Lockheed Martin 2013 Annual Report Download - page 92

agency announced a non-enforceable public health goal for hexavalent chromium which California’s regulatory agency must
consider when promulgating an enforceable drinking water standard, which it is expected to do by late 2014. The goal calls for
levels significantly below levels encompassed within the current total chromium standard. In August 2013, California’s
regulatory agency proposed a draft drinking water standard for hexavalent chromium closer to levels encompassed within the
current standard. We expect that environmental groups will continue to seek a standard closer to the non-enforceable public
health goal and we cannot predict the outcome of California’s regulatory proceedings. In addition, California is also reevaluating
its existing drinking water standard with respect to a second contaminant, perchlorate, and the U.S. EPA is also considering
whether to regulate that contaminant in drinking water. With respect to either contaminant, if substantially lower standards are
adopted, in either California or at the federal level, we expect a material increase in our estimates for environmental liabilities
and the related assets for the portion of the increased costs that are probable of future recovery in the pricing of our products and
services for the U.S. Government. The amount that would be allocable to our non-U.S. Government contracts or that is
determined to be unallowable for pricing under U.S. Government contracts would be expensed, which may have a material
effect on our earnings in any particular interim reporting period.
We are conducting remediation activities under various consent decrees and orders relating to soil, groundwater,
sediment, or surface water contamination at certain sites of former or current 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).
Operating Leases
We rent certain equipment and facilities under operating leases. Certain major plant facilities and equipment are
furnished by the U.S. Government under short-term or cancelable arrangements. Our total rental expense under operating
leases was $315 million, $302 million, and $347 million for 2013, 2012, and 2011. Future minimum lease commitments at
December 31, 2013 for long-term non-cancelable operating leases were $914 million ($227 million in 2014, $166 million
in 2015, $132 million in 2016, $96 million in 2017, $69 million in 2018, and $224 million in later years).
Letters of Credit, Surety Bonds, and Third-Party Guarantees
We have entered into standby letters of credit, surety bonds, and third-party guarantees with financial institutions and
other third parties primarily relating to advances received from customers and the guarantee of future performance on certain
contracts. Letters of credit and surety bonds generally are available for draw down in the event we do not perform. In some
cases, we may guarantee the contractual performance of third parties such as venture partners. We had total outstanding
letters of credit, surety bonds, and third-party guarantees aggregating $2.4 billion and $2.2 billion at December 31, 2013 and
2012.
At December 31, 2013 and 2012, third-party guarantees totaled $696 million and $816 million, of which approximately
90% and 85% related to guarantees of contractual performance of ventures to which we currently are or previously were a
party. This amount represents our estimate of the maximum amount we would expect to incur upon the contractual non-
performance of the venture partners. In addition, we generally have cross-indemnities in place that may enable us to recover
amounts that may be paid on behalf of a venture partner. We believe our current and former venture partners will be able to
perform their obligations, as they have done through December 31, 2013, and that it will not be necessary to make payments
under the guarantees. In determining our exposures, we evaluate the reputation, technical capabilities, and credit quality of
our current and former venture partners.
United Launch Alliance
In connection with our 50% ownership interest of ULA, we and The Boeing Company (Boeing) have each received
distributions totaling $527 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 required 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. Based on current expectations of
ULA’s cash flow needs, we currently believe that ULA should have sufficient operating cash flows and credit capacity,
including access to its $560 million revolving credit agreement from third-party financial institutions, to meet its obligations
such that we would not be required to make a contribution under these agreements.
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