Lockheed Martin 2007 Annual Report Download - page 30

Some international customers require contractors to comply with industrial cooperation regulations and enter into
industrial participation agreements, sometimes referred to as offset agreements. Offset agreements may require in-country
purchases, manufacturing and financial support projects as a condition to obtaining orders or other arrangements. Offset
agreements generally extend over several years and may provide for penalties in the event we fail to perform in accordance
with offset requirements. See “Contractual Commitments and Off-Balance Sheet Arrangements” in Management’s
Discussion and Analysis beginning on page 54 of this Form 10-K.
If we fail to manage acquisitions, divestitures and other transactions successfully, our financial results, business and
future prospects could be harmed.
In pursuing our business strategy, we routinely conduct discussions, evaluate targets and enter into agreements
regarding possible investments, acquisitions, joint ventures and divestitures. As part of our business strategy, we seek to
identify acquisition opportunities that will expand or complement our existing products and services, or customer base, at
attractive valuations. We often compete with others for the same opportunities. To be successful, we must conduct due
diligence to identify valuation issues and potential loss contingencies, negotiate transaction terms, complete and close
complex transactions and manage post-closing matters (e.g., integrate acquired companies and employees, realize anticipated
operating synergies and improve margins) efficiently and effectively. Investment, acquisition, joint venture and divestiture
transactions often require substantial management resources and have the potential to divert our attention from our existing
business.
If we are not successful in identifying and closing these transactions, we may not be able to maintain a competitive
leadership position or may be required to expend additional resources to develop capabilities internally in certain segments.
In evaluating transactions, we are required to make valuation assumptions and exercise judgment regarding business
opportunities and potential liabilities. Our assumptions or judgment may prove to be inaccurate. Our due diligence reviews
may not identify all of the material issues necessary to accurately estimate the cost and potential loss contingencies of a
particular transaction. Future acquisitions might require that we issue stock or incur indebtedness. This could dilute returns to
existing stockholders, or adversely affect our credit rating or future financial performance. We also may incur unanticipated
costs or expenses, including post-closing asset impairment charges, expenses associated with eliminating duplicate facilities,
litigation and other liabilities. While we believe that we have established appropriate procedures and processes to mitigate
many of these risks, there is no assurance that our integration efforts and business acquisition strategy will be successful.
Divestitures may result in continued financial involvement in the divested businesses, such as through guarantees or
other financial arrangements, for a period of time following the transaction. Nonperformance by those divested businesses
could affect our future financial results.
Joint ventures operate under shared control with other parties. Under the equity method of accounting, we recognize our
share of the operating results of these ventures in our results of operations, and therefore our operating results can be affected
by the performance of businesses over which we do not exercise unilateral control.
Business disruptions could seriously affect our future sales and financial condition or increase our costs and expenses.
Our business may be impacted by disruptions including, but not limited to, threats to physical security, information
technology attacks or failures, damaging weather or other acts of nature and pandemics or other public health crises. Such
disruptions could affect our internal operations or services provided to customers, and could impact our sales, increase our
expenses or adversely affect our reputation or our stock price.
Unforeseen environmental costs could impact our future earnings.
Our operations are subject to and affected by a variety of federal, state, local and foreign environmental protection laws
and regulations. We are involved in environmental responses at some of our facilities and former facilities, and at third-party
sites not owned by us where we have been designated a potentially responsible party by the Environmental Protection
Agency (EPA) or by a state agency. In addition, we could be affected by future regulations imposed in response to concerns
over climate change and other actions commonly referred to as “green initiatives.” We are currently developing a
comprehensive program to reduce our impact on the environment.
We manage various government-owned facilities on behalf of the government. At such facilities, environmental
compliance and remediation costs have historically been the responsibility of the government and we relied (and continue to
rely with respect to past practices) upon government funding to pay such costs. While the government remains responsible
for capital and operating costs associated with environmental compliance, responsibility for fines and penalties associated
with environmental noncompliance are typically borne by either the government or the contractor, depending on the contract
and the relevant facts.
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