Lockheed Martin 2013 Annual Report Download - page 71

between the financial statement carrying amount of assets and liabilities and their respective tax bases, as well as from
operating loss and tax credit carry-forwards. We measure deferred tax assets and liabilities using enacted tax rates that will
apply in the years in which we expect the temporary differences to be recovered or paid.
We periodically assess our tax filing exposures related to periods that are open to examination. Based on the latest
available information, we evaluate our tax positions to determine whether the position will more likely than not be sustained
upon examination by the Internal Revenue Service (IRS). If we cannot reach a more-likely-than-not determination, no benefit
is recorded. If we determine that the tax position is more likely than not to be sustained, we record the largest amount of
benefit that is more likely than not to be realized when the tax position is settled. We record interest and penalties related to
income taxes as a component of income tax expense on our Statements of Earnings. Interest and penalties were not material.
Cash and cash equivalents – Cash equivalents include highly liquid instruments with original maturities of 90 days or
less.
Receivables – Receivables include amounts billed and currently due from customers, and unbilled costs and accrued
profits primarily related to sales on long-term contracts that have been recognized but not yet billed to customers. Pursuant to
contract provisions, agencies of the U.S. Government and certain other customers have title to, or a security interest in, assets
related to such contracts as a result of advances, performance-based payments, and progress payments. We reflect those
advances and payments as an offset to the related receivables balance for contracts that we account for on a percentage-of-
completion basis using the cost-to-cost method to measure progress towards completion.
Inventories – We record inventories 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 and substantially
all other governments, research and development and general 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. We reflect those advances and
payments as an offset against the related inventory balances for contracts that we account for on a percentage-of-completion
basis using units-of-delivery as the basis to measure progress toward completing the contract. We determine the costs of
other product and supply inventories by the first-in first-out or average cost methods.
Property, plant, and equipment – We record property, plant, and equipment at cost. We provide for depreciation and
amortization on plant and equipment generally using accelerated methods during the first half of the estimated useful lives of
the assets, and the straight-line method thereafter. The estimated useful lives of our plant and equipment generally range
from 10 to 40 years for buildings and five to 15 years for machinery and equipment. No depreciation expense is recorded on
construction in progress until such assets are placed into operation. Depreciation expense related to plant and equipment was
$714 million in 2013, $715 million in 2012, and $712 million in 2011.
We review the carrying amounts of long-lived assets for impairment if events or changes in the facts and circumstances
indicate that their carrying amounts may not be recoverable. We assess impairment by comparing the estimated undiscounted
future cash flows of the related asset grouping to its carrying amount. If an asset is determined to be impaired, we recognize
an impairment charge in the current period for the difference between the fair value of the asset and its carrying amount.
Capitalized software – We capitalize certain costs associated with the development or purchase of internal-use software.
The amounts capitalized are included in other noncurrent assets on our Balance Sheets and are amortized on a straight-line basis
over the estimated useful life of the resulting software, which ranges from two to six years. As of December 31, 2013 and 2012,
capitalized software totaled $653 million and $809 million, net of accumulated amortization of $1.6 billion and $1.5 billion. No
amortization expense is recorded until the software is ready for its intended use. Amortization expense related to capitalized
software was $228 million in 2013, $217 million in 2012, and $211 million in 2011.
Goodwill – We test goodwill for impairment at least annually in the fourth quarter and test more frequently upon the
occurrence of certain events or significant changes in circumstances that indicate goodwill may be impaired. Such events or
changes in circumstances may include a significant deterioration in overall economic conditions, changes in the business
climate of our industry, a decline in our market capitalization, operating performance indicators, competition, reorganizations
of our business, or the disposal of all or a portion of a reporting unit. Our goodwill has been allocated to and is tested for
impairment at a level referred to as the reporting unit, which is our business segment level or a level below the business
segment. The level at which we test goodwill for impairment requires us to determine whether the operations below the
business segment constitute a self-sustaining business for which discrete financial information is available and segment
management regularly reviews the operating results.
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