Lockheed Martin 2007 Annual Report Download - page 97

We have been in litigation with certain residents of Redlands, California since 1997 before the California Superior
Court for San Bernardino County regarding allegations of personal injury, property damage, and other tort claims on behalf
of individuals arising from our alleged contribution to regional groundwater contamination. On July 11, 2006, the California
Court of Appeal dismissed the plaintiffs’ punitive damages claim. Proceedings in the trial court have resumed, but a trial date
has not been set.
Environmental Matters
We are involved in environmental proceedings and potential proceedings relating to soil and groundwater
contamination, disposal of hazardous waste and other environmental matters at several of our current or former facilities.
Environmental cleanup activities usually span several years, which makes estimating liabilities a matter of judgment because
of such factors as changing remediation technologies, assessments of the extent of contamination and continually evolving
regulatory environmental standards. We consider these and other factors in estimates of the timing and amount of any future
costs that may be required for remediation actions, which generally results in the calculation of a range of estimates for a
particular environmental site. We record a liability for the amount within the range which we determine to be our best
estimate of the cost of remediation or, in cases where no amount within the range is better than another, we record an amount
at the low end of the range. We do not discount the recorded liabilities, as the timing of cash payments is not fixed or cannot
be reliably determined. At December 31, 2007 and 2006, the aggregate amount of liabilities recorded relative to
environmental matters was $572 million and $475 million. We have recorded assets totaling $480 million and $386 million
at December 31, 2007 and 2006 for the portion of environmental costs that are probable of future recovery in the pricing of
our products and services on U.S. Government contracts.
We cannot reasonably determine the extent of our financial exposure in all cases at this time. We also are pursuing
claims for contribution to site cleanup costs against other potentially responsible parties (PRPs), including the U.S.
Government.
At Redlands, California, in response to administrative orders issued by the California Regional Water Quality Control
Board, we are investigating the impact and potential remediation of regional groundwater contamination by perchlorates and
chlorinated solvents. With respect to perchlorates, the state of California adopted a new drinking water standard of six parts
per billion in the fourth quarter of 2007. The new drinking water standard is consistent with the interim standard that has
been in place for several years, and we have been implementing remediation plans to achieve the six parts per billion level.
Therefore, the liabilities recorded at December 31, 2007 included estimated costs associated with this regulatory limit. With
respect to solvents, we have implemented a plan of well-head treatment on new and existing wells which has served both to
remediate the plume of contamination and to assure the public water supplies of the affected communities.
We also are conducting remediation activities under various consent decrees and orders relating to soil or groundwater
contamination at certain sites of former operations. Under an agreement related to our Burbank and Glendale, California
sites, the U.S. Government reimburses us an amount equal to approximately 50% of expenditures for certain remediation
activities in its capacity as a PRP under the Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA).
Letters of Credit
We have entered into standby letter of credit agreements, surety bonds and other arrangements with financial institutions
and other third parties primarily relating to advances received from customers and/or the guarantee of future performance on
certain contracts. We have total outstanding letters of credit, surety bonds and other arrangements aggregating $3.3 billion
and $3.4 billion at December 31, 2007 and 2006. Letters of credit and surety bonds are generally available for draw down in
the event we do not perform.
Sale of International Launch Services
Under the agreement to sell LKEI and ILS (see Note 2), we will continue to be responsible to refund customer advances
to certain customers if launch services are not provided and ILS does not refund the advance. The amount we could be
required to pay is expected to increase over time due to the payment of additional advances by the customers to ILS related
to the specific launches we have guaranteed, and will be reduced by the occurrence of those launches. At December 31, 2007,
the total amount that could be payable under the guarantees, approximating the total contract value of the guaranteed
launches, was $174 million. That amount may be partially mitigated by approximately $57 million of cash we retained that,
absent any requirements to make payments under the guarantees, will be paid to the buyer over time as the launches occur.
Our Balance Sheet at December 31, 2007 included current assets relating to LKEI and ILS totaling $132 million and current
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