Lockheed Martin 2007 Annual Report Download - page 44

Other Business Considerations
We have continued the expansion of our business with foreign governments primarily through Aeronautics, Electronic
Systems and with IS&GS’ acquisition of PAE in 2006. Our international sales are comprised of “foreign military sales”
through the U.S. Government and direct commercial contracts. In Aeronautics, the U.S. Government and eight foreign
government partners are working together on the design, testing and production of the F-35 Lightning II. The F-16 Fighting
Falcon has been selected by 24 countries, with 52 follow-on buys from 14 customers. The C-130J Super Hercules air
mobility aircraft is currently in service in four foreign countries, and is expanding its international footprint with recent
orders from Canada and Norway. With regard to the AEGIS weapon system, our Electronic Systems segment performs
activities in the development, production, ship integration and test, and lifetime support for ships of international customers
(e.g., Japan, Korea and Spain). Electronic Systems also produces the PAC-3 missile, an advanced defensive missile designed
to intercept incoming airborne threats, for international customers including Japan, Germany and the Netherlands. The
acquisition of PAE has increased our presence in certain less developed countries by providing base camp construction,
logistics, democratization and management services, among others, generally through our contracts with such customers as
the United Nations and the U.S. Department of State.
As a government contractor, we are subject to U.S. Government oversight. The government may ask about and
investigate our business practices and audit our compliance with applicable rules and regulations. Depending on the results of
those audits and investigations, the government could make claims against us. Under government procurement regulations
and practices, an indictment of a government contractor could result in that contractor being fined and suspended from being
able to bid on, or be awarded, new government contracts for a period of time. A conviction could result in debarment for a
specific period of time. Similar government oversight exists in most other countries where we conduct business. Although we
cannot predict the outcome of these types of investigations and inquiries with certainty, based on current facts, we do not
believe that any of the claims, audits or investigations pending against us are reasonably likely to have a material adverse
effect on our business or our results of operations, cash flows or financial position.
In years in which an appropriations bill has not been signed into law before September 30 (the end of the U.S.
Government’s fiscal year), Congress typically passes a continuing resolution that authorizes U.S. Government agencies to
continue to operate, generally at the same funding levels from the prior year, but does not authorize new spending initiatives.
During periods covered by continuing resolutions (or until the regular appropriation bills are passed), we may experience
delays in procurement of products and services due to lack of funding, and those delays may affect our revenue and profit
during the period.
We are exposed to risks associated with U.S. Government contracting, including technological uncertainties,
dependence on fewer manufacturing suppliers, and obsolescence, as well as Congressional appropriation and allotment of
funds each year. Many of our programs involve the development and application of state-of-the-art technologies aimed at
achieving challenging goals. As a result, setbacks, delays, cost growth and product failures can occur.
We have entered into various joint ventures, teaming and other business arrangements to help support our portfolio of
products and services in many of our lines of business, since their activities are closely aligned with our operations. For
example, we have a 50% equity interest in United Launch Alliance, LLC (ULA), which provides the production, engineering,
test and launch operations associated with U.S. Government launches on Atlas and Delta launch vehicles, and a 50% equity
interest in United Space Alliance, LLC (USA) which provides ground processing and other operational services to the Space
Shuttle program.
Certain of our business arrangements include international partners. The conduct of international business introduces
other risks into our operations, including changing economic conditions, fluctuations in relative currency values, regulation
by foreign countries and the potential for unanticipated cost increases resulting from the possible deterioration of political
relations. The nature of our international business also makes us subject to the export control regulations of the U.S.
Department of State and the Department of Commerce. If these regulations are violated, it could result in monetary penalties
and denial of export privileges. We are currently unaware of any violations of export control regulations which are
reasonably likely to have a material adverse effect on our business or our results of operations, cash flows or financial
position.
In August 2006, the President signed into law legislation related to pension plan funding in response to the public’s
concern over the adequacy of such funding. The law has the effect of accelerating the required amount of annual pension
plan contributions under the Internal Revenue Code that most companies will be required to pay, effective in 2008. The
legislation provides an exemption for us as well as other large U.S. defense contractors that delays the requirement to
accelerate funding. The legislation also requires the U.S. Government Cost Accounting Standards (CAS) Board to modify its
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