Lockheed Martin 2001 Annual Report Download - page 41

Lockheed Martin Corporation
December 31, 2001
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—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 and
information systems. 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 subsidiaries and majority-owned entities which the
Corporation controls. Intercompany balances and transac-
tions have been eliminated in consolidation. The prepara-
tion of consolidated financial statements 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 accompa-
nying notes. Actual results could differ from those estimates.
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 2001 presentation.
Cash and cash equivalents—Cash equivalents are generally
composed 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 products
and services provided essentially under commercial terms
and conditions are expensed as incurred. Costs of other
product and supply inventories are principally determined
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 10 years
to 40 years for buildings and 5 years to 15 years for
machinery and equipment.
Investments in equity securities—Investments in equity securi-
ties include the Corporation’s ownership interests in affili-
ated companies accounted for under the equity method of
accounting. Under this method of accounting, which gener-
ally applies to investments that represent a 20 to 50 per-
cent ownership of the equity securities of the investees, the
Corporation’s share of the earnings or losses of the affiliated
companies is included in other income and expenses. The
Corporation recognizes currently gains or losses arising
from issuances of stock by wholly-owned or majority-owned
subsidiaries, or by equity method investees. These gains or
losses are also included in other income and expenses.
Investments in equity securities also include the Corporation’s
ownership interests in companies in which its investment
represents less than 20 percent. If classified as available for
sale, these investments are accounted for at fair value, with
unrealized gains and losses recorded in other comprehen-
sive income, in accordance with Statement of Financial
Accounting Standards (SFAS) No. 115, “Accounting
for Certain Investments in Debt and Equity Securities.”
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