Lockheed Martin 2011 Annual Report Download - page 49

Contractual Commitments and Off-Balance Sheet Arrangements
At December 31, 2011, we had contractual commitments to repay debt, make payments under operating leases, settle
obligations related to agreements to purchase goods and services, and settle tax and other liabilities. Capital lease obligations
were negligible. Payments due under these obligations and commitments are as follows:
Payments Due By Period
(In millions) Total
Less Than
1 Year
Years
2 and 3
Years
4 and 5
After
5 Years
Long-term debt (a) $ 6,934 $ — $ 153 $ 954 $ 5,827
Interest payments 6,756 378 736 713 4,929
Other liabilities 2,379 278 451 282 1,368
Operating lease obligations 1,017 264 339 168 246
Purchase obligations:
Operating activities 25,109 16,336 7,451 817 505
Capital expenditures 218 162 56 — —
Total contractual cash obligations $42,413 $17,418 $9,186 $2,934 $12,875
(a) Long-term debt includes scheduled principal payments only.
Amounts related to other liabilities represent the contractual obligations for certain long-term liabilities recorded as of
December 31, 2011. Such amounts mainly include expected payments under deferred compensation plans, non-qualified
pension plans, environmental liabilities, and business acquisition agreements.
Purchase obligations related to operating activities include agreements and 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 $23.2 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, 2011, we had outstanding offset agreements totaling $7.6 billion, primarily related to our
Aeronautics and Electronic Systems segments, some of which extend through 2025. To the extent we have entered into
purchase obligations at December 31, 2011 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 50% ownership interest of United Launch Alliance, L.L.C. (ULA), we and The Boeing Company
(Boeing) have each received distributions totaling $352 million (since ULA’s formation in December 2006) 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
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