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beatandraise.com

1.0.0.3 false Significant Accounting Policies false 1 $ false false iso4217_USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 iso4217_USD_per_shares Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares 0 5 Significant Accounting Policies 3 us-gaap_SignificantAccountingPoliciesTextBlock us-gaap true na duration string No definition available. false false false false false false false false false 1 false false 0 0 <div> Note 1 – Significant Accounting Policies Organization – Lockheed Martin Corporation is a global security company engaged in the research, design, development, manufacture, integration, operation, and sustainment of advanced technology systems and products, and provides a broad range of management, engineering, technical, scientific, logistic, and information services. As a systems integrator, our products and services range from electronics and information systems, including integrated net-centric solutions, to missiles, aircraft, and spacecraft. We serve both domestic and international customers with products and services that have defense, civil, and commercial applications, with our principal customers being agencies of the U.S. Government. Basis of consolidation and classifications – Our consolidated financial statements include the accounts of subsidiaries we control and other entities where we are the primary beneficiary. We eliminate intercompany balances and transactions in consolidation. Our receivables, inventories, customer advances, and certain amounts in other current liabilities 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, we include these items in Current Assets and Current Liabilities. We have reclassified certain amounts for prior years to conform to the 2009 presentation. We have evaluated subsequent events through the time of filing this Form 10-K with the United States Securities and Exchange Commission (SEC) on February 25, 2010. No material subsequent events have occurred since December 31, 2009 that required recognition or disclosure in these financial statements. Use of estimates – We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP). In doing so, we are required to make estimates and assumptions, including estimates of anticipated contract costs and revenues utilized in the earnings recognition process, that affect the reported amounts in the financial statements and accompanying notes. Due to the size and nature of many of our 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. Our actual results may differ from those estimates. 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 revenues on long-term contracts that have been recognized for accounting purposes but not yet billed to customers. As we recognize those revenues, we reflect appropriate amounts of customer advances, performance-based payments, and progress payments as an offset to the related receivables balance. 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, 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. We expense general and administrative costs related to products and services provided essentially under commercial terms and conditions as incurred. 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 include property, plant, and equipment on our Balance Sheet principally 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. Goodwill – We evaluate goodwill for potential impairment annually on October 1, or if impairment indicators are present. Our evaluation includes comparing the fair value of a reporting unit, using a discounted cash flow methodology, to its carrying value including goodwill recorded by the reporting unit. If the carrying value exceeds the fair value, we measure impairment by comparing the derived fair value of goodwill to its carrying value, and any impairment determined is recorded in the current period. We define reporting units at the business segment level or one level below the business segment. Purchased intangibles – We amortize on a straight-line basis intangible assets acquired as part of business combinations over their estimated useful lives unless their useful lives are determined to be indefinite. For material business combinations, the amounts we record related to purchased intangibles are determined from independent valuations. Our purchased intangibles primarily relate to contracts and programs acquired and customer relationships, which are amortized over periods of 10 years or less, and trade names that have indefinite lives. As of December 31, 2009 and 2008, purchased intangibles totaled $311 million and $355 million, net of accumulated amortization of $2,203 million and $2,098 million. Amortization expense related to these intangible assets was $104 million in 2009, $118 million in 2008, and $153 million in 2007. We estimate amortization expense will be $103 million in 2010, $93 million in 2011, $36 million in 2012, $27 million in 2013, and $7 million in 2014. The unamortized balance of purchased intangibles at December 31, 2009 included $41 million of intangibles with indefinite lives. Capitalized software – We capitalize certain direct costs associated with the development of internal-use software. Expenditures are included in operating activities on our Statement of Cash Flows. The amounts capitalized are included in other assets on our Balance Sheet and amortized on a straight-line basis over the estimated useful life of the resulting software, which ranges from two to seven years. We amortize capitalized internal-use software beginning when the asset is substantially ready for use. As of December 31, 2009 and 2008, capitalized software totaled $887 million and $758 million, net of accumulated amortization of $948 million and $796 million. Amortization expense related to capitalized software was $152 million in 2009, $135 million in 2008, and $114 million in 2007. Customer advances and amounts in excess of cost incurred – We receive advances, performance-based payments, and progress payments from customers that may exceed costs incurred on certain contracts, including contracts with agencies of the U.S. Government. We classify such advances, other than those reflected as a reduction of receivables or inventories as discussed above, as Current Liabilities. Environmental matters – We record a liability for environmental matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. The amount of liability recorded is based on our best estimate of the costs to be incurred for remediation at a particular site within a range of estimates for that site or, in cases where no amount within the range is better than another, we record an amount at the low end of the range. We do not discount the recorded liabilities, as the amount and timing of future cash payments are not fixed or cannot be reliably determined. We expect to include a substantial portion of