Lockheed Martin 2002 Annual Report Download - page 67

SEVENTY-FOUR
Lockheed Martin Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
contamination. The extent of the Corporation’s financial expo-
sure cannot in all cases be reasonably determined at this time.
In addition to the amounts with respect to the Redlands,
Burbank, Glendale and Great Neck sites described above, a
liability of approximately $130 million for the other properties
(including current operating facilities and certain facilities
operated in prior years) in which an estimate of financial expo-
sure can be determined has been recorded.
Under agreements reached with the U.S. Government in
1990 and 2000, certain groundwater treatment and soil reme-
diation expenditures referenced above are being allocated to
the Corporation’s operations as general and administrative
costs and, under existing government regulations, these and
other environmental expenditures related to U.S. Government
business, after deducting any recoveries from insurance or
other PRPs, are allowable in establishing the prices of the
Corporation’s products and services. As a result, a substantial
portion of the expenditures are being reflected in the
Corporation’s sales and cost of sales pursuant to U.S.
Government agreement or regulation.
At December 31, 2002 and December 31, 2001, the
aggregate amount of liabilities recorded relative to environ-
mental matters was $445 million and $300 million, respec-
tively. The Corporation has recorded an asset for the portion of
environmental costs that are probable of future recovery in
pricing of the Corporation’s products and services for U.S.
Government business. The portion that is expected to be allo-
cated to commercial business has been reflected in cost of
sales. The recorded amounts do not reflect the possible future
recoveries of portions of the environmental costs through
insurance policy coverage or from other PRPs, which the
Corporation is pursuing as required by agreement and U.S.
Government regulation. Any such recoveries, when received,
would reduce the allocated amounts to be included in the
Corporation’s U.S. Government sales and cost of sales.
Waste remediation contract—In 1994, the Corporation was
awarded a $180 million fixed-price contract by the U.S.
Department of Energy (DoE) for remediation of waste found
in Pit 9, located on the Idaho National Engineering and
Environmental Laboratory reservation. The Corporation incurred
significant unanticipated costs and scheduling issues due to
complex technical and contractual matters, which it sought
to remedy through submission of a request for equitable
adjustment. To date, the Corporation has been unsuccessful in
reaching any agreements with the DoE on cost recovery or
other contract restructuring matters. In 1998, the management
contractor for the project, a wholly-owned subsidiary of the
Corporation, at the DoE’s direction, terminated the Pit 9 con-
tract for default. As a result, the Corporation filed a lawsuit
against the DoE in the Court of Federal Claims seeking to
overturn the default termination and recover its costs, which
are included in inventories. Also in 1998, the management
contractor, also at the DoE’s direction, filed suit against the
Corporation in the United States District Court for the District
of Idaho seeking, among other things, recovery of approxi-
mately $54 million previously paid to the Corporation under
the Pit 9 contract. The Corporation counterclaimed seeking to
overturn the default termination and recover its costs. The
Corporation is defending this action which is set for trial in
August 2003.
In 2001, the Court of Federal Claims granted the DoE’s
motion to dismiss the Corporation’s complaint, finding that
there was no privity of contract between the Corporation and
the United States sufficient to provide the Court with jurisdic-
tion over the dispute. On September 30, 2002, the U.S. Court
of Appeals for the Federal Circuit affirmed the decision of the
Court of Federal Claims. The Corporation did not appeal the
decision further and will continue to seek resolution of the
Pit 9 dispute through non-litigation means while preparing for
trial in the Idaho proceeding.
Letters of credit and other matters—The Corporation has
entered into standby letter of credit agreements and other
arrangements with financial institutions primarily relating to
the guarantee of future performance on certain of its contracts.
At December 31, 2002, the Corporation had contingent liabil-
ities on outstanding letters of credit and other arrangements
aggregating $582 million.
NOTE 16—INFORMATION ON BUSINESS SEGMENTS AND
MAJOR CUSTOMERS
In the fourth quarter of 2002, the Corporation changed the
manner in which it reports the results of its business segments.
This change in presentation was made to align the measure-
ment criteria used by the Corporation’s senior management in
their evaluation of the performance of the business segments.