Lockheed Martin 1999 Annual Report Download - page 29

36
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
December 31, 1999
costs incurred for the Program are allowable in establishing
prices for the Corporation’s products and services under
contracts with the U.S. Government. Therefore, a substantial
portion of these costs is being reflected in the Corporation’s
sales and cost of sales. The total costs incurred were not
material to the Corporation’s consolidated results of opera-
tions, cash flows or financial position for any prior period.
The Corporation anticipates no material expenditures relat-
ing to Year 2000 issues subsequent to December 31, 1999.
Environmental Matters
As more fully described in Note 16 of the Notes to
Consolidated Financial Statements, the Corporation is
responding to three administrative orders issued by the
California Regional Water Quality Control Board (the
Regional Board) in connection with its facilities in Redlands,
California. The Corporation estimates that expenditures
required to implement work currently approved by the
Regional Board related to the Redlands facilities will be
approximately $140 million. Also in connection with its
Redlands facilities, the Corporation is coordinating with
the U.S. Air Force, which is conducting studies of the
potential health effects of exposure to perchlorates, a
regional groundwater contaminant. The results of these
studies indicate that the Corporation’s current efforts with
water purveyors regarding perchlorate issues are appropri-
ate; however, the Corporation currently cannot project the
extent of its ultimate clean-up obligation, if any, with
respect to perchlorates. The Corporation has also entered
into two consent decrees with the U.S. Environmental
Protection Agency (EPA) relating to certain property in
Burbank, California, and is operating under a clean-up
and abatement order from the Regional Board regarding
its Burbank facilities. In addition, the Corporation is one
of several parties responding to administrative orders from
the EPA regarding the city of Glendale, California. The
Corporation estimates that total expenditures required
over the remaining terms of the consent decrees and the
Regional Board order related to the Burbank property, and
the administrative orders related to the city of Glendale,
will be approximately $100 million.
The Corporation is a party to various other proceed-
ings and potential proceedings related to environmental
clean-up issues, including matters at various sites where
it has been designated a Potentially Responsible Party
(PRP) by the EPA or by a state agency. In the event the
Corporation is ultimately found to have liability at those
sites where it has been designated a PRP, the Corporation
anticipates that the actual burden for the costs of remedia-
tion will be shared with other liable PRPs. Generally, PRPs
that are ultimately determined to be responsible parties are
strictly liable for site clean-ups and usually agree among
themselves to share, on an allocated basis, the costs and
expenses for investigation and remediation of hazardous
materials. Under existing environmental laws, however,
responsible parties are jointly and severally liable and,
therefore, the Corporation is potentially liable for the full
cost of funding such remediation. In the unlikely event that
the Corporation was required to fund the entire cost of
such remediation, the statutory framework provides that the
Corporation may pursue rights of contribution from the
other PRPs. Among the variables management must assess
in evaluating costs associated with these sites are changing
cost estimates, continually evolving governmental environ-
mental standards and cost allowability issues. Therefore,
the nature of these environmental matters makes it extremely
difficult to estimate the timing and amount of any future
costs that may be necessary for remedial actions.
The Corporation records appropriate financial state-
ment accruals for environmental issues in the period in
which it is probable that a liability has been incurred and
the amounts can be reasonably estimated. In addition to
the matters with respect to the Redlands and Burbank prop-
erties and the city of Glendale described above, the
Corporation has accrued approximately $200 million at
December 31, 1999 for other matters in which an estimate
of financial exposure could be determined. Management
believes, however, that it is unlikely that any additional lia-
bility the Corporation may incur for known environmental
issues would have a material adverse effect on its consoli-
dated results of operations or financial position.