Lockheed Martin 2007 Annual Report Download - page 24

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government contracts, and it may use or authorize others to use the inventions covered by such patents for government
purposes. Unpatented research, development and engineering skills also make an important contribution to our business.
While our intellectual property rights in the aggregate are important to the operation of our business segments, we do not
believe that any existing patent, license or other intellectual property right is of such importance that its loss or termination
would have a material adverse effect on our business taken as a whole.
Raw Materials and Seasonality
Aspects of our business require relatively scarce raw materials. We have been successful in obtaining the raw materials
and other supplies needed in our manufacturing processes. We seek to manage raw materials supply risk through long-term
contracts and by maintaining a stock of key materials in inventory.
Aluminum and titanium are important raw materials used in certain of our Aeronautics and Space Systems programs.
Long-term agreements have helped enable a continued supply of aluminum and titanium. Carbon fiber is an important
ingredient in the composite material that is used in our Aeronautics programs, such as the F-22 and F-35. Nicalon fiber also
is a key material used on the F-22 aircraft. One type of carbon fiber and the nicalon fiber that we use are currently only
available from single-source suppliers.Aluminum lithium, which we use to produce the Space Shuttle’s external tank and for
F-16 structural components, also is currently only available from limited sources. We have been advised by some suppliers
that pricing and the timing of availability of materials in some commodities markets can fluctuate widely. These fluctuations
may negatively affect price and the availability of certain materials, including titanium. While we do not anticipate material
problems regarding the supply of our raw materials and believe that we have taken appropriate measures to mitigate these
variations, if key materials become unavailable or if pricing fluctuates widely in the future, it could result in delay to one or
more of our programs, increased costs or reduced award fees.
No material portion of our business is considered to be seasonal. Various factors can affect the distribution of our sales
between accounting periods, including the timing of government awards, the availability of government funding, product
deliveries and customer acceptance.
Government Contracts and Regulation
Our businesses are heavily regulated in most of our fields of endeavor. We deal with numerous U.S. Government
agencies and entities, including all of the branches of the U.S. military, NASA, the U.S. Postal Service, the Social Security
Administration, and the Departments of Defense, Energy, Justice, Health and Human Services, Homeland Security, State and
Transportation. Similar government authorities exist with respect to our international efforts.
We must comply with and are affected by laws and regulations relating to the formation, administration and
performance of U.S. Government contracts. These laws and regulations, among other things:
• require certification and disclosure of all cost or pricing data in connection with certain contract negotiations;
• impose specific and unique cost accounting practices that may differ from Generally Accepted Accounting
Principles and therefore require reconciliation;
• impose acquisition regulations that define allowable and unallowable costs and otherwise govern our right to
reimbursement under certain cost-based U.S. Government contracts; and
• restrict the use and dissemination of information classified for national security purposes and the export of certain
products and technical data.
U.S. Government contracts are conditioned upon the continuing availability of Congressional appropriations. Long-term
government contracts and related orders are subject to cancellation if appropriations for subsequent performance periods
become unavailable. Congress usually appropriates funds on a fiscal-year basis even though contract performance may
extend over many years. Consequently, at the outset of a program, the contract is usually partially funded, and Congress
annually determines if additional funds are to be appropriated to the contract.
The U.S. Government, and other governments, may terminate any of our government contracts and, in general,
subcontracts, at their convenience, as well as for default based on performance.
A portion of our business is classified by the U.S. Government and cannot be specifically described. The operating
results of these classified programs are included in our consolidated financial statements. The business risks associated with
classified programs, as a general matter, do not differ materially from those of our other government programs and products.
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