Lockheed Martin Corporation (NYSE: LMT; Bethesda, MD) describes itself as a global security and aerospace company principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services, with its principal customers being agencies of the U.S. Government. On the next two pages are Lockheed Martins Consolidated Statements of Earnings, Comprehensive Income, and Balance Sheets, along with the Long-Term Debt footnote, excerpted from the its 2014 10-K. (You will not need to supplement with outside sources of company data in order to answer the questions.)
1. What is the principal or face value of Lockheed Martins long-term debt?
2. (a) To what covenant(s) is Lockheed Martin subject under the terms of their revolving credit facility?
(b) How is the covenant ratio described differently from what we might compute as part of the ROE
decomposition?
3. The footnote states that In April 2013, [Lockheed Martin] repaid $150 million of long-term notes
with a fixed interest rate of 7.38% due to their scheduled maturities. At the time of repayment, did the net carrying value of these long-term notes reflect at a premium, a discount, or par value? Explain.
4. Has Lockheed Martins solvency improved or deteriorated in 2014 relative to 2013?
Explain your response, and identify the primary cause for that change.
EXCERPTS FROM LOCKHEED MARTIN CORPORATION'S 2014 10K Lockheed Martin Corporation Consolidated Statements of Earnings (in millions, except per share data) Years Ended December 31. 2014 2013 2012 Net sales S 36,093 Products 35,691 $37,817 9,365 Services 9,507 9,667 45,600 Total net sales 45,358 47,182 ost of sales (31,965) (31,346) (8,588) (33.495) (8,383) Services Goodwill impaiment charges Severance charges Other unallocated, net (8,393) (119) (195) (201) (48) 132 (841) (1,060) Total cost of sales (40,345) (41,171) (42,986) Gros 4 Ccbingom 337 318 net Operating profit 5,592 (340) 4.505 4.434 Interest expense Other non-operating income, net Eamings from continuing operations before income taxes Income tax expense (350) (383) 6 21 4,072 (1,327) 2,745 5.258 4,155 2950 31 2,981 ontinuin 3,614 Net earnings from discontinued operations Net earnings $ 2,745 S 3.614 Earnings per common share Continuing operations Discontinued operations Basic eanings per common share Diluted S 11.41 9.19 S 8.48 10 S 11.41 9.29 8.48 Continuing operations continued operations S 11.21 9.04 8.36 o12 $ 8.36 S 11.21 Diluted eamings per common share The accompanying notes are an integral part of these consolidated financial statements. Consolidated Statements of Comprebensive Income (in millions) Years Ended December 31, 2013 $2,981 2014 2012 S 2.745 Net earnings Other comprehensive (loss) income, net oftax S 3.614 Po Net other comprehensive (loss)) income recognized during the period, net of tax benefit (expense) of $1.5 billion (2,870) (3,204) 2014, S(1.6) billion in 2013 and $1.8 billion in 2012 2.868 Amounts reclassified from accumulated other comprehensive loss, net of tax expense of $386 million in 858 2014, S555 million in 2013 and $469 million in 2012 Other, net 706 1,015 (105) 110 Other comprehensive (loss) income, net oftax (2,269) 3,892 S 6.873 (2,236) Comprehensive income S 1345 509 The accompanying notes are an integral part of these consolidated financial statements. Lockheed Martin Corporation Consolidated Balance Sheets (in millions, except par value) December 31, 201 2013 Assets Current assets S 2,617 Cash and cash equivalents 1,446 Recervables, net 2977 1,088 813 Deferred income taxes Other current assets Total current assets 1,451 666 13,329 12,329 Property, plant and equipment, net 4,755 10 4012 4,706 10 2 850 income taxes 4,955 Other noncurrent assets 5.114 Total assets 37,073 36,188 Liabilities and stockholders' equity un $ 1.570 S 1397 Accounts payable Customer advances and amounts in excess of costs incurred Salaries, benefits and payroll taxes Other current liabilities 5.790 6,349 1.826 1.809 1 120 I current liabilities d pension liab 11 L102 liabilities 902 Long-term debt, net 6,169 6,152 Other noncurrent liabilities 3,877 3,735 Total liabilities 33.673 31,270 Stockholders' equity Common stock, $1 par value per share Additional paid-in capital 319 314 14,956 (11,870) 14.200 Accumulated other comprehensive loss Total stockholders' equity Total liabilities and stockholders' equity (9,601 4,918 3,400 $ 37,073 S 36,188 The accompanying notes are an integral part of these consolidated financial statements. Note 8 Debt Our long-term debt consisted of the following (in millions): 2013 55.642 916 2014 55.642 Notes with rates from 2.13 % to 6.15 % , due 2016 to 2042 Notes with rates from 7.00% to 7.75 % , due 2016 to 2036 Other debt Total long-term debt 916 483 476 7,034 7,041 2) 6.169 unts 82 $6 157 ebt, net Total In August 2014, we entered into a new $1.5 billion revolving credit facility with a syndicate of banks and concurrently terminated our existing $1.5 billion revolving credit facility which was scheduled banks may grant, at their discretion, an increase to the new credit facility ofup to an additional $500 million. The credit facility also includes a sublimit ofup expire in August 2016. The new credit facility expires August 2019 and we may request and the Bomowings under the new credit facility would be unsecured and bear interest at rates based, at our option. on a Eurodollar Rate or a Base Rate, as defined in the new credit facility. 