Lockheed Martin 2008 Annual Report Download - page 42

Highlights
The financial section of our Form 10-K describes our ongoing operations, including discussions about particular lines of
business or programs, our ability to finance our operating activities, trends and uncertainties in our industry, and how they
might affect our future operations. We also discuss those items affecting our results that were not considered in senior
management’s assessment of the operating performance of our business segments. We separately disclose these items to
assist in your evaluation of our overall operating performance and financial condition of our consolidated company. We
would like to draw your attention to the following items disclosed in this financial section and where you will find them:
Topic Location(s)
Critical accounting policies:
Contract accounting/revenue recognition Page 38 and page 68
Postretirement benefit plans Page 39 and page 82
Environmental matters Page 42, page 68 and page 91
Goodwill Page 43 and page 68
Stock-based compensation Page 43, page 70 and page 88
Discussion of business segments Page 45 and page 73
Liquidity and cash flows Page 51 and page 65
Capital structure and resources Page 53, page 64, page 66 and page 87
Legal proceedings, commitments and contingencies Page 55 and page 90
Income taxes Page 70 and page 78
Industry Considerations
U.S. Government Business
Budget Priorities
In these times of unprecedented economic uncertainty and market turmoil, developing and implementing spending, tax,
and other initiatives to stimulate the faltering economy is at the forefront of the U.S. Government’s activities. We expect the
new Obama Administration’s decisions regarding defense, homeland security, and other federal spending priorities, and the
Congress’ reaction to the Administration’s proposals, to be balanced with the cost and impact of economic stimulus
initiatives, particularly in the longer term. Spending priorities for fiscal year 2010 will be announced soon, with submission
of a detailed President’s Budget Request for Fiscal Year 2010 and beyond expected by late April or early May of 2009.
Although we believe some priorities will change, many of the investments and acquisitions we have made have been focused
on aligning our businesses to address what we believe are the most enduring national imperatives and critical mission areas.
But the possibility remains that one or more of our programs could be reduced, extended, or terminated as a result of the
Administration’s assessment of priorities.
Department of Defense Business
The Department of Defense (DoD) has, for the past eight years, focused on sustainment of current military capabilities
and modernization of our Armed Forces to deter and defeat current and future threats. The prior Administration primarily
sought to fund the U.S. military missions in Iraq and Afghanistan and other unforeseeable contingency or peacekeeping
operations through supplemental funding requests. This supplemental funding enabled the DoD to proceed with critical
recapitalization and modernization programs in the “base” budget, rather than using base budget funds available for those
programs to pay for the Iraq and Afghanistan missions and other unforeseen operations. While we expect to see continued
support of such initiatives under the new Administration, other national priorities must also be addressed, most notably the
current financial crisis. Initiatives to address economic stimulus will compete with other national priorities, such as defense
and homeland security.
In this period of transition, we expect the new Administration to look broadly across current programs and examine
existing resources as part of its assessment of national priorities. Although the ultimate size of future defense budgets
remains uncertain, current indications are that overall defense spending will continue to increase over the next few years,
albeit at lower rates of growth. The DoD base budget for fiscal year 2009 provided mid-single-digit growth above prior year
levels. Current estimates for the budget for fiscal year 2010 provide for growth of about 2% to 3% over 2009 levels. The
Administration’s assessment likely will include focus on the level and composition of supplemental budget requests going
forward. Although Congress has continued to express concern about the size of supplemental budget requests, funding for
ongoing operations has not been significantly curtailed by Congress to date. We expect to see continuing pressure to reduce
supplemental funding requests.
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