Lockheed Martin 2003 Annual Report Download - page 29

Operating Net (Loss)
(Loss) (Loss) Earnings per
(In millions, except per share data) Profit Earnings Diluted Share
YEAR ENDED DECEMBER 31, 2002
Write-down of telecommunications
investments $ (776) $(504) $(1.12)
Charge related to a Russian
launch services provider (173) (112) (0.25)
Write-down of investment in
Space Imaging and charge related
to recording of guarantee (163) (106) (0.23)
Benefit from R&D tax
credit settlement — 90 0.20
$(1,112) $(632) $(1.40)
YEAR ENDED DECEMBER 31, 2001
Write-off of investment in
Astrolink and related costs $ (387) $(267) $(0.62)
Write-down of investment
in Loral Space (361) (235) (0.54)
Other charges related to
global telecommunications (176) (117) (0.27)
Impairment charge related
to Americom Asia-Pacific (100) (65) (0.15)
Loss on early repayment of debt (55) (36) (0.08)
Gain on sale of surplus real estate 111 72 0.17
Other activities, net (5) (3) (0.01)
$(973) $(651) $(1.50)
Our operating profit for 2003 was $2.0 billion, an increase of
74% compared to 2002. Our operating profit for 2002 was
$1.2 billion, an increase of 39% compared to 2001. The results for
2001 included amortization expense of $274 million for goodwill
and certain other intangibles that was not included in 2002 or 2003
due to the adoption of FAS 142. See Note 1 to the financial state-
ments for information regarding our adoption of FAS 142.
Interest expense for 2003 was $487 million, $94 million lower
than the amount for 2002. This was primarily the result of reduc-
tions in our debt portfolio and the favorable impact of having issued
$1.0 billion of convertible notes in August 2003 to replace higher
cost debt. Interest expense for 2002 was $581 million,
$119 million lower than in 2001 mainly due to reductions in our
debt portfolio and the benefit from interest rate swap agreements.
Our effective tax rates were 31.3% for 2003, 7.7% for 2002
and 67.7% for 2001. The tax rate for 2002 was reduced by a $90
million tax benefit related to a research and development tax credit
settlement, and the rate for 2001 was increased by non-deductible
goodwill that was being amortized for financial reporting purposes.
The effective tax rates for all periods were reduced by tax benefits
related to export sales, changes to prior year liabilities arising from
tax refund initiatives and adjustments to true-up actual tax return
liabilities. The 2002 tax rate was also reduced by a favorable IRS
audit settlement.
Congress is considering new tax legislation that would repeal
the extraterritorial income exclusion relating to export sales and
enact new rules providing for a tax reduction on profits from the
sale of products manufactured in the United States. If such legisla-
tion were passed, we do not expect that it would adversely impact
the Corporation’s effective tax rate. In the event that this or other tax
legislation is enacted, its impact on our deferred tax balances and
effective tax rate will be recognized as of the date the new tax rules
are enacted.
For 2003, we reported net earnings from continuing operations
of $1.1 billion ($2.34 per diluted share) compared to $533 million
($1.18 per diluted share) for 2002. In 2001, we reported earnings
from continuing operations of $43 million ($0.10 per diluted share).
Discontinued Operations
During 2003, the activities of the remaining telecommunications
service business held for sale were immaterial and had no impact
on earnings. We reported total losses from discontinued operations
of $33 million ($0.07 per diluted share) in 2002 and $1.1 billion
($2.52 per diluted share) in 2001. Operating losses of the busi-
nesses included in discontinued operations totaled $33 million
($0.07 per diluted share) in 2002 and $62 million ($0.14 per dilut-
ed share) in 2001.
Discontinued operations for 2002 included losses incurred for
wind-down activities related to the global telecommunications serv-
ices businesses, offset by the reversal of a reserve associated with
the sale of Lockheed Martin IMS Corporation (IMS). When record-
ing the sale of IMS in 2001, we established transaction-related
reserves to address various indemnity provisions in the sale agree-
ment. The risks associated with certain of these indemnity provi-
sions were resolved and $39 million, net of taxes, was recognized
through discontinued operations in 2002.
Included in the 2001 loss from discontinued operations was an
after-tax charge of $1.3 billion ($3.09 per diluted share) related to
our decision to exit the global telecommunications services busi-
ness. The 2001 results also included an after-tax gain of $309 mil-
lion ($0.71 per diluted share) from the sale of IMS.
Lockheed Martin Corporation
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