Lockheed Martin 2007 Annual Report Download - page 81

alternatives on individual launch missions. The joint venture is a limited liability company in which we and Boeing each
owns 50%. We are accounting for our investment in ULA under the equity method of accounting. The net book value of the
assets we contributed and the liabilities that ULA assumed from us was initially determined to be $190 million as of the date
of closing. This amount was subject to adjustment pending final review of the amounts we and Boeing contributed and the
liabilities assumed by ULA. We accounted for the transfer at net book value, with no gain or loss recognized.
In July 2007, we reached agreement with Boeing with respect to resolution of the final working capital and the value of
the launch vehicle support contracts that we each contributed to form ULA. After receiving all regulatory approvals required
under the original agreements, we made additional contributions totaling $177 million to ULA in August 2007 in respect of
the working capital adjustment, which was recorded as an increase in our investment in ULA. ULA also conformed the
accounting policies of the contributed businesses. The adoption of conformed accounting policies affected the book value of
the assets and liabilities that each of us contributed and resulted in adjustments to ULA’s balance sheet as of December 1,
2006. After the agreement was implemented and the adjustments were recorded, our 50% ownership share of ULA’s net
assets exceeded the book value of our investment by approximately $395 million, which we are recognizing ratably over 10
years. This amount and our share of ULA’s net earnings are reported as Equity in net earnings (losses) of equity investees in
Other income (expense), net on the Statement of Earnings and in the Operating profit of the Space Systems business segment
for segment reporting purposes (see Note 15) since its activities are closely aligned with the operations of Space Systems.
Our investment in ULA totaled $402 million and $197 million at December 31, 2007 and 2006. ULA did not have a material
impact on our results of operations, financial position or cash flows during the year ended December 31, 2007.
In connection with the formation of ULA, we and Boeing each committed to provide up to $25 million in additional
capital contributions and $200 million in other financial support to ULA, as required. As of December 31, 2006, we had
provided a total of $3 million of additional funding to ULA (see Note 14). We did not provide further funding to ULA during
2007.
Note 3 – Earnings Per Share
We compute basic and diluted per share amounts based on Net earnings for the periods presented. We use the weighted
average number of common shares outstanding during the period to calculate basic earnings per share. Our calculation of
diluted per share amounts includes the dilutive effects of stock options and restricted stock based on the treasury stock
method in the weighted average number of common shares.
We have $1.0 billion of floating rate convertible debentures issued and outstanding that also can potentially have a
dilutive effect on our earnings per share calculations. The debentures are convertible by holders into shares of our common
stock on a contingent basis per the terms of the indenture agreement. The debentures are not convertible unless the price of
our common stock is greater than or equal to 130% of the applicable conversion price for a specified period during the
previous quarter, or unless certain other events occur. The conversion price was $73.25 per share at December 31, 2007, and
is expected to change over time as described in the indenture agreement. The price of our common stock exceeded 130% of
the conversion price for the specified period of time during the fourth quarter of 2007, and therefore holders of the
debentures may elect to convert them during the first quarter of 2008.
We have irrevocably agreed to pay only cash in lieu of common stock for the accreted principal amount of the
debentures relative to our conversion obligations, but have retained the right to satisfy the conversion obligations in excess of
the accreted principal amount in cash or common stock. Though we have retained that right, FAS 128, Earnings Per Share,
requires an assumption that shares will be used to pay the conversion obligations in excess of the accreted principal amount,
and requires that those shares be included in our calculation of weighted average common shares outstanding for the diluted
earnings per share computation without regard to the convertibility by the bondholders. The number of shares included in the
computation at December 31, 2007 and 2006 did not have a material impact on earnings per share. No such shares were
included in the computation in 2005, as the conversion obligations were not in excess of the accreted principal amount.
Unless otherwise noted, we present all per share amounts cited in these financial statements on a “per diluted share”
basis.
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