Lockheed Martin 2002 Annual Report Download - page 26

THIRTY-THREE
International, Ltd. (ACeS), Americom Asia-Pacific, LLC and
Astrolink, had a combined carrying value of about $900 mil-
lion at December 31, 2002.
The following discussion describes the components of the
$2.0 billion in charges based on their classification in our
financial statements.
Discontinued Operations
The $2.0 billion in charges in 2001 included an amount, net of
state income tax benefits, of approximately $1.4 billion related
to global telecommunications services businesses held for sale
and exit costs for the elimination of the administrative func-
tion supporting the global telecommunications businesses and
investments. These charges, which reduced net earnings for
the year by $1.3 billion ($3.09 per diluted share) were
included in discontinued operations in our statement of opera-
tions. The status of the businesses held for sale is as follows:
•Satellite Services businesses—In 2002, we completed the
sale of COMSAT Mobile Communications and COMSAT
World Systems. These transactions did not have a material
impact on our consolidated results of operations or financial
position. We also reached an agreement to sell Lockheed
Martin Intersputnik (LMI) in the third quarter of 2002. This
transaction is expected to close in 2003, subject to regulatory
approvals and the satisfaction of other conditions, including
a requirement that we move the LMI satellite to another
orbital slot. The transaction is not expected to have a material
impact on our results of operations or financial position.
•COMSAT International—In 2002, we completed the sale of
an 81% ownership interest in COMSAT International. The
transaction did not have a material impact on our consoli-
dated results of operations or financial position.
Of the $1.4 billion of charges included in discontinued
operations, about $1.2 billion related to impairment of goodwill.
The goodwill was recorded when we acquired COMSAT as
discussed above. Approximately $170 million of the $1.4 billion
related to impairment of some of the long-lived assets
employed by foreign businesses held for sale, mainly COMSAT
International. The rest of the charge related to costs associated
with elimination of administrative functions, including sever-
ance and facilities.
Effective January 1, 2001, we adopted FAS 144,
“Accounting for the Impairment or Disposal of Long-Lived
Assets.” Since the operating businesses we identified for
divestiture met the requirements of FAS 144 to be classified as
discontinued operations, their results of operations, as well as
the impairment and other charges related to the decision to
exit the businesses, are classified as discontinued operations
for all periods presented, and have been excluded from busi-
ness segment information. Also, the assets and liabilities of
these businesses have been shown separately in the balance
sheet as being held for sale. Depreciation and amortization
expense were not recorded for these businesses after the date
they were classified as held for sale consistent with FAS 144.
LMI is recorded at estimated fair value less cost to sell at
December 31, 2002. Changes in the estimated fair value of
LMI will be recorded in the future if appropriate.
We also completed the sale of Lockheed Martin IMS
Corporation (IMS), a wholly-owned subsidiary, for $825 mil-
lion in cash in August 2001. This transaction resulted in a gain,
net of state income taxes, of $476 million and increased net
earnings by $309 million ($0.71 per diluted share). The results
of IMS’s operations for all periods presented, as well as the
gain on the sale, are classified as discontinued operations in
accordance with FAS 144. Net sales recorded in 2001 up to the
effective date of the divestiture totaled approximately $355 mil-
lion, excluding intercompany sales. The transaction generated
net cash proceeds of approximately $560 million after related
transaction costs and federal and state income tax payments.
Other Charges Related to Global Telecommunications
The charges recorded in the fourth quarter of 2001 also
included unusual charges, net of state income tax benefits, of
approximately $132 million related to commitments to and
impairment in the values of investments in satellite joint ven-
tures, primarily ACeS and Americom Asia-Pacific. We had
previously recorded unusual charges related to other than tem-
porary declines in the values of these investments as follows:
in the first quarter of 2001, a charge, net of state income tax
benefits, of $100 million was recorded related to Americom
Asia-Pacific; and in the fourth quarter of 2000, a charge, net of
state income tax benefits, of $117 million was recorded related
to ACeS (see Note 8 to the financial statements for more dis-
cussion of these charges).
Lockheed Martin Corporation