Lockheed Martin 2005 Annual Report Download - page 51

   
Lockheed฀Martin฀Corporation
Inventories—Inventories฀ are฀ stated฀ 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฀devel-
opment฀ and฀ general฀ and฀ administrative฀ expenses.฀ Pursuant฀ to฀
contract฀provisions,฀agencies฀of฀the฀U.S.฀Government฀and฀cer-
tain฀ 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฀inven-
tories฀ 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฀
during฀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฀five฀
to฀15฀years฀for฀machinery฀and฀equipment.
Investments฀in฀equity฀securities—Investments฀in฀equity฀secu-
rities฀ include฀ the฀ Corporation’s฀ ownership฀ interests฀ in฀ affili-
ated฀ companies฀ that฀ it฀ does฀ not฀ control฀ which฀ are฀ accounted฀
for฀under฀the฀equity฀method฀of฀accounting.฀Under฀this฀method฀
of฀accounting,฀which฀generally฀applies฀to฀investments฀that฀rep-
resent฀a฀20%฀to฀50%฀ownership฀of฀the฀equity฀securities฀of฀the฀
investees,฀the฀Corporation’s฀share฀of฀the฀net฀earnings฀or฀losses฀
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%฀ownership.฀If฀classified฀as฀
available-for-sale฀ under฀ FAS฀ 115,฀ these฀ investments฀ are฀
accounted฀ for฀ at฀ fair฀ value,฀ with฀ unrealized฀ gains฀ and฀ losses฀
reflected฀as฀a฀net฀after-tax฀amount฀under฀the฀caption฀of฀accu-
mulated฀other฀comprehensive฀income฀(loss)฀in฀the฀statement฀of฀
stockholders’฀ equity.฀ 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฀ in฀ the฀ current฀ period.฀ 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฀ avail-
able.฀Investments฀not฀accounted฀for฀under฀one฀of฀these฀meth-
ods฀ are฀ generally฀ accounted฀ for฀ under฀ the฀ cost฀ method฀ of฀
accounting.
Goodwill—Goodwill฀ is฀ evaluated฀ for฀ potential฀ impairment฀
annually฀by฀comparing฀the฀fair฀value฀of฀a฀reporting฀unit,฀based฀
on฀estimated฀future฀cash฀flows,฀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฀current฀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฀
indefinite.฀ For฀ material฀ business฀ combinations,฀ amounts฀
recorded฀related฀to฀purchased฀intangibles฀are฀determined฀from฀
independent฀valuations.฀The฀Corporation’s฀purchased฀intangi-
bles฀primarily฀relate฀to฀contracts฀and฀programs฀and฀customer฀
relationships฀which฀are฀amortized฀over฀periods฀of฀15฀years฀or฀
less.฀ Purchased฀ intangibles฀ are฀ displayed฀ in฀ the฀ consolidated฀
balance฀sheet฀net฀of฀accumulated฀amortization฀of฀$1,788฀mil-
lion฀ and฀ $1,638฀ million฀ at฀ December฀ 31,฀ 2005฀ and฀ 2004,฀
respectively.฀Amortization฀expense฀related฀to฀these฀intangible฀
assets฀was฀$150฀million,฀$145฀million฀and฀$129฀million฀for฀the฀
years฀ended฀December฀31,฀2005,฀2004฀and฀2003,฀respectively,฀
and฀is฀estimated฀to฀be฀$153฀million฀in฀2006,฀$125฀million฀in฀
2007,฀$87฀million฀in฀2008,฀$68฀million฀in฀2009฀and฀$63฀mil-
lion฀in฀2010.
Customer฀advances฀and฀amounts฀in฀excess฀of฀cost฀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฀a฀reduction฀of฀accounts฀receivable฀or฀invento-
ries฀as฀discussed฀above,฀are฀classified฀as฀current฀liabilities.