LMT to Exchange Debentures for Notes

Lockheed Martin Corporation (LMT - Analyst Report) has commenced an offering for exchange of all its outstanding debt securities for a new series of 4.07% notes due 2042 and an additional cash amount.

The outstanding debt securities that will be exchanged are 7.00% Debentures due 2023, 8.375% Debentures due 2024, 7.625% Debentures due 2025, 7.75% Debentures due 2026, 8.50% Debentures due 2029, 7.20% Debentures due 2036, 6.15% Notes due 2036, 5.50% Notes due 2039, and 5.72% Notes due 2040.

Per the offer, the holders of each series of the old notes will receive a specified principal amount of new notes for the series of old notes tendered and accepted for each $1,000 principal amount of outstanding old notes tendered and accepted along with an additional cash amount.

The total exchange consideration also includes an early participation payment payable in additional principal amount of new notes only to holders, who tender their old notes on or prior to November 28, 2012, subject to extension.

The exchange offer is subject to certain conditions. The minimum condition that the company has to comply is to receive valid tenders, not validly withdrawn, of enough old notes so that at least $250,000,000 aggregate principal amount of the new notes are issued in exchange for the old ones.

Unless extended or terminated, the exchange offer will expire at the end of the day on December 12, 2012. The exchange offer is being conducted upon the terms and subject to the conditions set forth in the Offering Memorandum dated November 14, 2012 and the related letter of transmittal.

Lockheed Martin Corporation posted third-quarter 2012 results in October 2012. The company reported third-quarter 2012 earnings of $2.26 per share, beating the Zacks Consensus Estimate of $1.85. This was also higher than the year-ago quarterly earnings of $2.06.

Cash and cash equivalents at the end of the third quarter of 2012 were $4.7 billion versus $3.6 billion at the end of fiscal 2011. Long-term debt fell to approximately $6.4 billion versus $6.5 billion at the end of fiscal 2011.

It seems that the company is utilizing its liquidity position well. Yesterday, Lockheed had announced the acquisition of Chandler/May Inc., an unmanned aerial systems manufacturer. Chandler/May, with facilities in Alabama and California, will become part of Lockheed's Mission Systems & Sensors business.

Lockheed Martin’s prudent acquisition of Chandler/May would expand its expertise in the design, development, integration, manufacturing, and support of fully integrated mission critical systems for unmanned aerial systems (“UAS”) and Command, Control, Communications, Computers, Intelligence, Surveillance, Reconnaissance (“C4ISR”) missions.

Over the longer run, we expect the company to register a stable performance driven by leveraged presence in the Army, Air Force, Navy and IT programs. Also, shareholder return will continue to be shored up by the company’s focus on debt repayment, its ongoing share repurchase program and the incremental dividend.

However, we are concerned about the budget deficits and political uncertainty that make future defense budgets vulnerable to cutbacks. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Based in Bethesda, Maryland, Lockheed Martin is a global security and aerospace company that is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services.

The company mainly competes with The Boeing Company (BA - Analyst Report) and General Dynamics Corporation (GD - Analyst Report).