Lockheed Martin 1999 Annual Report Download - page 37

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Note 1—Summary of Significant Accounting Policies
Organization— Lockheed Martin Corporation (Lockheed
Martin or the Corporation) is engaged in the conception,
research, design, development, manufacture, integration
and operation of advanced technology systems, products
and services. Its products and services range from aircraft,
spacecraft and launch vehicles to missiles, electronics, infor-
mation systems, telecommunications and energy manage-
ment. The Corporation serves customers in both domestic
and international defense and commercial markets, with its
principal customers being agencies of the U.S. Government.
Basis of consolidation and use of estimates— The consoli-
dated financial statements include the accounts of wholly-
owned and majority-owned subsidiaries. Intercompany
balances and transactions have been eliminated in con-
solidation. The preparation of consolidated financial state-
ments in conformity with accounting principles generally
accepted in the United States requires management to
make estimates and assumptions, including estimates
of anticipated contract costs and revenues utilized in the
earnings recognition process, that affect the reported
amounts in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Common stock split— On December 31, 1998,
the Corporation effected a two-for-one split of the
Corporation’s common stock in the form of a stock
dividend. All references to shares of common stock
and per share amounts in periods prior to December
1998 were restated to reflect the stock split.
Classifications— Receivables and inventories are primarily
attributable to long-term contracts or programs in progress
for which the related operating cycles are longer than one
year. In accordance with industry practice, these items
are included in current assets. Certain amounts for prior
years have been reclassified to conform with the 1999
presentation.
Cash and cash equivalents— Cash and cash equivalents
are net of outstanding checks that are funded daily as pre-
sented for payment. Cash equivalents are generally com-
prised of highly liquid instruments with maturities of three
months or less when purchased. Due to the short maturity
of these instruments, carrying value on the Corporation’s
Consolidated Balance Sheet approximates fair value.
Receivables— Receivables consist of amounts billed and cur-
rently due from customers, and include unbilled costs and
accrued profits primarily related to revenues on long-term
contracts that have been recognized for accounting pur-
poses but not yet billed to customers. As such revenues are
recognized, appropriate amounts of customer advances
and progress payments are reflected as an offset to the
related accounts receivable balance.
Inventories— Inventories are stated at the lower of cost or
estimated net realizable value. Costs on long-term contracts
and programs in progress represent recoverable costs
incurred for production, allocable operating overhead and,
where appropriate, research and development and general
and administrative expenses. Pursuant to contract provisions,
agencies of the U.S. Government and certain other customers
have title to, or a security interest in, inventories related to
such contracts as a result of advances and progress pay-
ments. Such advances and progress payments are reflected
as an offset against the related inventory balances. General
and administrative expenses related to commercial prod-
ucts and services provided essentially under commercial
terms and conditions are expensed as incurred. Costs of
other product and supply inventories are principally deter-
mined by the first-in, first-out or average cost methods.
Property, plant and equipment— Property, plant and equip-
ment are carried principally at cost. Depreciation is pro-
vided on plant and equipment generally using accelerated
methods during the first half of the estimated useful lives of
the assets; thereafter, straight-line depreciation generally is
used. Estimated useful lives generally range from 8 years to