Lockheed Martin 2007 Annual Report Download - page 49

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Our Goodwill at December 31, 2007 amounted to $9.4 billion. We completed our assessment of Goodwill as of
October 1, 2007 and determined that no impairment existed at that date. Changes in estimates and assumptions we make in
conducting our Goodwill assessment could affect the estimated fair value of one or more of our reporting units and could
result in a Goodwill impairment charge in a future period. However, a 10% decrease in the estimated fair value of any of our
reporting units at October 1, 2007 would not have resulted in a Goodwill impairment charge.
Stock-Based Compensation
We account for our stock-based compensation under the provisions of FAS 123(R), Share-Based Payments.We
recognize compensation cost related to all share-based payments, including restricted stock units (RSUs) and stock options.
Compensation cost for RSUs is based on the market value of our common stock on the date of the award. We estimate the
fair value for stock options at the date of grant using the Black-Scholes option pricing model. Our stock options do not
include market or performance conditions. We generally recognize the compensation cost for RSUs and stock options ratably
over a three-year vesting period.
The Black-Scholes option pricing model requires us to make estimates and assumptions in determining certain inputs to
the model, including a volatility factor for our stock, an expected life of the option and a risk-free interest rate. We estimate
volatility based on the historical volatility of our daily stock price over the past five years, which is commensurate with the
expected life of the options. We base the average expected life on the contractual term of the stock option, historical trends in
employee exercise activity and post-vesting employment termination trends. We analyzed the option exercise patterns of our
employees and determined there are no significant differences between employee groups. We base the risk-free interest rate
on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. We also
are required to estimate forfeitures at the date of grant which we base on historical experience. If any of our estimates or
assumptions used in the Black-Scholes model were to change significantly, stock-based compensation expense could differ
materially in the future from the amount recorded in 2007. Compensation cost recognized in 2007 totaled $149 million.
Acquisition and Divestiture Activities
We continuously strive to strengthen our portfolio of products and services to meet the current and future needs of our
customers. We accomplish this not only internally, through our independent research and development activities, but also
through acquisitions. We selectively pursue the acquisition of businesses and investments that complement our current
portfolio and allow access to new customers or technologies. We have made a number of such niche acquisitions of
businesses during the past several years. Over the last five years, we have paid $2.6 billion to complete 18 such acquisitions.
Conversely, we may also explore the divestiture of businesses, investments and real estate. If we were to decide to sell any
such assets, the resulting gains, if any, would be recorded when the transactions are completed and losses, if any, would be
recorded when the value of the related asset is determined to be impaired.
Acquisitions
We used approximately $160 million in 2007 for acquisition activities including the acquisition of, among others,
Management Systems Designers Inc. (MSD), a provider of information technology (IT) and scientific solutions supporting
government life science, national security, and other civil agency missions. The amount also includes certain payments
related to acquisitions completed in prior years. The acquisitions were not material to our consolidated results of operations
in 2007.
In 2006 and 2005, we completed acquisitions of the following businesses:
Year ended December 31, 2006 –
• Pacific Architects and Engineers, Inc., a provider of services to support military readiness, peacekeeping missions,
nation-building activities, and disaster relief services (included in our IS&GS segment);
• Savi Technology, Inc., a developer of active radio frequency identification solutions (included in our IS&GS
segment);
• Aspen Systems Corporation, an information management company that delivers a range of business process and
technology solutions (included in our IS&GS segment);
• ISX Corporation, a provider of military decision systems and other information technology solutions (included in
our Electronic Systems segment); and
• HMT Vehicles, a military vehicle design company (included in our Electronic Systems segment).
Year ended December 31, 2005 –
• The SYTEX Group, Inc., a provider of information technology solutions and technical support services (included
in our IS&GS segment);
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