Lockheed Martin 2001 Annual Report Download - page 42

Lockheed Martin Annual Report >>> 49
Lockheed Martin Corporation
(Continued)
Otherwise, these investments are generally accounted for
under the cost method of accounting.
Goodwill and other intangible assets—Intangible assets
related to contracts and programs acquired are amortized
over the estimated periods of benefit (15 years or less) and
are displayed in the consolidated balance sheet net of
accumulated amortization of $1,239 million and $1,085
million at December 31, 2001 and 2000, respectively.
In periods prior to the adoption of SFAS No. 142 (see dis-
cussion under the caption “New accounting pronounce-
ments” in this Note), goodwill was amortized ratably over
appropriate periods, generally 30 to 40 years; however,
beginning January 1, 2002, goodwill will no longer be amor-
tized. Goodwill is displayed on the consolidated balance
sheet net of accumulated amortization of $1,380 million and
$1,160 million at December 31, 2001 and 2000, respec-
tively. Under SFAS No. 142, goodwill will be evaluated for
potential impairment annually by comparing the fair value
of a reporting unit to its carrying value, including goodwill
recorded by the reporting unit. If the carrying value exceeds
the fair value, impairment is measured by comparing the
derived fair value of goodwill to its carrying value, and any
impairment determined is recorded in the current period.
Customer advances and amounts in excess of costs incurred—
The Corporation receives advances and progress payments
from customers in excess of costs incurred on certain contracts,
including contracts with agencies of the U.S. Government.
Such advances and progress payments, other than those
reflected as an offset to accounts receivable or inventories
as discussed above, are classified as current liabilities.
Environmental matters—The Corporation records a liability
for environmental matters when it is probable that a liability
has been incurred and the amount can be reasonably esti-
mated. A substantial portion of these costs are expected
to be reflected in sales and cost of sales pursuant to U.S.
Government agreement or regulation. At the time a liability
is recorded for future environmental costs, an asset is
recorded for estimated future recovery considered probable
through the pricing of products and services to agencies of
the U.S. Government. The portion of those costs expected
to be allocated to commercial business is reflected in cost
of sales at the time the liability is established.
Sales and earnings—Sales and anticipated profits under long-
term fixed-price production contracts are recorded on a per-
centage of completion basis, generally using units of delivery
as the measurement basis for effort accomplished. Estimated
contract profits are taken into earnings in proportion to
recorded sales. Sales under certain long-term fixed-price
contracts which, among other things, provide for the deliv-
ery of minimal quantities or require a significant amount of
development effort in relation to total contract value, are
recorded upon achievement of performance milestones or
using the cost-to-cost method of accounting where sales and
profits are recorded based on the ratio of costs incurred to
estimated total costs at completion.
Sales under cost-reimbursement-type contracts are
recorded as costs are incurred. Applicable estimated profits
are included in earnings in the proportion that incurred
costs bear to total estimated costs. Sales of products and
services provided essentially under commercial terms and
conditions are recorded upon shipment or completion of
specified tasks.
Amounts representing contract change orders, claims or
other items are included in sales only when they can be reli-
ably estimated and realization is probable. Incentives or
penalties and awards applicable to performance on contracts
are considered in estimating sales and profit rates, and are
recorded when there is sufficient information to assess antic-
ipated contract performance. Incentive provisions which
increase or decrease earnings based solely on a single signifi-
cant event are generally not recognized until the event occurs.
When adjustments in contract value or estimated costs
are determined, any changes from prior estimates are gener-
ally reflected in earnings in the current period. Anticipated
losses on contracts are charged to earnings when identified.
Research and development and similar costs—Corporation-
sponsored research and development costs primarily
include independent research and development and bid
and proposal efforts related to government products and
services. Except for certain arrangements described below,
these costs are generally included as part of the general
and administrative costs that are allocated among all con-
tracts and programs in progress under U.S. Government
contractual arrangements. Corporation-sponsored product
development costs not otherwise allocable are charged to
expense when incurred. Under certain arrangements in