environmental costs in net sales and cost of sales pursuant to U.S. Government agreement or regulation. At the time a liability is recorded for future environmental costs, we record an asset for estimated future recovery considered probable through the pricing of products and services to agencies of the U.S. Government. We include the portion of those costs expected to be allocated to commercial business or that is determined to be unallowable for pricing under U.S. Government contracts in cost of sales at the time the liability is established. Sales and earnings – We record sales and anticipated profits under long-term fixed-price design, development, and production (DD&P) contracts on a percentage of completion basis, generally using units-of-delivery as the basis to measure progress toward completing the contract and recognizing revenue. We include estimated contract profits in earnings in proportion to recorded sales. We record sales under certain long-term fixed-price DD&P contracts that, among other factors, provide for the delivery of minimal quantities or require a substantial level of development effort in relation to total contract value, upon achievement of performance milestones or using the cost-to-cost method of accounting where sales and profits are recorded based on the ratio of costs we incur to our estimate of total costs at completion. We record sales and an estimated profit under DD&P cost-reimbursement-type contracts as costs are incurred in the proportion that the incurred costs bear to total estimated costs. When adjustments in estimated contract revenues or estimated costs at completion are required, any changes from prior estimates are recognized by recording adjustments in the current period for the inception-to-date effect of the changes on current and prior periods. When estimates of total costs to be incurred on a contract exceed total estimates of revenue to be earned, a provision for the entire loss on the contract is recorded in the period the loss is determined. We record sales of products and services provided under essentially commercial terms and conditions upon delivery and passage of title. We consider incentives or penalties related to performance on DD&P contracts in estimating sales and profit rates, and record them when there is sufficient information to assess anticipated contract performance. We also consider estimates of award fees in estimating sales and profit rates based on actual awards and anticipated performance. We do not recognize incentive provisions that increase or decrease earnings based solely on a single significant event until the event occurs. We only include amounts representing contract change orders, claims, or other items in sales when they can be reliably estimated and realization is probable.   We record revenue under contracts for services other than those associated with DD&P activities either as services are performed or when a contractually required event has occurred, depending on the contract. The majority of our service contracts is in our Information Systems & Global Services segment. We record revenue under such services contracts on a straight-line basis over the period of contract performance, unless evidence suggests that the revenue is earned or the obligations are fulfilled in a different pattern. Costs we incur under these services contracts are expensed as incurred, except that we capitalize and recognize initial “set-up” costs over the life of the agreement. Award and incentive fees related to our performance on services contracts are recognized when they are fixed or determinable, which is typically on the date the amount is communicated to us by the customer. Research and development and similar costs – Except for certain arrangements described below, we account for independent research and development costs as part of the general and administrative costs that are allocated among all of our contracts and programs in progress under U.S. Government contractual arrangements. Costs for product development initiatives we sponsor that are not otherwise allocable are charged to expense when incurred. Under some arrangements in which a customer shares in product development costs, our portion of unreimbursed costs is expensed as incurred. Independent research and development costs charged to cost of sales totaled $750 million in 2009, $719 million in 2008, and $678 million in 2007. Costs we incur under customer-sponsored research and development programs pursuant to contracts are accounted for as net sales and cost of sales under the contract. Restructuring activities – Under existing U.S. Government regulations, certain costs we incur for consolidation or restructuring activities that we can demonstrate will result in savings in excess of the cost to implement those actions can be deferred and amortized for government contracting purposes and included as allowable costs in future pricing of our products and services to agencies of the U.S. Government. Assets recorded at December 31, 2009 and 2008 for deferred costs related to various consolidation and restructuring activities were not material. Impairment of certain long-lived assets – We review the carrying values of long-lived assets other than goodwill for impairment if events or changes in the facts and circumstances indicate that their carrying values may not be recoverable. We assess impairment by comparing the estimated undiscounted future cash flows of the related asset to its carrying value. 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 value. Investments in marketable securities – Investments in marketable securities consist of debt and equity securities of publicly-traded companies and are accounted for at fair value. Marketable securities are classified as either available-for-sale securities or trading securities. If classified as available-for-sale securities, unrealized gains and losses are reflected net of income taxes in accumulated other comprehensive income (loss) on the Statement of Stockholders’ Equity. If declines in the value of investments are determined to be other than temporary, a loss is recorded in earnings in the current period. We make 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, and information regarding market and industry trends for the investee’s business, if available. As of December 31, 2009 and 2008, the fair value of our available-for-sale securities totaled $346 million and $61 million and was included in other current assets on the Balance Sheet. If marketable securities are classified as trading securities, unrealized gains and losses are recorded in other non-operating income (expense), net on the Statement of Earnings. As of December 31, 2009 and 2008, the fair value of our trading securities totaled $757 million and $500 million and was included in other assets on the Balance Sheet. Our net unrealized gains (losses) on trading