COMMITMENTS AND CONTINGENCIES

U.S. Government Cost Claims

From time to time, the company is advised of claims by the U.S. Government concerning certain potential disallowed costs, plus, at times, penalties and interest. When such findings are presented, the company and the U.S. Government representatives engage in discussions to enable the company to evaluate the merits of these claims, as well as to assess the amounts being claimed. Where appropriate, provisions are made to reflect the company’s estimated exposure for such potential disallowed costs. Such provisions are reviewed periodically using the most recent information available. The company believes it has adequately reserved for disputed amounts that are probable and reasonably estimable, and the outcome of any such matters would not have a material adverse effect on its unaudited condensed consolidated financial position as of September 30, 2017, or its annual results of operations and/or cash flows.

Environmental Matters

The table below summarizes management’s estimate of the range of reasonably possible future costs for environmental remediation, the amount accrued within that range, and the deferred costs expected to be recoverable through overhead charges on U.S. Government contracts as of September 30, 2017 and December 31, 2016:



$ in millions	Range of Reasonably Possible Future Costs⁽¹⁾	Accrued Costs⁽²⁾		Deferred Costs⁽³⁾
September 30, 2017	$409 - $796	$	416	$	210
December 31, 2016	379 - 774	385		195


⁽¹⁾	Estimated remediation costs are not discounted to present value. The range of reasonably possible future costs does not take into consideration amounts expected to be recoverable through overhead charges on U.S. Government contracts.

⁽²⁾As of September 30, 2017, $144 million is recorded in other current liabilities and $272 million is recorded in other non-current liabilities.

⁽³⁾As of September 30, 2017, $75 million is deferred in inventoried costs and $135 million is deferred in other non-current assets. These amounts are evaluated for recoverability on a routine basis.

Although management cannot predict whether new information gained as our environmental remediation projects progress, or as changes in facts and circumstances occur, will materially affect the estimated liability accrued, we do not anticipate future remediation expenditures associated with our currently identified projects will have a material adverse effect on the company’s unaudited condensed consolidated financial position as of September 30, 2017, or its annual results of operations and/or cash flows.

Financial Arrangements

In the ordinary course of business, the company uses standby letters of credit and guarantees issued by commercial banks and surety bonds issued principally by insurance companies to guarantee the performance on certain obligations. At September 30, 2017, there were $210 million of stand-by letters of credit and guarantees and $208 million of surety bonds outstanding.

Indemnifications

The company has provided indemnification for certain environmental, income tax and other potential liabilities in connection with certain of its divestitures. The settlement of these liabilities is not expected to have a material adverse effect on the company’s unaudited condensed consolidated financial position as of September 30, 2017, or its annual results of operations and/or cash flows.

Operating Leases

Rental expense for operating leases for the three and nine months ended September 30, 2017 was $73 million and $227 million, respectively, and was $69 million and $228 million for the three and nine months ended September 30, 2016, respectively. These amounts are net of immaterial amounts of sublease rental income.

Credit Facilities

In December 2016, a subsidiary of the company entered into a two-year credit facility, with two additional one-year option periods, in an aggregate principal amount of £120 million (the equivalent of approximately $162 million as of September 30, 2017) (the “2016 Credit Agreement”). The 2016 Credit Agreement is guaranteed by the company. At September 30, 2017, there was £110 million (the equivalent of approximately $149 million as of September 30, 2017) outstanding under this facility, which bears interest at a rate of LIBOR plus 1.10 percent. All of the borrowings outstanding under this facility mature less than one year from the date of issuance, but may be renewed under the terms of the facility. Based on our intent and ability to refinance the obligations on a long-term basis, substantially all of the borrowings are classified as non-current.

The company also maintains a five-year unsecured credit facility in an aggregate principal amount of $1.6 billion that matures in July 2020. At September 30, 2017, there was no balance outstanding under this facility.

At September 30, 2017, the company was in compliance with all covenants under its credit agreements.

Financing Commitment

On September 17, 2017, we entered into a commitment letter (the “Commitment Letter”) with JPMorgan Chase Bank, N.A. (JPMorgan), pursuant to which, subject to the terms and conditions set forth therein, JPMorgan committed to provide a 364-day senior unsecured bridge loan facility in an aggregate principal amount of up to $8.5 billion (the “Bridge Facility”), to finance the Orbital ATK Acquisition and to pay related fees and expenses. Under the terms of the Commitment Letter, the Bridge Facility availability is subject to reduction in equivalent amounts upon an incurrence by the company of term loans and/or the issuance of notes prior to the consummation of the Orbital ATK Acquisition and certain other specified events. In consideration for JPMorgan’s commitment to provide the Bridge Facility, we paid to JPMorgan a non-refundable commitment fee of $29.8 million, which has been amortized from inception to the date permanent financing was established as described below.

Subsequent Event

In October 2017, the company issued $8.25 billion of unsecured senior notes. The company intends to use the net proceeds to finance the Orbital ATK Acquisition and to pay related fees and expenses. See Note 11 for further information. As a result of the issuance of the unsecured senior notes, the company terminated the Commitment Letter.