Lockheed Martin 2002 Annual Report Download - page 51

FIFTY-EIGHT
Lockheed Martin Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
For purposes of pro forma disclosures, the options’ esti-
mated fair values are amortized to expense over the options’
vesting periods (see Note 12). The Corporation’s pro forma
information follows:
(In millions, except per share data) 2002 2001 2000
NET EARNINGS (LOSS):
As reported $ 500 $(1,046) $ (519)
Fair value-based compensation
cost, net of taxes (67) (49) (31)
Pro forma net earnings (loss) $ 433 $(1,095) $ (550)
BASIC EARNINGS (LOSS) PER SHARE:
As reported $1.13 $(2.45) $(1.29)
Pro forma $0.97 $(2.56) $(1.37)
DILUTED EARNINGS (LOSS) PER SHARE:
As reported $1.11 $(2.42) $(1.29)
Pro forma $0.96 $(2.53) $(1.37)
Comprehensive income—Comprehensive income (loss) for the
Corporation consists primarily of net earnings (loss) and the
after-tax impact of: additional minimum pension liabilities,
unrealized gains and losses related to hedging activities and
available-for-sale securities, reclassification adjustments
related to available-for-sale investments, and foreign currency
translation adjustments. Income taxes related to components
of other comprehensive income are generally recorded based
on an effective tax rate of 39%.
The accumulated balances of the components of other
comprehensive income (loss) at December 31, 2002 are as fol-
lows: minimum pension liability—$(1,570) million; unrealized
gains and losses from available-for-sale investments—$(2)
million; unrealized gains and losses related to hedging activi-
ties—$17 million; foreign currency translation adjustments—
$(43) million.
New accounting pronouncements—In April 2002, the Financial
Accounting Standards Board issued FAS 145, “Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections.” Among other
things, the Statement generally prohibits the classification of
gains or losses from the early extinguishment of debt as an
extraordinary item, and therefore rescinds the previous
requirement to do so. Gains and losses from prior early debt
extinguishments are required to be reclassified. The Statement
was not required to be implemented until 2003, though earlier
application was encouraged. The Corporation elected to adopt
the Statement in 2002 and, accordingly, reclassified the
extraordinary items recognized in 2001 and 2000 related to the
early repayment of debt (see Note 9 for further discussion).
As a result of the reclassification, the losses on the early
repayment, net of state income tax benefits, were included in
other income and expenses in each year, and the related
income tax benefits were included in income tax expense for
those periods.
As required, the Corporation adopted FAS 142, “Goodwill
and Other Intangible Assets,” as of January 1, 2002. Among
other things, the Statement prohibits the amortization of good-
will and sets forth a new methodology for periodically assess-
ing and, if warranted, recording impairment of goodwill. The
$7.4 billion of goodwill included on the Corporation’s consol-
idated balance sheet is recorded in the Systems Integration,
Space Systems and Technology Services segments. There is
no goodwill recorded in the Aeronautics segment. Using the
guidance in FAS 142, the Corporation evaluated the operating
units within the Systems Integration and Space Systems seg-
ments and determined the reporting units within the segments
based on similarities of the economic characteristics of their
lines of business. The Technology Services segment was deter-
mined to be one reporting unit.
The Corporation completed the initial step of the goodwill
impairment test required by the new rules and concluded that no
adjustment to the balance of goodwill at the date of adoption
was required. In addition, the Corporation reassessed the esti-
mated remaining useful lives of other intangible assets as part
of its adoption of the Statement. As a result of that review, the
estimated remaining useful life of the intangible asset related
to the F-16 fighter aircraft program has been extended from six
to ten years, effective January 1, 2002. The critical factors in
making this determination included the existing backlog for
F-16 deliveries which extends production beyond the original
anticipated life, and the Corporation’s outlook for potential
new orders for the F-16 during the next ten years. This change
resulted in a decrease in annual amortization expense associ-
ated with that intangible asset of approximately $30 million on