securities were $115 million in 2009, $(158) million in 2008, and $(13) million in 2007. Our trading securities are held in a Rabbi Trust, which includes investments to fund certain of our nonqualified deferred compensation plans. We record realized gains and losses on marketable securities in other non-operating income (expense), net. For purposes of computing realized gains and losses, we determine cost on a specific identification basis. Equity method investments – Investments where we have the ability to exercise significant influence over the investee are accounted for under the equity method of accounting and are included in other assets on the Balance Sheet. Significant influence typically exists if we have a 20% to 50% ownership interest in the investee. Under this method of accounting, our share of the net earnings or losses of the investee is included in operating profit in other income (expense), net since the activities of the investee are closely aligned with the operations of the business segment holding the investment. We evaluate our equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period.   Derivative financial instruments – We use derivative financial instruments to manage our exposure to fluctuations in foreign currency exchange rates. Foreign currency exchange contracts are entered into to manage the foreign currency exchange rate risk of forecasted foreign currency denominated cash receipts and cash payments. The majority of our foreign currency exchange contracts are designated as cash flow hedges. We may also use derivative financial instruments to manage our exposure to changes in interest rates. Our financial instruments that are subject to interest rate risk principally include fixed rate long-term debt. We do not hold or issue derivative financial instruments for trading or speculative purposes. We record derivatives at their fair value. The classification of gains and losses resulting from changes in the fair values of derivatives is dependent on our intended use of the derivative and its resulting designation. Adjustments to reflect changes in fair values of derivatives attributable to the effective portion of hedges that we consider highly effective hedges are either reflected in earnings and largely offset by corresponding adjustments to the hedged items, or reflected net of income taxes in accumulated other comprehensive income (loss) until the hedged transaction is recognized in earnings. Changes in the fair value of the derivatives that are attributable to the ineffective portion of the hedges, or of derivatives that are not considered to be highly effective hedges, if any, are immediately recognized in earnings. The aggregate notional amount of the outstanding foreign currency exchange contracts at December 31, 2009 and 2008 was $1.9 billion and $1.4 billion. There were no interest rate derivatives outstanding at December 31, 2009 and 2008. The effect of our derivative instruments on the Statement of Earnings for the years ended December 31, 2009, 2008, and 2007 was not material. The fair values of our derivative assets as of December 31, 2009 and 2008 were $21 million and $100 million and were recorded in other current assets. The fair values of our derivative liabilities as of December 31, 2009 and 2008 were $23 million and $48 million and were recorded in other current liabilities. These amounts were not material to our financial statements. See Note 15 for further discussion on the fair value measurements related to our derivative instruments. Stock-based compensation – We recognize compensation cost related to all share-based payments (stock options, restricted stock awards, and restricted stock units) based on their estimated fair value at the date of grant. Income taxes – We periodically assess our tax filing exposures related to periods that are open to examination. Based on the latest available information, we evaluate tax positions to determine whether the position will more likely than not be sustained upon examination by the Internal Revenue Service (IRS). 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. If we cannot reach that determination, no benefit is recorded. We record interest and penalties related to income taxes as a component of income tax expense in our consolidated financial statements. Comprehensive income (loss) – Comprehensive income (loss) and its components are presented on the Statement of Stockholders’ Equity. Accumulated other comprehensive income (loss) consisted of the following:   <table border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr> <td width="82%"></td> <td valign="bottom" width="5%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="5%"></td> <td></td> <td></td> <td></td> </tr> <tr> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">     (In millions)</td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" colspan="2" align="center">2009</td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">  </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" colspan="2" align="center">2008</td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">  </td> </tr> <tr> <td height="8"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> </tr> <tr bgcolor="#CCEEFF"> <td valign="top"> Postretirement benefit plan adjustments </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(8,564</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(9,059</td> <td valign="bottom" nowrap="nowrap">) </td> </tr> <tr> <td valign="top"> Foreign currency translation adjustments </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(26</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(108</td> <td valign="bottom" nowrap="nowrap">) </td> </tr> <tr bgcolor="#CCEEFF"> <td style="BORDER-BOTTOM: #000000 1px solid" valign="top"> Other, net </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">  </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align="right">(5</td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" nowrap="nowrap">) </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom">  </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align="right">18</td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" nowrap="nowrap">  </td> </tr> <tr> <td style="BORDER-BOTTOM: #000000 2px solid" valign="top">  </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom"> $</td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom" align="right">(8,595</td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom" nowrap="nowrap">) </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom">   </td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom"> $</td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom" align="right">(9,149</td> <td style="BORDER-BOTTOM: #000000 2px solid" valign="bottom" nowrap="nowrap">) </td> </tr> </table> Recent accounting pronouncements – In October 2009, the Financial Accounting Standards