Lockheed Martin 2008 Annual Report Download - page 45

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.
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 believe the
probability is remote that any of the claims, audits or investigations pending against us will have a material adverse effect on
our business or our results of operations, cash flows or financial position.
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, and 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.
In some cases, we form joint ventures with one or more other contractors for the purpose of pursuing a bid for a
particular contract and, if successful, the joint venture serves as the prime contractor under that contract. In those instances,
the work under contract is performed by subcontractors to the joint venture including, but not limited to, the joint venture
investors. We generally limit our exposure under these arrangements to our investment in the venture, which is typically not
material, and to the performance of our obligations under the subcontract. In some cases, we guarantee contractual
performance by the venture, but are generally cross-indemnified by the other venture participants to the extent of their
contractual performance obligations.
We remain committed to growth in our sales to international customers. Those customers, similar to our U.S.
Government customers, have been affected by the global economic crisis. We expect their decisions regarding defense and
security spending will also compete with their own economic stimulus initiatives. We conduct business with foreign
governments primarily through Electronic Systems and Aeronautics. Our international sales are composed of “foreign
military sales” through the U.S. Government and direct commercial contracts. 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, Spain, Korea, Norway, and Australia). This segment also was
awarded two contracts by the Canadian Government for the upgrade and support of combat systems on Halifax class frigates
and Iroquois class destroyers. Electronic Systems produces the PAC-3 missile, an advanced defensive missile designed to
intercept incoming airborne threats, for international customers including Japan, Germany, the Netherlands and the United
Arab Emirates (UAE).
In Aeronautics, the U.S. Government and eight foreign government partners are working together on the design, testing,
production and sustainment of the F-35 Lightning II. The F-16 Fighting Falcon has been selected by 25 countries, with 52
follow-on buys from 14 customers. We continue to expand the C-130J Super Hercules air mobility aircraft’s international
footprint with customers in nine countries including recent orders from India and Qatar. In global sustainment, we are
leveraging our value as the original equipment manufacturer (OEM) for our major platforms and have set up new production
capabilities to provide service life extension, including new wings and support for Norway’s P-3 fleet and the recent awards
from the U.S. and Canadian Governments to upgrade their P-3 aircraft.
IS&GS, through its subsidiary Pacific Architects and Engineers (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. In
addition, IS&GS was awarded the contract to provide all data processing for the population census in England, Wales and
Northern Ireland for the 2011 Census, including development of the related system.
To the extent our contracts and business arrangements with international partners include operations in foreign
countries, other risks are introduced into our business, 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
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