Lockheed Martin 2004 Annual Report Download - page 53

In May 2004, the FASB issued FASB Staff Position (FSP)
106-2, Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization
Act of 2003. This FSP provides specific authoritative guidance
on the accounting for the federal subsidy to eligible sponsors of
retiree health care benefits provided under this law. Using this
guidance, the Corporation calculated a reduction in its accumu-
lated post-retirement benefit obligation at December 31, 2004
of $295 million from the effects of the new law and, after appli-
cation of government contracting regulations, doesn’t anticipate
a material impact on net earnings from the reduction in net peri-
odic post-retirement benefits cost in 2005.
NOTE 2 — ACQUISITIONS AND DIVESTITURES
In November 2003, the Corporation and Affiliated Computer
Services, Inc. (ACS) completed transactions whereby the
Corporation acquired ACS’ federal government information
technology (IT) business, and ACS concurrently acquired the
Corporation’s commercial IT business. The total purchase price
related to the Corporation’s acquisition of ACS’ federal govern-
ment IT business, including transaction-related costs, was
approximately $585 million. The accounting for the acquisition
included recording an intangible asset of $57 million related to
a covenant not to compete that will be amortized over five
years, an intangible asset of approximately $55 million related
to contracts and customer relationships acquired that will be
amortized over seven years, and goodwill of approximately
$460 million which is neither amortizable nor tax deductible.
The divestiture of the Corporation’s commercial IT business
resulted in a gain, net of state income taxes, of $15 million
which was recorded in other income and expenses. The gain
increased 2003 net earnings by approximately $8 million ($0.02
per share).
The Corporation reported a net loss from discontinued
operations of $33 million ($0.07 per share) in 2002. This
amount included losses incurred to complete wind-down activ-
ities related to the global telecommunications services busi-
nesses, offset by the reversal of a portion of a reserve pertaining
to various indemnity provisions in the 2001 agreement to sell
Lockheed Martin IMS. Risks associated with the indemnity
provisions were resolved and $39 million of the 2001 charge, net
of taxes, was reversed through discontinued operations in 2002.
NOTE 3 — EARNINGS PER SHARE
Basic and diluted per share results for all periods presented
were computed based on the net earnings for the respective
periods. The weighted average number of common shares out-
standing during the period was used in the calculation of basic
earnings per share. The weighted average number of common
shares used in the calculation of diluted per share amounts is
adjusted for the dilutive effects of stock options based on the
treasury stock method.
Unless otherwise noted, all per share amounts cited in these
financial statements are presented on a “per diluted share”
basis.
The following table sets forth the computations of basic
and diluted earnings per share:
(In millions, except per share data) 2004 2003 2002
NET EARNINGS:
Continuing operations $1,266 $1,053 $ 533
Discontinued operations —— (33)
Net earnings for basic and
diluted computations $1,266 $1,053 $ 500
AVERAGE COMMON SHARES
OUTSTANDING:
Average number of common shares
outstanding for basic computations 443.1 446.5 445.1
Dilutive stock options 4.0 3.5 6.9
Average number of common shares
outstanding for diluted computations 447.1 450.0 452.0
EARNINGS PER COMMON SHARE:
Basic:
Continuing operations $ 2.86 $ 2.36 $ 1.20
Discontinued operations —— (0.07)
$ 2.86 $ 2.36 $ 1.13
Diluted:
Continuing operations $ 2.83 $ 2.34 $ 1.18
Discontinued operations —— (0.07)
$ 2.83 $ 2.34 $ 1.11
Lockheed Martin Corporation
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