Lockheed Martin 2005 Annual Report Download - page 50

   
Lockheed฀Martin฀Corporation
NOTES฀TO฀CONSOLIDATED฀FINANCIAL฀STATEMENTS
December฀31,฀2005

Organization—Lockheed฀ Martin฀ Corporation฀ (Lockheed฀
Martin฀or฀the฀Corporation)฀is฀engaged฀in฀the฀research,฀design,฀
development,฀manufacture,฀integration,฀operation฀and฀sustain-
ment฀of฀advanced฀technology฀systems,฀products฀and฀services.฀
As฀a฀leading฀systems฀integrator,฀its฀products฀and฀services฀range฀
from฀electronics฀and฀information฀systems,฀including฀integrated฀
net-centric฀ solutions,฀ to฀ missiles,฀ aircraft,฀ spacecraft฀ and฀
launch฀ services.฀ The฀ Corporation฀ serves฀ customers฀ in฀ both฀
domestic฀and฀international฀defense฀and฀commercial฀businesses,฀
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฀
subsidiaries฀and฀other฀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฀ one฀ 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฀2005฀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฀antic-
ipated฀contract฀costs฀and฀revenues฀utilized฀in฀the฀earnings฀rec-
ognition฀ 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฀estima-
tion฀of฀total฀revenues฀and฀cost฀at฀completion฀is฀subject฀to฀a฀wide฀
range฀of฀variables,฀including฀assumptions฀for฀schedule฀and฀tech-
nical฀issues.฀Actual฀results฀may฀differ฀from฀those฀estimates.
Cash฀ and฀ cash฀ equivalents—Cash฀ equivalents฀ are฀ generally฀
composed฀ of฀ highly฀ liquid฀ instruments฀ with฀ original฀ maturi-
ties฀ of฀ 90฀ days฀ 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฀
investments฀ consist฀ of฀ marketable฀ securities฀ that฀ are฀ catego-
rized฀ as฀ available-for-sale฀ securities฀ as฀ defined฀ by฀ Statement฀
of฀Financial฀Accounting฀Standards฀(FAS)฀115,฀Accounting฀for฀
Certain฀ Investments฀ in฀ Debt฀ and฀ Equity฀ Securities.฀Realized฀
gains฀ and฀ losses฀ are฀ recorded฀ in฀ other฀ income฀ and฀ expenses.฀
For฀ purposes฀ of฀ computing฀ realized฀ gains฀ and฀ losses,฀ cost฀ is฀
determined฀ on฀a฀ specific฀identification฀basis.฀The฀ fair฀ values฀
of฀marketable฀securities฀are฀estimated฀based฀on฀quoted฀market฀
prices฀for฀the฀respective฀securities.
The฀ Corporation฀ records฀ short-term฀ investments฀ at฀ fair฀
value.฀At฀year฀end,฀the฀investment฀portfolio฀was฀composed฀of฀
the฀following:
Year฀Ended฀December฀31,
 2004
(In฀millions)
Amortized฀
Cost
Fair฀
Value
Amortized฀
Cost
Fair฀
Value
U.S.฀treasury฀and฀฀
฀ government฀agency฀฀
฀ securities   $252 $251
Corporate฀debt฀securities   117 117
Mortgage-backed฀and฀฀
฀ other฀securities   28 28
  $397 $396
Approximately฀ 60%฀ of฀ the฀ securities฀ had฀ contractual฀
maturities฀of฀one฀year฀or฀less.฀An฀additional฀36%฀of฀the฀securi-
ties฀had฀contractual฀maturities฀of฀one฀to฀five฀years.฀Marketable฀
securities฀ sales฀ proceeds฀ totaled฀ $461฀ million฀ in฀ 2005฀ and฀
$384฀million฀in฀2004.฀Gross฀gains฀and฀losses฀related฀to฀sales฀
of฀marketable฀securities฀for฀both฀years,฀as฀well฀as฀net฀unreal-
ized฀gains฀and฀losses฀at฀each฀year฀end,฀were฀not฀material.฀
Receivables—Receivables฀ consist฀ of฀ amounts฀ billed฀ and฀ cur-
rently฀ due฀ from฀ customers,฀ and฀ unbilled฀ costs฀ and฀ accrued฀
profits฀ primarily฀ related฀ to฀ revenues฀ on฀ long-term฀ contracts฀
that฀have฀been฀recognized฀for฀accounting฀purposes฀but฀not฀yet฀
billed฀to฀customers.฀As฀such฀revenues฀are฀recognized,฀appro-
priate฀amounts฀of฀customer฀advances,฀performance-based฀pay-
ments฀and฀progress฀payments฀are฀reflected฀as฀an฀offset฀to฀the฀
related฀receivables฀balance.