Lockheed Martin 2001 Annual Report Download - page 44

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Lockheed Martin Corporation
(Continued)
other things, the Statement prohibits the amortization of
goodwill and sets forth a new methodology for periodically
assessing and, if warranted, recording impairment of good-
will. The Statement also requires completion of the initial
step of a transitional impairment test within six months of
the adoption of SFAS No. 142 and, if applicable, comple-
tion of the final step of the impairment test by the end of the
fiscal year of adoption. In connection with the impairment
provisions of the new rules, the Corporation has completed
the initial step of the goodwill impairment test and has con-
cluded that no adjustment to the balance of goodwill at the
date of adoption is required. In addition, the Corporation
reassessed the estimated remaining useful lives of other
intangible assets as part of its adoption of the Statement.
As a result of that review, the estimated useful life of the
intangible asset related to the F-16 fighter aircraft program
has been extended. This change is expected to decrease
annual amortization expense associated with that intangi-
ble asset by approximately $30 million on a pretax basis.
If the Statement had been adopted at the beginning of
2001, the extension of the estimated useful life of that
intangible asset and the absence of goodwill amortization
would have increased earnings from continuing operations
before extraordinary item by approximately $240 million
($0.55 per diluted share).
The Corporation elected to early adopt, effective January
1, 2001, SFAS No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets.” The new Statement
supercedes previous accounting guidance related to impair-
ment of long-lived assets and provides a single accounting
methodology for the disposal of long-lived assets, and also
supercedes previous guidance with respect to reporting the
effects of the disposal of a business. In connection with the
Corporation’s decision to exit its global telecommunications
services business and divest certain of the related business
units (see “Note 2—Exit From the Global Telecommunica-
tions Services Business”), the results of operations and cash
flows of certain businesses identified as held for sale, as
well as the impairment and other charges related to the
decision to exit these businesses, are classified as discontin-
ued operations in the Corporation’s consolidated financial
statements for all periods presented, and are excluded from
business segment information. Similarly, the assets and lia-
bilities of these businesses are separately identified in the
consolidated financial statements as being held for sale.
The results of operations and related gains or losses associ-
ated with businesses divested prior to the effective date of
the Corporation’s adoption of SFAS No. 144, including
the divestitures of the Corporation’s Aerospace Electronics
Systems (AES) businesses and Lockheed Martin Control
Systems in 2000, have not been reclassified to discontin-
ued operations in accordance with the Statement.
Effective January 1, 1999, the Corporation adopted
the American Institute of Certified Public Accountants’
Statement of Position (SOP) No. 98-5, “Reporting on the
Costs of Start-Up Activities.” This SOP requires that, at the
effective date of adoption, costs of start-up activities previ-
ously capitalized be expensed and reported as a cumula-
tive effect of a change in accounting principle, and further
requires that such costs subsequent to adoption be expensed
as incurred. The adoption of SOP No. 98-5 resulted in the
recognition of a cumulative effect adjustment which reduced
net earnings for the year ended December 31, 1999 by
$355 million ($0.93 per diluted share). The cumulative
effect adjustment was recorded net of income tax benefits of
$227 million, and was primarily composed of approximately
$560 million of costs previously included in inventories.
Note 2—Exit From the Global Telecommunications
Services Business
On December 7, 2001, the Corporation announced that
it would exit its global telecommunications services business
as a result of continuing overcapacity in the telecommunica-
tions industry and deteriorating business and economic condi-
tions in Latin America. In connection with its decision, the
Corporation reassigned certain of the businesses in the Global
Telecommunications segment to other business segments,
plans to sell the remaining operations, has positioned the
remaining investments for monetization, and is eliminating the
administrative infrastructure supporting such businesses and
investments. Separately, the Corporation decided not to pro-
vide further funding to Astrolink International, LLC (Astrolink)
and, due primarily to Astrolink’s inability to obtain additional
funding from other sources, wrote off its investment in Astrolink
(see “Note 9—Investments” for a discussion of the write-off of