Lockheed Martin 2003 Annual Report Download - page 39

projected over the next 3 years. Consistent with our desire to
generate cash to reduce debt and invest in our core businesses,
we expect that, depending on prevailing financial, market and
economic conditions, we will continue to explore the sale of
non-core businesses, passive equity investments and surplus
real estate.
EQUITY INVESTMENTS
In 2002, we recorded impairment charges, net of state income
tax benefits, totaling $776 million related to our investments
in Intelsat, Ltd. (Intelsat), Inmarsat and New Skies Satellites, N.V.
(New Skies). The charges reduced net earnings by $504 million
($1.12 per diluted share). The charges were recorded primarily
due to unfavorable trends in the satellite services and telecom-
munications industries that were not expected to be resolved in
the near term.
Intelsat, Inmarsat and New Skies are subject to regulation by
the Federal Communications Commission (FCC). FCC decisions
and policies have had, and may continue to have, a significant
impact on these companies. The Open-Market Reorganization
for the Betterment of International Telecommunications Act (the
ORBIT Act), passed by Congress in 2000, established deadlines
for Intelsat and Inmarsat to complete initial public offerings.
Based on congressional and regulatory extensions received to
date, and unless otherwise extended by Congress, each is required
to complete their initial public offerings by June 30, 2004. Their
ability to do so may be impacted by changes in trends and mar-
ket conditions in the telecommunications industry, as well as in
the capital markets. If those deadlines are not met or extended by
further amendments to the legislation, the FCC may limit access
by U.S. users to the satellite capacity of the privatized entities for
some services. If this were to occur, the value of our investments
could be adversely affected. In December 2003, Inmarsat was
acquired in a leveraged buyout transaction and, in doing so,
believes it has complied with the ORBIT Act requirements. There
is no assurance that the FCC will accept Inmarsat’s position that
it has satisfied the ORBIT Act requirement by completing a
leveraged buyout transaction. In January 2004, Intelsat
announced its intention to conduct an initial public offering of its
shares in an amount up to $500 million, and expects the offering
to occur on or before June 30, 2004.
In December 2002, we recorded a charge, net of state
income tax benefits, of $163 million related to our investment in
Space Imaging, LLC and our guarantee of up to $150 million of
Space Imaging’s borrowings under a credit facility that matured
on March 30, 2003. At December 31, 2002, we increased current
maturities of long-term debt by $150 million representing our
estimated obligation under the guarantee. On March 31, 2003,
we paid $130 million to acquire Space Imaging’s outstanding
borrowings under Space Imaging’s credit facility, and the guar-
antee was eliminated. We therefore reversed, net of state income
taxes, approximately $19 million of the charge recorded in
December 2002, representing the unutilized portion of the credit
facility covered by our guarantee. This gain increased 2003 net
earnings by $13 million ($0.03 per diluted share).
In 2001, we recorded a charge, net of state income tax bene-
fits, of $361 million related to the impairment of our investment
in Loral Space & Communications Ltd. (see Note 8 to the finan-
cial statements). The charge reduced net earnings by $235 million
($0.54 per diluted share). In July 2003, Loral Space and certain
of its subsidiaries filed voluntary petitions for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. In the third
quarter of 2003, we sold our ownership interest in Loral Space.
The sale did not have a material impact on our results of oper-
ations, financial position or cash flows. We are an unsecured
creditor of Loral Space in the bankruptcy proceeding. Loral
Space has made a claim that they are entitled to a refund of pay-
ments made to us under various terminated launch service con-
tracts. We believe that the claim is without merit and that we are
entitled to retain the amounts under the terms of the contracts.
We do not expect these events to have a material impact on our
results of operations, financial position or cash flow.
In 2001, we recorded a charge, net of state income tax bene-
fits, of $367 million related to impairment in the value of our
investment in Astrolink International LLC. We also recorded
charges of approximately $20 million, net of state income tax ben-
efits, 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). In
January 2003, we entered into an agreement with Astrolink’s other
members to restructure Astrolink. As part of the transaction,
Liberty Satellite & Technology, a subsidiary of Liberty Media
Corporation, had an option to acquire Astrolink's assets and pur-
sue a business plan to build a one- or two-satellite system. On
October 24, 2003, Liberty Satellite & Technology notified us that
they would not exercise the option to acquire Astrolink’s assets
and build the satellite system. As a result, as part of the restruc-
turing agreement, Astrolink’s procurement contracts were
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