Lockheed Martin 2003 Annual Report Download - page 66

Lockheed Martin Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
64
share as a result of litigation and settlements with other PRPs.
In addition, under an agreement reached with the U.S.
Government in 2000, the Corporation will continue to be reim-
bursed in an amount equal to approximately 50% of future
expenditures for certain remediation activities by the U.S.
Government in its capacity as a PRP under the Comprehensive
Environmental Response, Compensation and Liability Act. The
Corporation has recorded a liability of approximately $55 mil-
lion representing its estimate of the total expenditures required
over the remaining terms of the consent decrees and orders
described above, net of the effects of the agreement.
The Corporation is involved in proceedings and potential
proceedings relating to environmental matters at other facili-
ties, including disposal of hazardous wastes and soil and
groundwater contamination. The extent of the Corporation’s
financial exposure cannot in all cases be reasonably determined
at this time. In addition to the amounts with respect to the
Redlands, Great Neck, Burbank and Glendale sites described
above, a liability of approximately $140 million for the other
properties (including current operating facilities and certain
facilities operated in prior years) in which an estimate of finan-
cial exposure can be determined has been recorded. In cases
where a date to complete activities at a particular environmental
site cannot be estimated by reference to agreements or other-
wise, the Corporation projects costs over a reasonable time
frame not to exceed 20 years.
Under agreements reached with the U.S. Government in
1990 and 2000, certain groundwater treatment and soil remedi-
ation 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 busi-
ness, 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, 2003 and 2002, the aggregate amount of
liabilities recorded relative to environmental matters was
approximately $425 million and $445 million, respectively. The
Corporation has recorded an asset for the portion of environ-
mental 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 allocated to com-
mercial 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 recov-
eries, 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 the design, construction and
limited test of remediation facilities, and the remediation of
waste found in Pit 9, located on the Idaho National Engineering
and Environmental Laboratory reservation. The DoE, through
its management contractor, terminated the Pit 9 contract for
default on June 1, 1998. The DoE’s lawsuit, together with the
Corporation’s counterclaims, was tried in the U.S. District
Court in Pocatello, Idaho from August through November 2003.
At trial, the DoE sought damages and interest totaling approxi-
mately $100 million. The Corporation sought to overturn the
termination for default and damages of approximately $270
million. The matter is expected to be submitted to the trial court
for decision in March 2004. The Corporation has assumed that
it will recover some portion of its costs, which are recorded in
inventories, based on its estimate of the probable outcome of
the case. It is not possible to predict the outcome of the lawsuit
with certainty. The court may award damages to either party in
the full amount it sought at trial or in some lesser amount. The
Corporation expects the court to render a decision later in 2004,
although final resolution of the lawsuit will likely depend upon
the outcome of further proceedings and possible negotiations
with the DoE.
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, 2003, the Corporation had contingent liabili-
ties on outstanding letters of credit and other arrangements
aggregating approximately $518 million.