Lockheed Martin 2002 Annual Report Download - page 27

THIRTY-FOUR
Lockheed Martin Corporation
MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
December 31, 2002
In addition, as part of the $2.0 billion in charges recorded
in the fourth quarter 2001, about $43 million related to sever-
ance, facilities costs and impairment of certain fixed assets
associated with the business units we retained. These unusual
charges reduced net earnings for 2001 by $117 million ($0.27
per diluted share).
Write-off and Restructuring of Investment in Astrolink
Through 2001, we had invested $400 million in Astrolink, a
joint venture that planned to develop a broad-band satellite
system. In the fourth quarter of 2001, in light of market condi-
tions affecting the telecommunications industry and the diffi-
culty Astrolink was having raising external capital, we decided
not to make an additional equity investment in Astrolink and
wrote off our 31% equity interest. As a result, we recorded an
unusual charge of $367 million, net of state income tax bene-
fits, in other income and expenses to reflect the other than
temporary decline in the value of our Astrolink investment. We
also recorded charges of approximately $20 million, net of
state income tax benefits, in cost of sales for certain other
costs related to Astrolink. On a combined basis, these charges
reduced net earnings for 2001 by approximately $267 million
($0.62 per diluted share).
After several months of negotiation, in January 2003, we
finalized an agreement with Astrolink’s other members to
restructure Astrolink. As part of the transaction, Liberty Satellite
& Technology, a subsidiary of Liberty Media Corporation, may
acquire substantially all of Astrolink’s assets and pursue a busi-
ness plan to build a one- or two-satellite system. The transaction
is subject to regulatory approval, financing and other closing
conditions. Upon closing of the asset transfer, we would con-
tinue to provide launch services and be a satellite vendor, but
would retain only a limited indirect equity interest in the
restructured business. The restructuring also entails the settle-
ment of existing claims related to termination of Astrolink’s
major procurement contracts. As part of that settlement, if
Liberty Satellite & Technology does not elect to proceed with
the new system, we would acquire the remaining assets of
Astrolink, including work in process under our procurement
contracts with Astrolink. Certain other of the members also
would retain their work in process. Under either scenario, the
restructuring is not expected to have a material effect on our
financial position, results of operations or cash flows.
OTHER DIVESTITURE ACTIVITIES
In January 2001, we completed the divestiture of two business
units in the environmental management line of business. The
impact of these divestitures was not material to our 2001
results of operations, cash flows or financial position due to
the effects of unusual impairment losses recorded in prior
years related to these business units. Those losses were
included in other income and expenses as part of other portfo-
lio shaping activities in the respective years.
In November 2000, we sold our Aerospace Electronics
Systems (AES) businesses for $1.67 billion in cash (the AES
Transaction). We recorded an unusual loss, including state
income taxes, of $598 million related to this transaction which
is included in other income and expenses. The loss reduced net
earnings for 2000 by $878 million ($2.18 per diluted share).
Although the AES Transaction resulted in a pretax loss for
book purposes, it resulted in a gain for tax purposes primarily
because goodwill related to the AES businesses was not
included in the tax basis of the net assets of AES. Therefore,
we were required to make state and federal income tax pay-
ments associated with the divestiture. The AES Transaction
generated net cash proceeds of approximately $1.2 billion
after related transaction costs and federal and state income tax
payments. Net sales included in the year 2000 related to the
AES businesses totaled approximately $655 million, exclud-
ing intercompany sales.
In September 2000, we sold Lockheed Martin Control
Systems (Control Systems) for $510 million in cash. This
transaction resulted in the recognition of an unusual gain, net
of state income taxes, of $302 million which is reflected in
other income and expenses. The gain increased net earnings
for the year ended December 31, 2000 by $180 million ($0.45
per diluted share). This transaction generated net cash pro-
ceeds of $350 million after related transaction costs and fed-
eral and state income tax payments. Net sales for the first nine
months of 2000 related to Control Systems totaled approxi-
mately $215 million, excluding intercompany sales.
In September 2000, we sold approximately one-third of
our interest in Inmarsat for $164 million. The investment in
Inmarsat was acquired as part of the merger with COMSAT.
As a result of the transaction, our interest in Inmarsat was
reduced from approximately 22% to 14%. The sale of shares