Lockheed Martin 2010 Annual Report Download - page 45

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Generally, our long-term debt obligations are subject to, along with other things, compliance with certain covenants, including
covenants limiting our ability and the ability of certain of our subsidiaries to encumber our assets. As of December 31, 2010, we were
in compliance with all covenants contained in our debt agreements. Interest payments include interest related to the outstanding debt
through maturity.
Amounts related to other liabilities represent the contractual obligations for certain long-term liabilities recorded as of
December 31, 2010. Such amounts mainly include expected payments under deferred compensation plans, non-qualified pension
plans, environmental liabilities, and business acquisition agreements. Obligations related to environmental liabilities represent our
estimate of obligations for sites at which we are performing remediation activities, excluding amounts reimbursed by the U.S.
Government in its capacity as a potentially responsible party. The amounts also include liabilities related to unrecognized tax benefits
(see Note 9). We estimated the timing of tax payments based on the expected completion of the related examinations by the applicable
taxing authorities and resolution of issues pending in the Internal Revenue Service Appeals Division.
Purchase obligations related to operating activities include agreements and requirements contracts that give the supplier recourse
to us for cancellation or nonperformance under the contract or contain terms that would subject us to liquidated damages. Such
agreements and contracts may, for example, be related to direct materials, obligations to subcontractors, and outsourcing
arrangements. Total purchase obligations in the preceding table include approximately $20.2 billion related to contractual
commitments entered into as a result of contracts we have with our U.S. Government customers. The U.S. Government generally
would be required to pay us for any costs we incur relative to these commitments if they were to terminate the related contracts “for
convenience” under the FAR, subject to available funding. This also would be true in cases where we perform subcontract work for a
prime contractor under a U.S. Government contract. The termination for convenience language also may be included in contracts with
foreign, state, and local governments. We also have contracts with customers that do not include termination for convenience
provisions, including contracts with commercial customers.
Purchase obligations in the preceding table for capital expenditures generally include amounts for facilities and equipment
related to customer contracts.
We also may enter into industrial cooperation agreements, sometimes referred to as offset agreements, as a condition to
obtaining orders for our products and services from certain customers in foreign countries. These agreements are designed to enhance
the social and economic environment of the foreign country by requiring the contractor to promote investment in the country. Offset
agreements may be satisfied through activities that do not require us to use cash, including transferring technology, providing
manufacturing and other consulting support to in-country projects, and the purchase by third parties (e.g., our vendors) of supplies
from in-country vendors. These agreements also may be satisfied through our use of cash for such activities as purchasing supplies
from in-country vendors, providing financial support for in-country projects, and building or leasing facilities for in-country
operations. We typically do not commit to offset agreements until orders for our products or services are definitive. The amounts
ultimately applied against our offset agreements are based on negotiations with the customer and typically require cash outlays that
represent only a fraction of the original amount in the offset agreement. At December 31, 2010, we had outstanding offset agreements
totaling $9.3 billion, primarily related to our Aeronautics segment, some of which extend through 2025. To the extent we have entered
into purchase obligations at December 31, 2010 that also satisfy offset agreements, those amounts are included in the preceding table.
Offset programs usually extend over several years and may provide for penalties in the event we fail to perform in accordance with
offset requirements. We historically have not been required to pay material penalties.
In connection with our ownership of United Launch Alliance, L.L.C. (ULA), we and The Boeing Company (Boeing) each
committed to provide up to $200 million in financial support to ULA, as required, until at least December 1, 2011. We had a revolving
credit agreement with ULA in place through September 26, 2010. No amounts were drawn on the credit agreement.
On September 27, 2010, ULA entered into with a group of banks its own $400 million revolving credit agreement which expires
in October 2013. At the same time, the revolving credit agreement we and Boeing had in place was terminated. The new revolving
credit agreement satisfies Boeing’s and our commitment to provide financial support of up to $200 million each to ULA, so long as
the total amount of the new agreement remains at $400 million or above until at least December 1, 2011.
We and Boeing have received distributions totaling $232 million each which are subject to agreements between us, Boeing, and
ULA whereby, if ULA does not have sufficient cash resources or credit capacity to make payments under the inventory supply
agreement it has with Boeing, both we and Boeing would provide to ULA, in the form of an additional capital contribution, the level
of funding required for ULA to make those payments. Any such capital contributions would not exceed the amount of the distributions
subject to the agreements. We currently believe that ULA will have sufficient operating cash flows and credit capacity to meet its
obligations, so that we will not be required to make a contribution under these agreements.