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If,contrary to our expectations, thedefaultterminationisultimately
sustainedandthegovernmentprevailsonits recovery theories, the
contractorscould collectively berequiredto repay thegovernmentas
much as$1.4 billionforprogress payments receivedfortheA-12contract,
plusinterest, which wasapproximately $1.5 billiononDecember31,2010.
Thiswould resultin a liabilityto usof half ofthetotal,or approximately
$1.4 billionpretax.Our after-tax chargewould beapproximately $815, or
$2.14 pershare, to berecordedindiscontinuedoperations. Our after-tax
cashcost would beapproximately $725. We believewehavesufficient
resources to satisfy our obligationifrequired.
Other.Variousclaimsand otherlegal proceedingsincidental to the
normal course ofbusiness arepending orthreatenedagainst us. These
mattersrelate to such issues asU.S. governmentinvestigationsand
claims, theprotectionoftheenvironment, asbestos-relatedclaimsand
employee-relatedmatters. Thenatureoflitigationissuch thatwecannot
predicttheoutcomeofthese matters. However,basedoninformation
currently available, we believeany potential liabilities in these proceedings,
individually orintheaggregate, will not haveamaterial impactonour
results ofoperations, financial conditionorcashflows.
Environmental
We ares
ubjecttoand affected by a varietyoffederal,state, local and
foreign environmental laws and regulations. We aredirectly or indirectly
involvedinenvironmental investigationsorremediationatsomeofour
currentand former facilities, and atthird-partysites thatwedonot own
butwherewehavebeendesignatedaPotentially ResponsibleParty
(PRP)by theU.S. Environmental ProtectionAgency orastate environmental
agency.Basedonhistorical experience, we expectthatasignificant
percentageofthe total remediationandcompliancecosts associated
withthese facilities will continuetobeallowablecontractcosts and,
therefore, reimbursedbytheU.S. government.
Asrequired,weprovidefinancial assuranceforcertain sites undergoing
orsubjecttoinvestigationorremediation.Weaccrueenvironmental costs
whenitisprobablethata liabilityhasbeen incurredandtheamountcan
bereasonably estimated.Whereapplicable, we seekinsurancerecovery
forcosts relatedto environmental liability.Wedonot record insurance
recoveries beforecollectionisconsideredprobable. Basedon all known
facts and analyses, aswell ascurrentU.S. governmentpolicies relating
to allowablecontractcosts, we donot believethatour liabilityatany
individual site, orintheaggregate, arising fromsuch environmental
conditions, will bematerial to our results ofoperations, financial condition
orcashflows. We also donot believethattherangeofreasonably possible
additional loss beyond whathasbeenrecordedwould bematerial to our
results ofoperations, financial conditionorcashflows.
Minimum Lease Payments
Total rental expense underoperating leases was$230 in 2008 and $258
inboth2009 and 2010. Operating leases areprimarily forfacilities and
equipment. Futureminimum lease payments dueduring thenextfive
yearsareasfollows:
Other
LettersofCredit.In theordinary course ofbusiness, we haveentered
into lettersofcreditand othersimilar arrangements with financial
institutionsand insurancecarrierstotaling approximately $1.6 billionon
December31,2010. Fromtimetotimein theordinary course of
business, we guarantee thepaymentorperformanceobligationsofour
subsidiaries arising undercertain contracts. We areawareofnoeventof
defaultthatwould requireustosatisfy these guarantees.
Government Contracts. Asagovernmentcontractor,wearesubject
to U.S. governmentaudits and investigationsrelating to our operations,
including claimsfor fines, penalties, and compensatory and treble
damages. Basedoncurrently availableinformation,webelievethe
outcomeofsuch ongoing governmentdisputes and investigationswill not
haveamaterial impactonour results ofoperations, financial conditionor
cashflows.
Aircraft Trade-ins. In connectionwithordersfornew aircraftin
fundedcontractbacklog,our Aerospacegroup hasofferedoptionsto
somecustomerstotradein aircraftaspartial considerationintheir
new-aircrafttransaction.These trade-in commitments arestructuredto
establishthefair market valueofthetrade-in aircraftatadate generally
120 orfewerdayspreceding delivery ofthenew aircrafttothecustomer.
Atthattime, thecustomerisrequiredto eitherexercise theoptionor
allow its expiration.Any excess ofthepre-establishedtrade-in price
abovethefair market valueatthetimethenew aircraftisdeliveredis
treatedasareductionofrevenuein thenew-aircraftsales transaction.
Fair market valuetrade-in optionsremain outstanding in connectionwith
aircraftin thegroup’sbacklog.
General Dynamics Annual Report • 201050
Year EndedDecember312006
2011 $ 187
2012151
2013108
2014 86
201565
Thereafter317
Total minimum lease payments $914