Lockheed Martin 1999 Annual Report Download - page 38

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Lockheed Martin Corporation
40 years for buildings and 2 years to 20 years for machin-
ery and equipment.
Investments in equity securities— Investments in equity
securities include the Corporation’s ownership interests in
affiliated companies accounted for under the equity method
of accounting. Under this method of accounting, which
generally applies to investments that represent a 20 per-
cent to 50 percent ownership of the equity securities of the
investees, the Corporation’s share of the earnings of the
affiliated companies is included in other income and
expenses. The Corporation recognizes currently 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 percent. These invest-
ments are generally accounted for under the cost method
of accounting.
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 on the
Consolidated Balance Sheet net of accumulated amortization
of $958 million and $800 million at December 31, 1999
and 1998, respectively. Cost in excess of net assets acquired
(goodwill) is amortized ratably over appropriate periods,
primarily 40 years, and is displayed on the Consolidated
Balance Sheet net of accumulated amortization of $1,373
million and $1,103 million at December 31, 1999 and
1998, respectively. The carrying values of intangible assets,
as well as other long-lived assets, are reviewed for impair-
ment if changes in the facts and circumstances indicate
potential impairment of their carrying values. Any impairment
determined is recorded in the current period and is meas-
ured by comparing the discounted cash flows of the related
business operations to the appropriate carrying values.
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 receiv-
able 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 percentage of completion basis, generally using units of
delivery as the measurement basis for effort accomplished.
Estimated contract profits are taken into earnings in propor-
tion to recorded sales. Sales under certain long-term fixed-
price contracts which, among other things, provide for
the delivery 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