Lockheed Martin 2004 Annual Report Download - page 50

Lockheed Martin Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
48
balance sheet net of accumulated amortization of $1,638 mil-
lion and $1,491 million at December 31, 2004 and 2003,
respectively. Amortization expense related to these intangible
assets was $145 million, $129 million, and $125 million for the
years ended December 31, 2004, 2003 and 2002, respectively,
and is estimated to be approximately $146 million per year in
2005 and 2006, $119 million in 2007, $80 million in 2008, and
$62 million in 2009.
Customer advances and amounts in excess of costs incurred —
The Corporation receives advances, performance-based pay-
ments and progress payments from customers which may exceed
costs incurred on certain contracts, including contracts with
agencies of the U.S. Government. Such advances, other than
those reflected as a reduction of accounts receivable or invento-
ries 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 estimated. 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 envi-
ronmental costs, an asset is recorded for estimated future recov-
ery 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 or
that is determined to be unallowable for pricing under U.S.
Government contracts 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 basis to measure progress toward completing the contract
and recognizing revenue. Estimated contract profits are taken
into earnings in proportion to recorded sales. Sales under cer-
tain long-term fixed-price contracts which, among other fac-
tors, provide for the delivery of minimal quantities or require a
substantial level of development effort in relation to total con-
tract 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 essen-
tially under commercial terms and conditions are recorded upon
delivery and passage of title.
Incentives or penalties related to performance on contracts
are considered in estimating sales and profit rates, and are
recorded when there is sufficient information to assess antici-
pated contract performance. Estimates of award fees are also
considered in estimating sales and profit rates based on actual
awards and anticipated performance. Incentive provisions
which increase or decrease earnings based solely on a single
significant event are generally not recognized until the event
occurs. Amounts representing contract change orders, claims or
other items are included in sales only when they can be reliably
estimated and realization is probable.
When adjustments in contract value or estimated costs are
determined, any changes from prior estimates are generally
reflected in earnings in the current period. Anticipated losses
on contracts are charged to earnings when determined to be
probable.
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 contracts and programs in progress under
U.S. Government contractual arrangements. Corporation-spon-
sored product development costs not otherwise allocable are
charged to expense when incurred. Under certain arrangements
in which a customer shares in product development costs, the
Corporation’s portion of unreimbursed costs is generally
expensed as incurred. The Corporation made internal invest-