286 $320 $ 327