Lockheed Martin 2008 Annual Report Download - page 66

Divestitures
There were no divestiture activities in 2008. During 2007 and 2006, we continued to execute the strategy to monetize
certain of our equity investments and real estate by divesting of the following:
Year ended December 31, 2007
• Our remaining 20% interest in Comsat International, which resulted in a gain, net of state income taxes, of $25
million in other income (expense), net, and increased net earnings by $16 million ($0.04 per share); and
• Certain land in California, which resulted in a gain, net of state income taxes, of $25 million in other income
(expense), net, and increased net earnings by $16 million ($0.04 per share).
Year ended December 31, 2006
• Our ownership interests in Lockheed Khrunichev Energia International, Inc. (LKEI) and International Launch
Services, Inc. (ILS). The gain on the sale was deferred pending the disposition of guarantees associated with
providing launch services for certain customers (see Note 14);
• 21 million shares of Inmarsat plc, which resulted in a gain, net of state income taxes, of $127 million in other
income (expense), net, and increased net earnings by $83 million ($0.19 per share);
• The assets of Space Imaging, LLC, which resulted in a gain, net of state income taxes, of $23 million in other
income (expense), net, and increased net earnings by $15 million ($0.03 per share); and
• Certain land in California and Florida, which resulted in an aggregate gain, net of state income taxes, of $51
million in other income (expense), net, and increased net earnings by $33 million ($0.08 per share).
On December 1, 2006, we completed the formation of ULA with Boeing (see Note 14). As part of ULA’s formation, we
contributed certain assets and liabilities related to our Atlas launch vehicle business. Our contribution, after completing
working capital and conforming accounting adjustments and making an additional contribution of $177 million in 2007,
totaled $367 million. We accounted for the transfer at net book value, with no gain or loss recognized. 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 as equity in net earnings (losses) of equity investees in other income (expense), net. Our
investment in ULA totaled $428 million and $402 million at December 31, 2008 and 2007.
Quantitative and Qualitative Disclosure of Market Risk
We maintain active relationships with a broad and diverse group of domestic and international financial institutions. We
believe that they provide us with access to the general and trade credit we require to conduct business. We continue to
closely monitor the market environment and actively manage counterparty exposure to minimize the impact from any single
credit provider while ensuring availability of, and access to, sufficient credit resources.
Our main exposure to market risk relates to interest rates, foreign currency exchange rates and market prices on certain
equity securities. Our financial instruments that are subject to interest rate risk principally include fixed-rate long-term debt.
Our long-term debt portfolio bears interest at fixed rates. The estimated fair value of our long-term debt instruments was
approximately $4.8 billion, compared with a carrying value of $4.1 billion.
We use foreign currency exchange contracts to manage our exposure to fluctuations in foreign currency exchange rates,
and generally do so in ways that qualify for hedge accounting treatment. These foreign currency exchange contracts hedge
the fluctuations in cash flows associated with firm commitments or specific anticipated transactions contracted in foreign
currencies. Related gains and losses on these contracts, to the extent they are effective hedges, are recognized in income at
the same time the hedged transaction is recognized. To the extent the hedges are ineffective, gains and losses on the contracts
are recognized in the current period. At December 31, 2008, the net fair value of foreign currency exchange contracts
outstanding was an asset of $52 million (see Note 15).
We evaluate the credit quality of potential counterparties to derivative transactions and only enter into agreements with
those deemed to have minimal credit risk at the time the agreements are executed. Our foreign exchange hedge portfolio is
diversified across several credit line banks. We carefully monitor the amount of exposure we have with any given bank. We
periodically monitor changes to counterparty credit quality as well as our concentration of credit exposure to individual
counterparties. We do not hold or issue derivative financial instruments for trading or speculative purposes.
We maintain a Rabbi Trust which includes investments to fund certain of our non-qualified deferred compensation
plans. As of December 31, 2008, investments in the Rabbi Trust totaled $500 million and are reflected at fair value on our
Balance Sheet in other assets. The Rabbi Trust holds investments in marketable equity securities that are exposed to price
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