Lockheed Martin 2004 Annual Report Download - page 49

Lockheed Martin Corporation
Receivables — Receivables consist of amounts billed and cur-
rently due from customers, and unbilled costs and accrued prof-
its primarily related to revenues on long-term contracts that
have been recognized for accounting purposes but not yet billed
to customers. As such revenues are recognized, appropriate
amounts of customer advances, performance-based payments
and progress payments are reflected as an offset to the related
accounts receivable balance.
Inventories — Inventories are stated at the lower of cost or esti-
mated net realizable value. Costs on long-term contracts and
programs in progress represent recoverable costs incurred for
production or contract-specific facilities and equipment, alloca-
ble operating overhead, advances to suppliers and, where appro-
priate, 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 secu-
rity interest in, inventories related to such contracts as a result
of advances, performance-based payments and progress pay-
ments. Such advances and payments are reflected as an offset
against the related inventory balances. General and administra-
tive expenses related to commercial products and services pro-
vided essentially under commercial terms and conditions are
expensed as incurred. Costs of other product and supply inven-
tories are principally determined by the first-in first-out or aver-
age cost methods.
Property, plant and equipment — Property, plant and equip-
ment are carried principally at cost. Depreciation is provided on
plant and equipment generally using accelerated methods dur-
ing the first half of the estimated useful lives of the assets;
thereafter, straight-line depreciation is used. Estimated useful
lives generally range from 10 to 40 years for buildings and five
to 15 years for machinery and equipment.
Investments in equity securities — Investments in equity securi-
ties include the Corporation’s ownership interests in affiliated
companies accounted for under the equity method of account-
ing. Under this method of accounting, which generally applies
to investments that represent a 20% to 50% 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 cur-
rently 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% ownership. If
classified as available-for-sale under FAS 115, these invest-
ments are accounted for at fair value, with unrealized gains and
losses reflected as a net after-tax amount under the caption of
accumulated other comprehensive income (loss) in the state-
ment of stockholders’ equity. If declines in the value of invest-
ments accounted for under either the equity method or FAS 115
are determined to be other than temporary, a loss is recorded in
earnings in the current period. The Corporation makes such
determinations by considering, among other factors, the length
of time the fair value of the investment has been less than the
carrying value, future business prospects for the investee, infor-
mation regarding market and industry trends for the investee’s
business, and investment analyst reports, if available.
Investments not accounted for under one of these methods are
generally accounted for under the cost method of accounting.
Goodwill — Goodwill is evaluated for potential impairment
annually by comparing the fair value of a reporting unit, based
on estimated future cash flows, 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.
Purchased intangibles, net — Intangible assets acquired as part
of business combinations are amortized over their estimated
useful lives unless their useful lives are determined to be indef-
inite. For material business combinations, amounts recorded
related to purchased intangibles are determined from indepen-
dent valuations. The Corporation’s purchased intangibles pri-
marily relate to contracts and programs and customer
relationships which are amortized over periods of 15 years or
less. Purchased intangibles are displayed in the consolidated
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