Lockheed Martin 2002 Annual Report Download - page 57

SIXTY-FOUR
Lockheed Martin Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
investments which the Corporation assessed as being other
than temporary, primarily due to unfavorable trends in the
satellite services and telecommunications industries that are
not expected to be resolved in the near term. Such trends
include continuing satellite overcapacity and increasing com-
petition from other types of telecommunications services
providers (e.g., fiber optic cable and other wireless technolo-
gies). The charges reduced operating profit (earnings from
continuing operations before interest and taxes), net earnings
and earnings per diluted share as follows:
Operating Net Earnings per
(In millions) Profit Earnings Diluted Share
Intelsat $(572) $(371) $(0.82)
Inmarsat (101) (66) (0.15)
New Skies (103) (67) (0.15)
$(776) $(504) $(1.12)
The Corporation holds a 46% interest in Space Imaging.
In addition to its equity investment, the Corporation also guar-
antees up to $150 million of Space Imaging’s borrowings
under a credit facility that matures on March 31, 2003. In light
of the Corporation’s decision and the decision of its other
major partner in the joint venture not to provide further fund-
ing at this time, its assessment that Space Imaging will likely
not be able to repay their obligation under the credit facility
when due, and the uncertainties as to whether Space Imaging
will be successful in obtaining the additional investment nec-
essary to fund replacement satellites consistent with their busi-
ness plans, the Corporation wrote off its investment in the joint
venture and recorded the obligation to fund amounts due from
it under the guarantee. As a result, the Corporation recorded a
charge, net of state income taxes, of $163 million which
reduced net earnings by $106 million ($0.23 per diluted
share), and increased current maturities of long-term debt by
$150 million representing our obligation under the guarantee.
Through 2001, the Corporation had invested $400 mil-
lion in Astrolink, a joint venture that planned to develop a
broad-band satellite system. In the fourth quarter of 2001, in
light of market conditions affecting the telecommunications
industry and the difficulty Astrolink was having raising exter-
nal capital, the Corporation decided not to make an additional
equity investment in Astrolink and wrote off its 31%
equity interest. As a result, the Corporation 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 its investment in Astrolink.
The Corporation 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, the
Corporation 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 business plan to build a one- or two-satellite sys-
tem. The transaction is subject to regulatory approval, financ-
ing and other closing conditions. Upon closing of the asset
transfer, the Corporation would continue to provide launch
services and be a satellite vendor, but would retain only a lim-
ited indirect equity interest in the restructured business. The
restructuring also entails the settlement of existing claims
related to termination of Astrolink’s major procurement con-
tracts. As part of that settlement, if Liberty Satellite &
Technology does not elect to proceed with the new system, the
Corporation would acquire the remaining assets of Astrolink,
including work in process under its 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 the Corporation’s
financial position, results of operations or cash flows.
In the third quarter of 2001, the Corporation recorded an
unusual charge, net of state income tax benefits, of $361 mil-
lion in other income and expenses related to its investment in
Loral Space. The charge, which was recorded due to a decline
in the value of the Corporation’s investment, reduced net earn-
ings by $235 million ($0.54 per diluted share). The decline in
value of the investment was assessed to be other than tempo-
rary due to the downward trend in the market price of Loral
Space stock and the potential impact of underlying market and
industry conditions on Loral Space’s ability to execute its
business plans.