Lockheed Martin 1999 Annual Report Download - page 41

48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999
on ownership of COMSAT voting stock. Legislation neces-
sary to remove these restrictions cleared the U.S. Senate
on July 1, 1999. On November 10, 1999, the U.S. House
of Representatives (the House) also passed legislation which,
if adopted into law, would remove these restrictions. There
are substantial differences between the two bills, and signifi-
cant issues raised by the House bill in particular which,
if not resolved satisfactorily, would likely have a Significant
Adverse Effect on COMSAT (as defined in the Merger
Agreement). The Corporation hopes these issues will be
favorably resolved.
In early 2000, sponsors of the two different bills
announced a compromise agreement that, if adopted,
would resolve many of the issues raised by the House bill.
It is now expected that legislation that reflects the compro-
mise agreement will be enacted before May 2000. There
is no assurance that this legislation will be passed or passed
in this time frame, or that any legislation that does become
law would not have an adverse effect on COMSAT’s busi-
ness. If Congress enacts legislation that the Corporation
determines in good faith, after consultation with COMSAT,
would reasonably be expected to have a Significant
Adverse Effect on COMSAT’s business, the Corporation
would have the right to elect not to complete the Merger.
Before the Merger can occur, the Corporation must file
separate notification and report forms under the Hart Scott-
Rodino Antitrust Improvement Act with the Federal Trade
Commission (FTC) and the U.S. Department of Justice
(DOJ) regarding its acquisition of minority interests in
two businesses held by COMSAT. In addition, following
the passage of legislation, the Federal Communications
Commission (FCC) must approve the Merger. The precise
nature of the FCC approval requirement will, however,
depend upon the details of the final legislation enacted by
Congress. There is no assurance as to the timing or whether
the FTC, DOJ or FCC will provide the requisite approvals.
If the Merger is not completed on or before September 18,
2000, under the terms of the Merger Agreement, Lockheed
Martin or COMSAT could terminate the Merger Agreement
or elect not to exercise this right, or both parties could
agree to extend this date. If consummated, the Merger will
be accounted for under the purchase method of accounting.
If the Merger is not consummated, the Corporation will not
be able to achieve all of its objectives with respect to the
COMSAT transaction and will be unable to exercise control
over COMSAT.
Effective January 1, 1999, investments in several exist-
ing joint ventures and elements of the Corporation were
combined with Lockheed Martin Global Telecommunications,
Inc. (Global Telecommunications), a wholly-owned sub-
sidiary of the Corporation focused on capturing a greater
portion of the worldwide telecommunications services market.
The Corporation intends to combine the operations of Global
Telecommunications and COMSAT upon consummation of
the Merger noted above.
Note 3—Divestiture Activities
The Corporation executed a definitive agreement in March
1997 to reposition 10 of its non-core business units as a
new independent company, L-3, in which the Corporation
retained an approximate 35 percent ownership interest at
closing. The transaction did not have a material impact on
the Corporation’s 1997 earnings. During May 1998, L-3
completed an initial public offering resulting in the issuance
of an additional 6.9 million shares of its common stock to
the public. This transaction resulted in a reduction in the
Corporation’s ownership to approximately 25 percent and
the recognition of a pretax gain of $18 million. The gain
increased net earnings by $12 million, or $.03 per diluted
share. In February 1999, the Corporation sold 4.5 million
of its shares in L-3 as part of a secondary public offering
by L-3. This transaction resulted in a reduction in the
Corporation’s ownership to approximately seven percent
and the recognition of a pretax gain of $114 million. The
gain increased net earnings by $74 million, or $.19 per
diluted share. After this transaction was consummated, the
Corporation began accounting for its remaining investment
in L-3 as an available-for-sale investment. In October 1999,
the Corporation sold its remaining interest in L-3. This trans-
action resulted in the recognition of a pretax gain of $41
million which increased net earnings by $27 million, or
$.07 per diluted share.