Lockheed Martin 2003 Annual Report Download - page 40

terminated, and we acquired the remaining ownership interests in
Astrolink. The restructuring also entailed the settlement of existing
claims related to termination of Astrolink's procurement contracts
with its members, certain of their affiliates and other vendors.
Under these settlements, we retained our work in process.
Completion of the restructuring did not have a material impact on
our financial position, results of operations or cash flows.
In 2001 we recorded charges, net of state income tax ben-
efits, of approximately $232 million related to commitments to
and impairment in the values of investments in satellite joint
ventures, primarily Asia Cellular Satellite System and
Americom Asia-Pacific, LLC. The charges reduced net earn-
ings for 2001 by $153 million ($0.35 per diluted share).
Realization and valuation of our investments in equity
securities may be affected by an investee’s ability to obtain ade-
quate funding, including through public and private sales of its
debt and equity securities, and execute its business plans, as
well as by general market conditions, industry considerations
specific to the investee’s business, and/or other factors. The
inability of an investee to obtain future funding or successfully
execute its business plan could adversely affect our earnings in
the periods affected by those events.
DISCONTINUED OPERATIONS
In the fourth quarter of 2001, we announced that we would exit
our global telecommunications services business and recorded
related charges, net of state income tax benefits, of approxi-
mately $1.4 billion. The charges reduced net earnings by about
$1.3 billion ($3.09 per diluted share).
The charges related to global telecommunications services
businesses held for sale and exit costs for the elimination of the
administrative function supporting the global telecommunica-
tions businesses and investments. Amounts recorded included
about $1.2 billion related to impairment of goodwill, with the
remainder related to impairment of some of the long-lived assets
employed by foreign businesses held for sale and costs associated
with elimination of administrative functions. We completed
sales of all of the businesses classified as held for sale in 2002
with the exception of Lockheed Martin Intersputnik (LMI).
Those transactions did not have a material impact on our con-
solidated results of operations or financial position.
We reached an agreement to sell LMI in the third quarter of
2002; however, in April 2003, the agreement was terminated. We
are continuing to treat LMI as a discontinued operation, as we are
still holding and actively marketing the business for sale, and
there are interested potential buyers. The operating results of
LMI had no impact on the statement of earnings in 2003, and its
assets and liabilities, which represented less than 1% of our con-
solidated assets and liabilities at the end of 2003, were included
in our balance sheet in other current assets and other current lia-
bilities. We do not expect that the operating results of LMI (until
such time as we sell the business), or its ultimate sale, will have
a material effect on our consolidated results of operations, finan-
cial position or cash flows.
We completed the sale of IMS, a wholly-owned subsidiary,
for $825 million in cash in August 2001. This transaction resulted
in a gain, net of state income taxes, of $476 million and
increased net earnings by $309 million ($0.71 per diluted
share). The results of IMS’ operations, as well as the gain on the
sale, were classified as discontinued operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURE
OF MARKET RISK
Our main exposure to market risk relates to interest rates and, to
a lesser extent, foreign currency exchange rates. Our financial
instruments that are subject to interest rate risk principally
include short-term investments and long-term debt. Our long-
term debt obligations, other than the $1.0 billion in convertible
debentures issued in 2003, are generally not callable until matu-
rity. We sometimes use interest rate swaps to manage our expo-
sure to fixed and variable interest rates. At year-end 2003, we
had agreements in place to swap fixed interest rates on approx-
imately $70 million of our long-term debt for variable interest
rates based on LIBOR. The interest rate swap agreements are
designated as effective hedges of the fair value of the underly-
ing fixed-rate debt instruments. At December 31, 2003, the fair
values of interest rate swap agreements outstanding were not
material. The amounts of gains and losses from changes in the
fair values of the swap agreements were entirely offset by those
from changes in the fair value of the associated debt obliga-
tions. Changes in swap rates would affect the market value of
the agreements, but those changes in value would be offset by
changes in the value of the underlying debt obligations.
We use forward foreign exchange contracts to manage our
exposure to fluctuations in foreign exchange rates. These con-
tracts are designated as qualifying hedges of the cash flows
associated with firm commitments or specific anticipated trans-
actions, and related gains and losses on the contracts, to the
Lockheed Martin Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
December 31, 2003
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