Lockheed Martin 1996 Annual Report Download - page 82

Notes to Consolidated Financial Statements
Continued
increase in the APBO of approximately 7.6% at December 31, 1996,
and a 1996 post-retirement benefit cost increase of approximately
8.1%. The Corporation believes that the cost containment features
it has previously adopted and the funding approaches underway
will allow it to effectively manage its retiree medical expenses, but
it will continue to monitor the costs of retiree medical benefits and
may further modify the plans if circumstances warrant.
Note 13 — Leases
Total rental expense under operating leases, net of immaterial
amounts of sublease rentals and contingent rentals, were $320 mil-
lion, $236 million and $265 million for 1996, 1995 and 1994,
respectively.
Future minimum lease commitments at December 31, 1996,
for all operating leases that have a remaining term of more than one
year were approximately $1.1 billion ($254 million in 1997, $207
million in 1998, $174 million in 1999, $124 million in 2000, $99
million in 2001, and $264 million in later years). Certain major
plant facilities and equipment are furnished by the U.S. Government
under short-term or cancelable arrangements.
Note 14 — Commitments and Contingencies
The Corporation or its subsidiaries are parties to or have property
subject to litigation and other proceedings, including matters aris-
ing under provisions relating to the protection of the environment.
In the opinion of management and counsel, the probability is
remote that the outcome of these matters will have a material
adverse effect on the results of the Corporation's operations or its
financial position. These matters include the following items:
Environmental matters — In 1991, the Corporation entered
into a consent decree with the U.S. Environmental Protection
Agency (EPA) relating to certain property in Burbank, California,
which obligated the Corporation to design and construct facilities
to monitor, extract, and treat groundwater, and to operate and main-
tain such facilities for approximately eight years. A second consent
decree is being finalized which will obligate the Corporation to
fund the continued operation and maintenance of these facilities
through the year 2018. The Corporation estimates that expenditures
required to comply with the consent decrees over their remaining
terms will be approximately $110 million.
The Corporation has also been operating under a cleanup and
abatement order from the California Regional Water Quality
Control Board affecting its facilities in Burbank, California. This
order requires site assessment and action to abate groundwater con-
tamination by a combination of groundwater and soil cleanup and
treatment. Based on experience derived from initial remediation
activities, the Corporation estimates the anticipated costs of these
actions in excess of the requirements under the EPA consent decree
to approximate $90 million over the remaining term of the project.
In addition, the Corporation is involved in other proceedings
and potential proceedings relating to environmental matters,
including disposal of hazardous wastes and soil and water contami-
nation. The extent of the Corporation's financial exposure cannot in
all cases be reasonably estimated at this time. A liability of approx-
imately $340 million for those cases in which an estimate of finan-
cial exposure can be determined has been recorded.
Under an agreement with the U.S. Government, the Burbank
groundwater treatment and soil remediation expenditures refer-
enced above are being allocated to the Corporation's operations as
general and administrative costs and, under existing government
regulations, these and other environmental expenditures related to
U.S. Government business, after deducting any recoveries from
insurance or other responsible parties, are allowable in establishing
the prices of the Corporation's products and services. As a result, a
substantial portion of the expenditures will be reflected in the
Corporation's sales and cost of sales pursuant to U.S. Government
agreement or regulation. The Corporation has recorded an asset for
the portion of these costs that are probable of future recovery in
pricing of the Corporation's products and services for U.S.
Government business. The portion that is expected to be allocated
to commercial business has been reflected in cost of sales. The
recorded amounts do not reflect the possible future recovery of
portions of the environmental costs through insurance policy cov-
erage or from other potentially responsible parties, which the
Corporation is pursuing as required by agreement and U.S.
Government regulation. Any such recoveries, when received,
would reduce the Corporation's liability as well as the allocated
amounts to be included in the Corporation's U.S. Government sales
and cost of sales.
Waste remediation contract — In 1994, the Corporation
was awarded a $180 million fixed price contract by the DOE for
the Phase II design, construction and limited test of remediation
facilities, and the Phase III full remediation of waste found in Pit 9,
located on the Idaho National Engineering and Environmental
Laboratory reservation. The Corporation has incurred and contin-
ues to incur significant unanticipated costs and schedule impacts
due to complex technical and contractual matters which threaten
the viability of the overall Pit 9 program. The Corporation is cur-
rently working to identify and quantify the overall effects, includ-
ing the financial impact, of these matters, and discussions with the
DOE are continuing; however, to date no resolution of these techni-
cal and contractual matters has been achieved. Upon completion of
the Corporation's investigation into the circumstances which gave
rise to these schedule, technical and cost issues, the Corporation
will provide the DOE an appropriate request for equitable adjust-
ment. The total amount of such request for equitable adjustment
has not yet been determined.
Letters of credit and other matters — The Corporation
has entered into standby letter of credit agreements and other
arrangements with financial institutions primarily relating to the
guarantee of future performance on certain contracts. In connec-
tion with the Loral Transaction, the Corporation assumed the