Lockheed Martin 2011 Annual Report Download - page 87

Environmental cleanup activities usually span several years, which make estimating liabilities a matter of judgment
because of such factors as changing remediation technologies, assessments of the extent of contamination, and continually
evolving regulatory environmental standards. We consider these and other factors in estimates of the timing and amount of
any future costs that may be required for remediation actions, which results in the calculation of a range of estimates for a
particular environmental remediation site.
We perform quarterly reviews of the status of our environmental remediation sites and the related liabilities and
receivables. We record a liability when it is probable that a liability has been incurred and the amount can be reasonably
estimated. The amount of liability recorded is based on our estimate of the costs to be incurred for remediation at a particular
site. We do not discount the recorded liabilities, as the amount and timing of future cash payments are not fixed or cannot be
reliably determined.
We cannot reasonably determine the extent of our financial exposure in all cases at this time. There are a number of
former operating facilities that we are monitoring or investigating for potential future remediation. In some cases, although a
loss may be probable, it is not possible at this time to reasonably estimate the amount of any obligation for remediation
activities because of uncertainties with respect to assessing the extent of the contamination or the applicable regulatory
standard. We also are pursuing claims for contribution to site cleanup costs against other PRPs, including the U.S.
Government.
Both the U.S. Environmental Protection Agency and the California Office of Environmental Health Hazard Assessment
announced plans in January 2011 to regulate two chemicals, perchlorate and hexavalent chromium, to levels in drinking
water that are expected to be substantially lower than the existing public health goals or standards established in
California. The rulemaking processes are lengthy ones and may take one or more years to complete. If a substantially lower
standard is adopted, we would 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, including 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 $347 million, $399 million, and $370 million for 2011, 2010, and 2009. Future minimum lease commitments at
December 31, 2011 for all operating leases that have a remaining term of more than one year were $1.0 billion ($264 million
in 2012, $200 million in 2013, $139 million in 2014, $97 million in 2015, $71 million in 2016 and $246 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 joint venture partners. We have total
outstanding letters of credit, surety bonds, and third-party guarantees aggregating $3.9 billion and $4.2 billion at
December 31, 2011 and 2010. Of these amounts, $907 million and $1.0 billion relate to third-party guarantees.
Approximately 85% of the $907 million and $1.0 billion in third-party guarantees outstanding at December 31, 2011
and 2010 related to guarantees of the contractual performance of joint 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 joint venture partners. We evaluate the reputation, technical capabilities, and credit quality of
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