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' ability to encumber assets and a covenant not to exceed a maximum leverage ratio, as defined in the credit facility. The leverage ratio covenant excludes the adjustments recognized in stockholders equity related to postretirement benefit plans. As of December 31, 2014, we were in compliance with all covenants contained in the credit facility, as well as in our debt agreements. We have agreements in place with financial institutions outstanding during 2014 or 2013. provide for the issuance f commercial paper. There were no commercial paper borrowings f we were issue commercial paper, the borowings would be supported by the credit facility. In April 2013, we repaid $150 million of long-term notes with a fixed interest rate of 7.38% due to their scheduled maturities. During the next five we have scheduled long-tem debt maturities ofS952 million due in 2016 and $900 million due in 2019, Interest payments were $326 million in 2014, $340 million in 2013 and $378 million in 2012. All of our existing unsecured and unsubordinated indebtedness rank equally in right of payment. EXCERPTS FROM LOCKHEED MARTIN CORPORATION'S 2014 10K Lockheed Martin Corporation Consolidated Statements of Earnings (in millions, except per share data) Years Ended December 31. 2014 2013 2012 Net sales S 36,093 Products 35,691 $37,817 9,365 Services 9,507 9,667 45,600 Total net sales 45,358 47,182 ost of sales (31,965) (31,346) (8,588) (33.495) (8,383) Services Goodwill impaiment charges Severance charges Other unallocated, net (8,393) (119) (195) (201) (48) 132 (841) (1,060) Total cost of sales (40,345) (41,171) (42,986) Gros 4 Ccbingom 337 318 net Operating profit 5,592 (340) 4.505 4.434 Interest expense Other non-operating income, net Eamings from continuing operations before income taxes Income tax expense (350) (383) 6 21 4,072 (1,327) 2,745 5.258 4,155 2950 31 2,981 ontinuin 3,614 Net earnings from discontinued operations Net earnings $ 2,745 S 3.614 Earnings per common share Continuing operations Discontinued operations Basic eanings per common share Diluted S 11.41 9.19 S 8.48 10 S 11.41 9.29 8.48 Continuing operations continued operations S 11.21 9.04 8.36 o12 $ 8.36 S 11.21 Diluted eamings per common share The accompanying notes are an integral part of these consolidated financial statements. Consolidated Statements of Comprebensive Income (in millions) Years Ended December 31, 2013 $2,981 2014 2012 S 2.745 Net earnings Other comprehensive (loss) income, net oftax S 3.614 Po Net other comprehensive (loss)) income recognized during the period, net of tax benefit (expense) of $1.5 billion (2,870) (3,204) 2014, S(1.6) billion in 2013 and $1.8 billion in 2012 2.868 Amounts reclassified from accumulated other comprehensive loss, net of tax expense of $386 million in 858 2014, S555 million in 2013 and $469 million in 2012 Other, net 706 1,015 (105) 110 Other comprehensive (loss) income, net oftax (2,269) 3,892 S 6.873 (2,236) Comprehensive income S 1345 509 The accompanying notes are an integral part of these consolidated financial statements. Lockheed Martin Corporation Consolidated Balance Sheets (in millions, except par value) December 31, 201 2013 Assets Current assets S 2,617 Cash and cash equivalents 1,446 Recervables, net 2977 1,088 813 Deferred income taxes Other current assets Total current assets 1,451 666 13,329 12,329 Property, plant and equipment, net 4,755 10 4012 4,706 10 2 850 income taxes 4,955 Other noncurrent assets 5.114 Total assets 37,073 36,188 Liabilities and stockholders' equity un $ 1.570 S 1397 Accounts payable Customer advances and amounts in excess of costs incurred Salaries, benefits and payroll taxes Other current liabilities 5.790 6,349 1.826 1.809 1 120 I current liabilities d pension liab 11 L102 liabilities 902 Long-term debt, net 6,169 6,152 Other noncurrent liabilities 3,877 3,735 Total liabilities 33.673 31,270 Stockholders' equity Common stock, $1 par value per share Additional paid-in capital 319 314 14,956 (11,870) 14.200 Accumulated other comprehensive loss Total stockholders' equity Total liabilities and stockholders' equity (9,601 4,918 3,400 $ 37,073 S 36,188 The accompanying notes are an integral part of these consolidated financial statements. Note 8 Debt Our long-term debt consisted of the following (in millions): 2013 55.642 916 2014 55.642 Notes with rates from 2.13 % to 6.15 % , due 2016 to 2042 Notes with rates from 7.00% to 7.75 % , due 2016 to 2036 Other debt Total long-term debt 916 483 476 7,034 7,041 2) 6.169 unts 82 $6 157 ebt, net Total In August 2014, we entered into a new $1.5 billion revolving credit facility with a syndicate of banks and concurrently terminated our existing $1.5 billion revolving credit facility which was scheduled banks may grant, at their discretion, an increase to the new credit facility ofup to an additional $500 million. The credit facility also includes a sublimit ofup expire in August 2016. The new credit facility expires August 2019 and we may request and the Bomowings under the new credit facility would be unsecured and bear interest at rates based, at our option. on a Eurodollar Rate or a Base Rate, as defined in the new credit facility. 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' ability to encumber assets and a covenant not to exceed a maximum leverage ratio, as defined in the credit facility. The leverage ratio covenant excludes the adjustments recognized in stockholders equity related to postretirement benefit plans. As of December 31, 2014, we were in compliance with all covenants contained in the credit facility, as well as in our debt agreements. We have agreements in place with financial institutions outstanding during 2014 or 2013. provide for the issuance f commercial paper. There were no commercial paper borrowings f we were issue commercial paper, the borowings would be supported by the credit facility. In April 2013, we repaid $150 million of long-term notes with a fixed interest rate of 7.38% due to their scheduled maturities. During the next five we have scheduled long-tem debt maturities ofS952 million due in 2016 and $900 million due in 2019, Interest payments were $326 million in 2014, $340 million in 2013 and $378 million in 2012. All of our existing unsecured and unsubordinated indebtedness rank equally in right of payment
