Lockheed Martin 2003 Annual Report Download - page 52

Lockheed Martin Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
50
post-retirement benefit cost, included in the Corporation’s
financial statements and the accompanying notes do not cur-
rently reflect the effects of the Act. It is expected that any such
change would result in some reduction to the APBO and the net
periodic post-retirement benefit cost.
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 assessing
and, if warranted, recording impairment of goodwill. The
Corporation completed the initial step of the goodwill impair-
ment 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 was extended from 6 to 10
years, effective January 1, 2002. This change resulted in a
decrease in annual amortization expense associated with that
intangible asset of approximately $30 million on a pretax basis.
The following table provides a reconciliation of reported
earnings from continuing operations and related per share
amounts for the year ended December 31, 2001 to adjusted
amounts which exclude the effects of goodwill amortization
and reflect the change in amortization related to the F-16 pro-
gram for those periods.
(In millions, except per share data) 2003 2002 2001
EARNINGS FROM CONTINUING
OPERATIONS:
As reported $ 1,053 $ 533 $ 43
Impact of:
Goodwill amortization — — 215
Purchased intangibles
amortization change ——21
Adjusted $ 1,053 $ 533 $ 279
EARNINGS PER DILUTED SHARE
FROM CONTINUING OPERATIONS:
As reported $ 2.34 $1.18 $0.10
Impact of:
Goodwill amortization —— 0.50
Purchased intangibles
amortization change — — 0.05
Adjusted $ 2.34 $1.18 $0.65
NOTE 2 — ACQUISITIONS AND DIVESTITURES
In November 2003, the Corporation and Affiliated Computer
Services, Inc. (ACS) completed transactions whereby the
Corporation acquired ACS’ federal government information
technology (IT) business, and ACS concurrently acquired the
Corporation’s commercial IT business. The total purchase price
related to the Corporation’s acquisition of ACS’ federal govern-
ment IT business, including transaction-related costs, was
approximately $585 million. The acquisition was accounted for
by allocating the purchase price to the assets acquired and lia-
bilities assumed based on their fair values, and included recording
an intangible asset of $57 million related to a covenant not to
compete that will be amortized over 5 years, an intangible asset
of approximately $55 million related to contracts acquired that
will be amortized over 7 years, and goodwill of approximately
$460 million which is not tax deductible. The acquisition
expands the Corporation’s capabilities in business process out-
sourcing and managed services, thereby enhancing its ability to
support civil and defense government agencies. The divestiture
of the Corporation’s commercial IT business resulted in a gain,
net of state income taxes, of $15 million which was recorded in
other income and expenses. The gain increased net earnings by
approximately $8 million ($0.02 per diluted share).
In September 2003, the Corporation announced that a defin-
itive agreement had been reached to acquire The Titan
Corporation (Titan). Under the terms of the merger agreement,
stockholders of Titan may elect to receive $22 in cash for each
share of Titan common stock, an amount of Lockheed Martin
common stock based on an exchange rate, or a combination of
cash and stock. Titan stockholders who elect to receive all cash or
all stock will be subject to allocation procedures set forth in the
merger agreement which require that, in the aggregate, 50% of
the shares of outstanding Titan common stock must be
exchanged for the Corporation’s common stock and 50% of the
Titan common stock must be exchanged for cash. The announced
value of the transaction, including the assumption of Titan’s long-
term debt, is approximately $2.4 billion before accumulated tax
benefits. Nearly all of Titan’s sales are to the U.S. Government.
The acquisition remains subject to approval by Titan stockholders
and satisfaction of other closing conditions.