Summary
Lockheed Martin Corporation (LMT) filed an 8-K on December 8, 2004, reporting on a significant amendment to its existing indenture for $1 billion in Floating Rate Convertible Senior Debentures due 2033. Effective December 6, 2004, the company irrevocably elected to pay cash only for the accreted principal amount upon conversion of these debentures, a change from its previous option to pay in cash, stock, or a combination. This decision is primarily driven by a change in accounting standards proposed by the Financial Accounting Standards Board (FASB). Previously, contingently convertible debt did not impact diluted earnings per share (EPS) calculations until a specific contingency was met. The new guidance would have required LMT to reflect the dilutive effect of these debentures in its EPS calculations for periods after December 15, 2004, regardless of whether the conversion trigger had been met. By electing to pay in cash, LMT aims to avoid this immediate dilutive impact on its reported EPS.
Key Highlights
- 1Lockheed Martin amended its indenture for $1 billion in Floating Rate Convertible Senior Debentures due August 13, 2033.
- 2The amendment, effective December 6, 2004, requires the company to pay cash for the accreted principal amount upon conversion.
- 3This is a change from the previous option to pay in cash, stock, or a combination.
- 4The company's decision is a direct response to upcoming changes in accounting rules regarding contingently convertible debt.
- 5The new accounting guidance from FASB would have required the dilutive effect of these debentures to be reflected in EPS calculations.
- 6By electing cash payment, LMT seeks to prevent these debentures from impacting its diluted EPS calculations until the conversion price is exceeded.