Lockheed Martin 2007 Annual Report Download - page 26

ITEM 1A. RISK FACTORS
An investment in our common stock or debt securities involves risks and uncertainties. While we attempt to identify,
manage and mitigate risks to our business to the extent practical under the circumstances, some level of risk and uncertainty
will always be present. You should consider the following factors carefully, in addition to the other information contained in
this Form 10-K, before deciding to purchase our securities.
Our existing U.S. Government contracts are subject to continued appropriations by Congress and may be terminated
or delayed if future funding is not made available. Reduced funding for defense procurement and research and
development programs could result in terminated or delayed contracts and adversely affect our ability to grow or
maintain our sales and profitability.
We rely heavily upon sales to the U.S. Government including both DoD and non-DoD agencies, obtaining 84% of our
sales from U.S. Government customers in 2007. Future sales from orders placed under our existing U.S. Government
contracts are conditioned upon the continuing availability of Congressional appropriations. Congress usually appropriates
funds on a fiscal-year basis even though contract performance may extend over many years.
We and other U.S. defense contractors have benefited from an upward trend in overall U.S. defense spending in the last
few years. This trend continued with the President’s budget request for fiscal year 2009, which reflects the continued
commitment to modernize the Armed Forces and sustain current capabilities while prosecuting the war on terrorism.
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. However, DoD programs in which
we participate, or in which we may seek to participate in the future, must compete with other programs for consideration
during our nation’s budget formulation and appropriation processes. Budget decisions made in this environment may have
long-term consequences for our size and structure and that of the defense industry. While we believe that our programs are a
high priority for national defense, there remains the possibility that one or more of our programs will be reduced, extended,
or terminated. Reductions in our existing programs, unless offset by other programs and opportunities, could adversely affect
our ability to grow our sales and profitability.
We provide a wide range of defense, homeland security and information technology products and services to the U.S.
Government. While we believe that this diversity makes it less likely that cuts in any specific contract or program will have a
long-term impact on us, termination of multiple or large programs or contracts could adversely affect our business and future
financial performance. In addition, termination of large programs or multiple contracts affecting a particular business site
could require us to evaluate the continued viability of operating that site.
Changes in military strategy and planning may affect future procurement priorities and existing programs.
We cannot predict whether potential changes in defense priorities will afford new or additional opportunities for our
businesses in terms of existing, follow-on or replacement programs, or whether we would have to close existing
manufacturing facilities or incur expenses beyond those that would be reimbursed if one or more of our existing contracts
were terminated for convenience due to lack of funding. See “Management’s Discussion and Analysis – Industry
Considerations” beginning on page 33 of this report.
We are continuing to invest in business opportunities where we can use our customer knowledge, technical strength and
systems integration capabilities to win new business. Whether we are successful in continuing to grow sales and profits will
depend, in large measure, on whether we are able to deliver the best value solutions for our customer.
As a U.S. Government contractor, we are subject to a number of procurement rules and regulations.
We must comply with and are affected by laws and regulations relating to the award, administration and performance of
U.S. Government contracts. Government contract laws and regulations affect how we do business with our customers and, in
some instances, impose added costs on our business. A violation of specific laws and regulations could result in the
imposition of fines and penalties or the termination of our contracts or debarment from bidding on contracts.
In some instances, these laws and regulations impose terms or rights that are more favorable to the government than
those typically available to commercial parties in negotiated transactions. For example, the U.S. Government may terminate
any of our government contracts and, in general, subcontracts, at its convenience, as well as for default based on
performance. Upon termination for convenience of a fixed-price type contract, we normally are entitled to receive the
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