Lockheed Martin 2008 Annual Report Download - page 65

We have entered into standby letter of credit agreements and other arrangements with financial institutions and
customers mainly relating to advances received from customers and/or the guarantee of future performance on some of our
contracts. In some cases, we may also guarantee the contractual performance of third parties. At December 31, 2008, we had
outstanding letters of credit, surety bonds and guarantees, as follows:
Commitment Expiration By Period
(In millions)
Total
Commitment
Less Than
1 Year (a)
1-3
Years (a)
3-5
Years (a)
After
5 Years (a)
Standby letters of credit $2,680 $2,245 $350 $ 64 $ 21
Surety bonds 417 395 22 — —
Guarantees 25 13 9 3 —
Total commitments $3,122 $2,653 $381 $ 67 $ 21
(a) Approximately $2,157 million, $141 million, $23 million, and $5 million of standby letters of credit in the “Less Than 1 Year,” “1-3
Years,” “3-5 Years,” and “After 5 Years” periods, and approximately $42 million and $3 million of surety bonds in the “Less Than 1
Year” and “1-3 Years” periods, are expected to renew for additional periods until completion of the contractual obligation.
Included in the table above is approximately $145 million representing letter of credit amounts for which related
obligations or liabilities are also recorded on the Balance Sheet, either as reductions of inventories, as customer advances and
amounts in excess of costs incurred, or as other liabilities. Approximately $1.8 billion of the standby letters of credit in the
table above were issued to secure advance payments received under an F-16 contract from an international customer. These
letters of credit are available for draw down in the event of our nonperformance, and the amount available will be reduced as
certain events occur throughout the period of performance in accordance with the contract terms. Similar to the letters of
credit for the F-16 contract, other letters of credit and surety bonds are available for draw down in the event of our
nonperformance.
Under the agreement to sell LKEI and ILS (see Note 14), we were responsible for refunding customer advances to
certain customers if launch services were not provided and ILS did not refund the advances. Our responsibility to refund the
advances expired upon the successful completion of the final launch, which occurred in November 2008.
Acquisition and Divestiture Activities
We continuously strive to strengthen our portfolio of products and services to meet the current and future needs of our
customers. We accomplish this not only internally, through our independent research and development activities, but also
through acquisitions. We selectively pursue the acquisition of businesses and investments that complement our current
portfolio and allow access to new customers or technologies. We have made a number of such niche acquisitions of
businesses and investments in affiliates during the past several years. Conversely, we may also explore the divestiture of
businesses, investments and real estate. If we were to decide to sell any such assets, the resulting gains, if any, would be
recorded when the transactions are completed and losses, if any, would be recorded when the value of the related asset is
determined to be impaired.
Acquisitions
We used approximately $233 million in 2008 for acquisition activities, including the acquisitions of businesses and
investments in affiliates. Those activities included the acquisition of, among others, Eagle Group International, LLC, which
provides logistics, information technology, training and healthcare services to the U.S. Department of Defense. We used
approximately $337 million in 2007 for acquisition activities, including an additional contribution of $177 million related to
our investment in ULA discussed below. Those activities also included the acquisition of, among others, Management
Systems Designers, Inc., a provider of information technology (IT) and scientific solutions supporting government life
science, national security, and other civil agency missions. We used approximately $1.1 billion in 2006 for acquisition
activities including the acquisition of, among others, Pacific Architects and Engineers, Inc., a provider of services to support
military readiness, peacekeeping missions, nation-building activities, and disaster relief services. In each year, the amounts
used for acquisitions included certain payments related to businesses acquired in prior years.
We accounted for the acquisitions under the purchase method of accounting, and therefore recorded purchase
accounting adjustments by allocating the purchase price to the assets acquired and liabilities assumed based on their
estimated fair values. The acquisitions were not material to our consolidated results of operations in 2008, 2007 or 2006.
57