Lockheed Martin 2011 Annual Report Download - page 63

Lockheed Martin Corporation
Notes to Consolidated Financial Statements
Note 1 – Significant Accounting Policies
Organization – We are a global security and aerospace company principally engaged in the research, design,
development, manufacture, integration, and sustainment of advanced technology systems and products. We also provide a
broad range of management, engineering, technical, scientific, logistic, and information services. We serve both domestic
and international customers with products and services that have defense, civil, and commercial applications, with our
principal customers being agencies of the U.S. Government.
Basis of presentation – Our consolidated financial statements include the accounts of subsidiaries we control and other
entities for which we are the primary beneficiary. We eliminate intercompany balances and transactions in consolidation. Our
receivables, inventories, customer advances and amounts in excess of costs incurred, and certain amounts in other current
liabilities primarily are 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, we include these items in current assets and current liabilities.
Certain prior year amounts have been reclassified to conform to the current year’s presentation, which are discussed
elsewhere in our footnotes. Unless otherwise noted, we present all per share amounts cited in these consolidated financial
statements on a “per diluted share” basis from continuing operations.
Use of estimates – We prepare our consolidated financial statements in conformity with U.S. generally accepted
accounting principles (GAAP). In doing so, we are required to make estimates and assumptions that affect the reported
amounts in the financial statements and accompanying notes. Our actual results may differ from those estimates. Significant
estimates inherent in the preparation of our consolidated financial statements include, but are not limited to, sales
recognition, postretirement benefit plans, environmental receivables and liabilities, and contingencies.
Receivables – Receivables include amounts billed and currently due from customers, and unbilled costs and accrued
profits primarily related to sales on long-term contracts that have been recognized but not yet billed to customers. Pursuant to
contract provisions, agencies of the U.S. Government and certain other customers have title to, or a security interest in, assets
related to such contracts as a result of advances, performance-based payments, and progress payments. We reflect those
advances and payments as an offset to the related receivables balance.
Inventories – We record inventories 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 or contract-specific facilities and equipment,
allocable operating overhead, advances to suppliers and, in the case of contracts with the U.S. Government, 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,
performance-based payments, and progress payments. We reflect those advances and payments as an offset against the
related inventory balances. We determine the costs of other product and supply inventories by the first-in first-out or average
cost methods.
Property, plant and equipment – We include property, plant, and equipment on our Balance Sheets at cost. We
provide for depreciation and amortization on plant and equipment generally using accelerated methods during the first half of
the estimated useful lives of the assets, and the straight-line method thereafter. The estimated useful lives of our plant and
equipment generally range from 10 to 40 years for buildings and five to 15 years for machinery and equipment. No
depreciation expense is recorded on construction in progress until such assets are placed into operation. Depreciation expense
related to plant and equipment was $712 million in 2011, $749 million in 2010, and $750 million in 2009.
We review the carrying values of long-lived assets for impairment if events or changes in the facts and circumstances
indicate that their carrying values may not be recoverable. We assess impairment by comparing the estimated undiscounted
future cash flows of the related asset to its carrying value. If an asset is determined to be impaired, we recognize an
impairment charge in the current period for the difference between the fair value of the asset and its carrying value.
Capitalized software – We capitalize certain costs associated with the development or purchase of internal-use
software. The amounts capitalized are included in other assets on our Balance Sheets and are amortized on a straight-line
basis over the estimated useful life of the resulting software, which ranges from two to six years. As of December 31, 2011
and 2010, capitalized software totaled $864 million and $899 million, net of accumulated amortization of $1.3 billion and
$1.1 billion. Amortization expense related to capitalized software was $211 million in 2011, $211 million in 2010, and
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