Lockheed Martin 2015 Annual Report Download - page 111

reviews we consider these and other factors in estimating the timing and amount of any future costs that may be required for
remediation activities and record a liability when it is probable that a loss has occurred and the loss 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 reasonably cannot determine the extent of our financial exposure in all cases as, although a loss may
be probable or reasonably possible, in some cases it is not possible at this time to estimate the loss or reasonably possible loss
or range of loss.
We also are pursuing claims for recovery of costs incurred or contribution to site cleanup costs against other PRPs,
including the U.S. Government, and are conducting remediation activities 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).
On July 1, 2014, a regulation became effective in California setting the maximum level of the contaminant hexavalent
chromium in drinking water at 10 parts per billion (ppb). In May 2014, the California Manufacturers and Technology
Association filed a suit alleging the 10 ppb threshold is lower than is required to protect public health and thus imposes
unjustified costs on the regulated community. We cannot predict the outcome of this suit or whether other challenges may be
advanced by the regulated community or environmental groups which had sought a significantly higher and lower standard,
respectively. If the new standard remains at 10 ppb, it will not have a material impact on our existing remediation costs in
California.
In addition, California is reevaluating its existing drinking water standard with respect to a second contaminant,
perchlorate, and the U.S. Environmental Protection Agency (U.S. EPA) is also considering whether to regulate perchlorate
and hexavalent chromium in drinking water. In February 2016, the Natural Resources Defense Council filed suit in federal
court in New York against the U.S. EPA to compel the U.S. EPA to set an enforceable drinking water standard for
perchlorate. If substantially lower standards are adopted, in either California or at the federal level, for perchlorate, or if the
U.S. EPA were to adopt a standard for hexavalent chromium lower than 10 ppb, we 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 not be recoverable under U.S. Government contracts would be expensed,
which may have a material effect on our earnings in any particular interim reporting period.
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 $256 million, $258 million and $315 million for 2015, 2014 and 2013. Future minimum lease commitments at
December 31, 2015 for long-term non-cancelable operating leases were $793 million ($205 million in 2016, $161 million in
2017, $128 million in 2018, $101 million in 2019, $64 million in 2020 and $134 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 venture partners. We had total outstanding
letters of credit, surety bonds and third-party guarantees aggregating $3.8 billion at December 31, 2015 and $2.4 billion at
December 31, 2014.
At December 31, 2015 and 2014, third-party guarantees totaled $678 million and $774 million, of which approximately
79% and 85% related to guarantees of contractual performance of 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 venture partners. In addition, we generally have cross-indemnities in place that may enable us to recover
amounts that may be paid on behalf of a venture partner. We believe our current and former venture partners will be able to
perform their obligations, as they have done through December 31, 2015, and that it will not be necessary to make payments
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