Lockheed Martin 2003 Annual Report Download - page 38

including covenants limiting our ability and the ability of cer-
tain of our subsidiaries to encumber our assets.
Purchase obligations include agreements and require-
ments contracts that give the supplier recourse to us for can-
cellation 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 sub-contractors, outsourcing
arrangements, and non-cancelable commitments for property,
plant and equipment. Generally, amounts for purchase obligations
in the preceding table exclude contractual commitments
entered into as a result of contracts we have with our U.S.
Government customers. These commitments are excluded
because the U.S. Government would be required to pay us for
any costs we incur if they terminate our contracts with them
“for convenience” pursuant to the FAR. For example, if we
had commitments to purchase goods and services that were
entered into as a result of a specific contract we received
from a U.S. Government customer and the customer termi-
nated the contract for convenience, any amounts we would be
required to pay to settle the related commitments, as well as
amounts previously incurred, would generally be reimbursed
by the customer. This would also be true in cases where we per-
form sub-contract work for a prime contractor under a U.S.
Government contract. The termination for convenience lan-
guage may also be included in contracts with foreign, state
and local governments. If so, amounts related to purchase
obligations entered into in support of those contracts were
excluded from the preceding table. To the extent contracts
with customers do not include termination for convenience
provisions, including contracts with commercial customers,
related purchase obligation amounts are included in the table.
Amounts related to “Other long-term liabilities” in the
preceding table represent the contractual obligations for
certain long-term liabilities recorded as of December 31,
2003. Such amounts mainly include expected payments under
deferred compensation plans, non-qualified pension plans
and environmental liabilities. Obligations related to environ-
mental liabilities represent our estimate of remediation pay-
ment obligations under government consent decrees and
agreements, excluding amounts reimbursed by the U.S.
Government in its capacity as a PRP under an agreement
entered into in 2000.
We have entered into standby letter of credit agreements
and other arrangements with financial institutions and cus-
tomers mainly relating to the guarantee of future performance
on some of our contracts to provide products and services to
customers. At December 31, 2003, we had contingent liabilities
on outstanding letters of credit, guarantees and other
arrangements, as follows:
Commitment Expiration
per Period
Total Less
Commit- than 1–3 4–5 After
(In millions) ment 1 year years years 5 years
Surety bonds(a) $253 $ 61 $ 68 $124 $ —
Standby letters
of credit(a) 261 180 57 13 11
Guarantees 4 3 1 — —
Total commitments $518 $244 $126 $137 $ 11
(a) Approximately $43 million of surety bonds in the “less than 1 year” period,
and approximately $117 million and $15 million of standby letters of cred-
it in the “less than 1 year” and “1–3 year” periods, respectively, are
expected to automatically renew for additional 1–2 year periods until com-
pletion of the contractual obligation.
We have issued standby letters of credit and surety bonds
totaling $3.9 billion related to advances received from cus-
tomers and/or to secure our performance under long-term con-
tracts. Amounts included in the table above totaling $514 million
are those amounts over and above advances received from
customers which are recorded in the balance sheet as either
offsets against inventories or in customer advances and
amounts in excess of costs incurred. Of the $3.4 billion
recorded in the balance sheet, approximately $2 billion relates
to a standby letter of credit to secure advance payments
received under an F-16 contract from an international cus-
tomer. This letter of credit is available for draw down only in
the event of our nonperformance. Similar to the letter of credit
for the F-16 contract, letters of credit and surety bonds for
other contracts are available for draw down only in the event
of our nonperformance.
Cash and cash equivalents, short-term investments, cash
flow from operations and other available financing resources,
are expected to be sufficient to meet anticipated operating,
capital expenditure and debt service requirements, as well as
acquisition and other discretionary investment needs,
Lockheed Martin Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
December 31, 2003
36