Lockheed Martin 2010 Annual Report Download - page 63

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We record derivatives at their fair value. The classification of gains and losses resulting from changes in the fair values of
derivatives is dependent on our intended use of the derivative and its resulting designation. Adjustments to reflect changes in fair
values of derivatives attributable to the effective portion of hedges that we consider highly effective hedges are either reflected in
earnings and largely offset by corresponding adjustments to the hedged items, or reflected net of income taxes in accumulated other
comprehensive loss until the hedged transaction is recognized in earnings. Changes in the fair value of the derivatives that are
attributable to the ineffective portion of the hedges, or of derivatives that are not considered to be highly effective hedges, if any, are
immediately recognized in earnings. The aggregate notional amount of the outstanding foreign currency exchange contracts at
December 31, 2010 and 2009 was $2.2 billion and $1.9 billion. There were no interest rate derivatives outstanding at December 31,
2010 and 2009. The effect of our derivative instruments on our Statements of Earnings for the years ended December 31, 2010, 2009,
and 2008, and on our Balance Sheets as of December 31, 2010 and 2009 was not material. See Note 15 for further discussion on the
fair value measurements related to our derivative instruments.
Stock-based compensation – We recognize compensation cost related to all share-based payments (stock options and restricted
stock units) based on their estimated fair value at the date of grant.
Income taxes – We periodically assess our tax filing exposures related to periods that are open to examination. Based on the
latest available information, we evaluate tax positions to determine whether the position will more likely than not be sustained upon
examination by the Internal Revenue Service (IRS). If we determine that the tax position is more likely than not to be sustained, we
record the largest amount of benefit that is more likely than not to be realized when the tax position is settled. If we cannot reach that
determination, no benefit is recorded. We record interest and penalties related to income taxes as a component of income tax expense
in our consolidated financial statements.
Comprehensive income (loss) – Comprehensive income (loss) and its components are presented on the Statements of
Stockholders’ Equity.
Accumulated other comprehensive loss consisted of the following:
(In millions)
2010
2009
Postretirement benefit plan adjustments
$ (8,994)
$ (8,564)
Foreign currency translation adjustments
(17)
(26)
Other, net
1
(5)
Accumulated other comprehensive loss
$ (9,010)
$ (8,595)
Recent accounting pronouncements – In October 2009, the Financial Accounting Standards Board (FASB) issued an
accounting standard which revised its accounting guidance related to revenue arrangements with multiple deliverables. The standard
relates to the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate
units of accounting and modifies the manner in which the transaction consideration is allocated across the individual deliverables,
thereby affecting the timing of revenue recognition. Also, the standard expands the disclosure requirements for revenue arrangements
with multiple deliverables. The standard will be effective for us beginning on January 1, 2011, and will apply prospectively to certain
multiple-element arrangements with non-U.S. Government customers entered into or materially modified after the adoption date. We
do not expect the adoption of this accounting standard will have a material effect on our financial results.
Note 2 – Discontinued Operations
In June 2010, we announced plans to divest Pacific Architects and Engineers, Inc. (PAE) and most of our Enterprise Integration
Group (EIG), two businesses within our Information Systems & Global Solutions (IS&GS) reporting segment. On November 22,
2010, we closed on the sale of EIG for $815 million and recognized a gain, net of tax, of $184 million ($.50 per share) in the fourth
quarter of 2010 which is included in discontinued operations. We received proceeds, net of $17 million in transaction costs, of $798
million related to the sale, which are included in investing activities on our Statement of Cash Flows. We made a $260 million tax
payment related to the sale which is included in operating activities on our Statement of Cash Flows. EIG’s operating results are
included in discontinued operations on our Statements of Earnings for all periods presented. Our decision to divest EIG was based on
our analysis of the U.S. Government’s increased concerns about perceived organizational conflicts of interest within the defense
contracting community. EIG provides systems engineering, architecture, and integration services and support to a broad range of
government customers.
As a result of our decision in 2010 to sell PAE, we recorded a $182 million deferred tax asset which reflects the federal and state
tax benefits that we expect to realize on the sale of the PAE business because our tax basis is higher than our book basis. We also
recorded a $109 million impairment charge which reduced the carrying value of PAE to equal the expected net proceeds from the
transaction. The net result increased earnings from discontinued operations by $73 million ($.20 per share). PAE’s operating results
are included in discontinued operations on our Statements of Earnings for all periods presented, and its assets and liabilities are
classified as held for sale on our 2010 Balance Sheet. On February 22, 2011, we announced that we entered into a definitive
agreement to sell PAE. We expect the transaction will close in the second quarter of 2011, subject to satisfaction of closing conditions.