Lockheed Martin 1999 Annual Report Download - page 42

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Lockheed Martin Corporation
In September 1999, the Corporation sold its interest in
Airport Group International Holdings, LLC which resulted
in a pretax gain of $33 million. In October 1999, the
Corporation exited its commercial 3D graphics business
through consummation of a series of transactions which
resulted in the sale of its interest in Real 3D, Inc., a majority-
owned subsidiary, and a pretax gain of $33 million. On
a combined basis, these transactions increased net earn-
ings by $43 million, or $.11 per diluted share.
In November 1997, the Corporation exchanged all of
the outstanding capital stock of a wholly-owned subsidiary,
LMT Sub, for all of the outstanding Series A preferred stock
held by General Electric Company (the GE Transaction).
LMT Sub was composed of two non-core commercial busi-
ness units which contributed approximately five percent
of the Corporation’s 1997 net sales, Lockheed Martin’s
investment in a telecommunications partnership, and
approximately $1.6 billion in cash, of which $1.4 billion
was subsequently refinanced with a 6.04% note, due
November 17, 2002, from Lockheed Martin to LMT Sub.
The fair value of the non-cash net assets exchanged was
approximately $1.2 billion. During the second quarter of
1998, the final determination of the closing net worth of
the businesses exchanged was completed, resulting in a
payment of $51 million from the Corporation to MRA
Systems, Inc. (formerly LMT Sub). Subsequently, the remain-
der of the cash included in the transaction was refinanced
with a 5.73% note for $210 million, due November 17,
2002, from Lockheed Martin to MRA Systems, Inc.
The GE Transaction was accounted for at fair value,
and resulted in the reduction of the Corporation’s stockhold-
ers’ equity by $2.8 billion and the recognition of a tax-free
gain of approximately $311 million during the fourth quar-
ter of 1997. The final settlement payment in 1998 did not
impact the gain previously recorded on the transaction. For
purposes of determining net loss applicable to common
stock used in the computation of loss per share for 1997,
the excess of the fair value of the consideration transferred
to GE (approximately $2.8 billion) over the carrying value
of the Series A preferred stock ($1.0 billion) was treated as
a deemed preferred stock dividend and deducted from
1997 net earnings in accordance with the requirements of
the Emerging Issues Task Force’s Issue D-42. This deemed
dividend had a significant impact on the loss per share cal-
culations, but did not impact reported 1997 net earnings.
The effect of this deemed dividend was to reduce the basic
and diluted loss per share amounts by $4.93.
Note 4—Restructuring and Other Charges
In the fourth quarter of 1998, the Corporation recorded
a nonrecurring and unusual pretax charge, net of state
income tax benefits, of $233 million related to actions
surrounding the decision to fund a timely non-bankruptcy
shutdown of the business of CalComp Technology, Inc.
(CalComp), a majority-owned subsidiary. The pretax
charge reflected the effects of impairment related to good-
will of approximately $75 million; writedowns of approxi-
mately $73 million to reflect other assets at estimated
recoverable values; estimated severance and other costs
related to employees of approximately $25 million; esti-
mated costs related to warranty obligations, and purchase
and other commitments of approximately $37 million; and
other estimated exit costs, primarily related to facilities,
of approximately $23 million. This charge decreased net
earnings by $183 million, or $.48 per diluted share.
As of December 31, 1999, CalComp had, among
other actions, consummated sales of substantially all of its
assets, terminated substantially all of its work force, and
initiated the corporate dissolution process under the appli-
cable state statutes and, for its foreign subsidiaries, foreign
government statutes. The financial impacts of these actions
were less than anticipated in the Corporation’s plans
and estimates and, in the fourth quarter of 1999, the
Corporation reversed approximately 10 percent of the
original pretax charge recorded in 1998. While uncer-
tainty remains concerning the resolution of matters in dis-
pute or litigation, management believes that the remaining