Lockheed Martin 2001 Annual Report Download - page 57

Lockheed Martin Corporation
December 31, 2001
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in groundwater, and therefore are intended to assist the
Corporation in determining its ultimate clean-up obligation,
if any, with respect to perchlorates. In January 2002, the
State of California reduced its provisional standard for per-
chlorate concentration in water from 18 parts per billion
(ppb) to four ppb. This provisional standard may be used
by the State in providing guidelines to water purveyors;
however, until such time as it is formally adopted after
a public notice and comment period, it is not a legally
enforceable standard. If formally adopted as a regulation,
this change would lead to increased clean-up costs for the
Corporation related to the Redlands site.
Since 1990, the Corporation has been responding to
various consent decrees and orders relating to soil and
regional groundwater contamination in the San Fernando
Valley associated with the Corporation’s former operations
in Burbank, California. Among other things, these consent
decrees and orders obligate the Corporation to construct
and fund the operations of soil and groundwater treatment
facilities in Burbank and Glendale, California through
2018 and 2012, respectively; however, responsibility for
the long-term operation of these facilities was assumed by
the respective localities in 2001. The Corporation has been
successful in limiting its financial responsibility for these
activities to date to its pro rata share as a result of litigation
and settlements with other potentially responsible parties.
In addition, under an agreement reached with the U.S.
Government in 2000, the Corporation will continue to be
reimbursed in an amount equal to approximately 50 per-
cent of future expenditures for certain remediation activities
by the U.S. Government in its capacity as a potentially
responsible party under the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA). The
Corporation estimates that total expenditures required over
the remaining terms of the consent decrees and orders
described above, net of the effects of the agreement, will
be approximately $50 million.
The Corporation is involved in proceedings and poten-
tial proceedings relating to environmental matters at other
facilities, including disposal of hazardous wastes and soil
and water contamination. The extent of the Corporation’s
financial exposure cannot in all cases be reasonably esti-
mated at this time. In addition to the amounts with respect
to the Redlands and Burbank properties and the city of
Glendale described above, a liability of approximately
$165 million for the other properties (including current
operating facilities and certain facilities operated in prior
years) in which an estimate of financial exposure can be
determined has been recorded.
Under agreements reached with the U.S. Government
in 1990 and 2000, the Burbank groundwater treatment
and soil remediation expenditures referenced 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 potentially responsible
parties, are allowable in establishing the prices of the
Corporation’s products and services. As a result, a substan-
tial portion of the expenditures are being 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 environmental 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 possi-
ble future recoveries of portions of the environmental costs
through insurance policy coverage 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 allo-
cated 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
U.S. Department of Energy (DoE) for remediation of waste
found in Pit 9, located on the Idaho National Engineering
and Environmental Laboratory reservation. The Corporation
incurred significant unanticipated costs and scheduling
issues due to complex technical and contractual matters,
which it sought to remedy through submission of a request
for equitable adjustment. To date, the Corporation has been
unsuccessful in reaching any agreements with the DoE on
cost recovery or other contract restructuring matters. In 1998,
the management contractor for the project, a wholly-owned
subsidiary of the Corporation, at the DoE’s direction,
terminated the Pit 9 contract for default. As a result, the
Corporation filed a lawsuit challenging and seeking to
overturn the default termination and recover its costs. Also in
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