Board (FASB) revised its accounting guidance related to revenue arrangements with multiple deliverables. The guidance relates to the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting and modifies the manner in which the transaction consideration is allocated across the individual deliverables, thereby affecting the timing of revenue recognition. Also, the guidance expands the disclosure requirements for revenue arrangements with multiple deliverables. The guidance will be effective for us beginning on January 1, 2011, and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or materially modified after the adoption date. Early adoption is permitted provided that the guidance is retroactively applied to the beginning of the year of adoption. We are currently assessing the potential effect, if any, on our financial statements. In June 2009, the FASB issued an accounting standard that changes the approach to determining the primary beneficiary of a variable interest entity (“VIE”) and requires companies to continuously assess whether they must consolidate VIEs. This standard is effective for us beginning on January 1, 2010. We do not expect the adoption of this accounting standard will have a material impact on our financial statements.   In December 2008, the FASB issued an accounting standard that requires additional disclosures about assets held in defined benefit pension plans and other postretirement plans (see Note 10). The accounting standard requires us to disclose the fair value of each major category of plan assets, the level within the fair value hierarchy that each major category of plan assets falls, and reconcile the beginning and ending balances of plan assets with fair values measured using significant unobservable inputs (Level 3 in the hierarchy). We adopted the provisions of the standard beginning with our 2009 annual consolidated financial statements. In 2009, we adopted accounting standards issued by the FASB related to the following topics, none of which had a material effect on our financial statements:   <table style="BORDER-COLLAPSE: collapse" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr> <td width="5%"> </td> <td valign="top" width="2%" align="left">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Accounting and disclosures for subsequent events; </td> </tr> </table> <table style="BORDER-COLLAPSE: collapse" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr> <td width="5%"> </td> <td valign="top" width="2%" align="left">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Determining fair value when the volume and level of activity for an asset or liability have significantly decreased and identifying transactions that are not orderly; </td> </tr> </table> <table style="BORDER-COLLAPSE: collapse" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr> <td width="5%"> </td> <td valign="top" width="2%" align="left">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Recognition and presentation of other-than-temporary impairments; </td> </tr> </table> <table style="BORDER-COLLAPSE: collapse" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr> <td width="5%"> </td> <td valign="top" width="2%" align="left">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Fair value disclosures related to certain non-financial assets and liabilities; </td> </tr> </table> <table style="BORDER-COLLAPSE: collapse" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr> <td width="5%"> </td> <td valign="top" width="2%" align="left">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Determining whether instruments granted in share-based payment transactions are participating securities; </td> </tr> </table> <table style="BORDER-COLLAPSE: collapse" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr> <td width="5%"> </td> <td valign="top" width="2%" align="left">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Revised accounting rules related to business combinations; and </td> </tr> </table> <table style="BORDER-COLLAPSE: collapse" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr> <td width="5%"> </td> <td valign="top" width="2%" align="left">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Increased disclosures related to derivative financial instruments (see “Derivative financial instruments” section above). </td> </tr> </table> Effective January 1, 2007, we adopted a FASB interpretation that sets forth consistent rules for accounting for uncertain income tax positions in accordance with GAAP (see Note 8). The cumulative effect of applying the provisions of this interpretation was a $31 million noncash increase to our opening balance of retained earnings in 2007. In May 2008, the FASB issued an accounting standard that affects the accounting for certain convertible debt instruments. The standard was effective beginning with our first quarter 2009 financial reporting, requires retrospective application to all periods presented, and does not grandfather existing debt instruments. The standard would have changed the accounting for our previously outstanding $1.0 billion in original principal amount of floating rate convertible debentures in that it would have required that we bifurcate the proceeds from the debt issuance between a debt and equity component as of the August 2003 issuance date and through the August 2008 date that they were converted or redeemed. The equity component would have reflected the value of the conversion feature of the debentures. We did not adopt the provisions of the standard for the floating rate convertible debentures that were delivered for conversion or redeemed in August 2008, as the effect on our previously reported financial statements was not material. In December 2007, the FASB issued an accounting standard that required that the noncontrolling interests in consolidated subsidiaries be presented as a separate component of stockholders’ equity in the balance sheet, that the amount of consolidated net earnings attributable to the parent and the noncontrolling interest be separately presented in the statement of earnings, and that the amount of consolidated other comprehensive income attributable to the noncontrolling interest be separately disclosed. The standard also required gains or losses from the sale of stock of subsidiaries where control is maintained to be recognized as an equity transaction. The standard was effective beginning with our first quarter 2009 financial reporting. We did not adopt the presentation or disclosure provisions of this standard relative to our noncontrolling interests, as the effect on our financial statements was not material. </div> Note 1 – Significant Accounting Policies Organization – Lockheed Martin Corporation is a global security company engaged in the research, false false No definition available. No authoritative reference available. false false 1 1 false UnKnown UnKnown UnKnown false true