Lockheed Martin 2003 Annual Report Download - page 49

Lockheed Martin Corporation
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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. Such advances and payments are
reflected as an offset against the related inventory balances.
General and administrative expenses related to commercial
products and services provided essentially under commercial
terms and conditions are expensed as incurred. Costs of other
product and supply inventories are principally determined by
the first-in first-out or average cost methods.
Property, plant and equipment — Property, plant and equip-
ment are carried principally at cost. Depreciation is provided on
plant and equipment generally using accelerated methods dur-
ing the first half of the estimated useful lives of the assets;
thereafter, straight-line depreciation is used. Estimated useful
lives generally range from 10 to 40 years for buildings and 5 to
15 years for machinery and equipment.
Investments in equity securities — Investments in equity securi-
ties include the Corporation’s ownership interests in affiliated
companies accounted for under the equity method of account-
ing. Under this method of accounting, which generally applies
to investments that represent a 20% to 50% ownership of the
equity securities of the investees, the Corporation’s share of the
earnings or losses of the affiliated companies is included in
other income and expenses. The Corporation recognizes cur-
rently 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%. If classified as
available-for-sale, these investments are accounted for at fair
value, with unrealized gains and losses recorded in other com-
prehensive income, in accordance with FAS 115. If declines in
the value of investments accounted for under either the equity
method or FAS 115 are determined to be other than temporary,
a loss is recorded in earnings currently. The Corporation makes
such determinations by considering, among other factors, the
length of time the fair value of the investment has been less than
the carrying value, future business prospects for the investee,
information regarding market and industry trends for the
investee’s business, and investment analyst reports, if available.
Investments not accounted for under one of these methods are
generally accounted for under the cost method of accounting.
Goodwill — Beginning January 1, 2002, goodwill is no longer
amortized. Goodwill is displayed on the consolidated balance
sheet net of accumulated amortization of $1,382 million at
December 31, 2003 and 2002. Under FAS 142 (see discussion
under the caption “Recent accounting pronouncements” in this
Note), goodwill is evaluated for potential impairment annually
by comparing the fair value of a reporting unit to its carrying
value, including goodwill recorded by the reporting unit. If the
carrying value exceeds the fair value, impairment is measured
by comparing the derived fair value of goodwill to its carrying
value, and any impairment determined is recorded in the cur-
rent period.
Purchased intangibles, net — Intangible assets acquired as part
of business combinations are amortized over their estimated
useful lives unless their useful lives are determined to be indef-
inite. For material business combinations, amounts recorded
related to purchased intangibles are determined from independent
valuations. The Corporation’s purchased intangibles primarily
relate to contracts and programs acquired which are amortized
over periods of 15 years or less. Purchased intangibles are dis-
played in the consolidated balance sheet net of accumulated
amortization of $1,491 million and $1,364 million at December
31, 2003 and 2002, respectively. Amortization expense related
to these intangible assets was $129 million, $125 million, and
$154 million for the years ended December 31, 2003, 2002 and
2001, respectively, and is estimated to be approximately $145
million per year in 2004 through 2006, $125 million in 2007
and $75 million in 2008, excluding the effects of any future
acquisitions or divestitures.
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 an offset to accounts receivable or inven-
tories as discussed above, are classified as current liabilities.