Lockheed Martin 2003 Annual Report Download - page 48

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NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES
Organization — Lockheed Martin Corporation (Lockheed
Martin or the Corporation) is engaged in the conception,
research, design, development, manufacture, integration and
operation of advanced technology systems, products and serv-
ices. As a leading systems integrator, its products and services
range from aircraft, spacecraft and launch vehicles to missiles,
electronics and information systems. The Corporation serves
customers in both domestic and international defense and com-
mercial markets, with its principal customers being agencies of
the U.S. Government.
Basis of consolidation and classifications — The consolidated
financial statements include the accounts of wholly-owned sub-
sidiaries and majority-owned entities which the Corporation
controls. Intercompany balances and transactions have been
eliminated in consolidation. Receivables and inventories are
primarily attributable to long-term contracts or programs in
progress for which the related operating cycles are longer than
1 year. In accordance with industry practice, these items are
included in current assets.
Certain amounts for prior years have been reclassified to
conform with the 2003 presentation.
Use of estimates — The preparation of consolidated financial
statements in conformity with accounting principles generally
accepted in the United States (GAAP) requires management to
make estimates and assumptions, including estimates of antici-
pated contract costs and revenues utilized in the earnings recog-
nition process, that affect the reported amounts in the financial
statements and accompanying notes. Due to the size and nature
of many of the Corporation’s programs, the estimation of total
revenues and cost at completion is subject to a wide range of
variables, including assumptions for schedule and technical
issues. Actual results may differ from those estimates.
Cash and cash equivalents — Cash equivalents are generally
composed of highly liquid instruments with maturities of 3
months or less. Due to the short maturity of these instruments,
carrying value on the Corporation’s consolidated balance sheet
approximates fair value.
Short-term investments — The Corporation’s short-term invest-
ments consist of marketable securities that are categorized as
available-for-sale securities as defined by Statement of
Financial Accounting Standards (FAS) No. 115, “Accounting
for Certain Investments in Debt and Equity Securities.”
Unrealized gains and losses on those securities are reflected as
a net amount under the caption of accumulated other compre-
hensive income (loss) in the statement of stockholders’ equity.
Realized gains and losses are recorded in the statement of oper-
ations under the caption other income or expenses. For purposes
of computing realized gains and losses, cost is determined on a
specific identification basis. The fair values of marketable secu-
rities are estimated based on quoted market price for the respec-
tive securities.
At December 31, 2003, the Corporation recorded short-
term investments with an aggregate amortized cost of $239 mil-
lion and fair value of $240 million. There were no short-term
investments at December 31, 2002. The investment portfolio
was composed of the following:
(In millions) Amortized Cost Fair Value
U.S. treasury and government
agency securities $125 $ 126
Corporate debt securities 94 94
Mortgage-backed and other securities 20 20
$239 $ 240
Over 80% of the securities had contractual maturities of 1
to 5 years. Proceeds from sales of marketable securities totaled
$116 million in 2003. Gross gains and losses related to sales of
marketable securities for the year, as well as net unrealized
gains and losses at year-end, were not material.
Receivables — Receivables consist of amounts billed and cur-
rently due from customers, and include unbilled costs and
accrued profits primarily related to revenues on long-term con-
tracts 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, allocable operating overhead, advances to suppliers
and, where appropriate, research and development and general
Lockheed Martin Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003