Lockheed Martin 2013 Annual Report Download - page 90

The following table pertains to stock options granted in 2012 and 2011, in addition to stock options that vested and were
exercised in 2013, 2012, and 2011 (in millions, except for weighted-average grant-date fair value of stock options granted):
2013 2012 2011
Weighted average grant-date fair value of stock options granted $— $10.57 $13.06
Grant-date fair value of all stock options that vested 40 47 60
Intrinsic value of all stock options exercised 293 162 60
In 2012 and 2011, we estimated the fair value for stock options at the date of grant using the Black-Scholes option
pricing model, which required us to make certain assumptions. We used the following weighted average assumptions in the
model: risk-free interest rate of 0.78% for 2012 and 1.97% for 2011, dividend yield of 5.40% for 2012 and 4.20% for 2011, a
five year historical volatility factor of 0.28 for both 2012 and 2011, and an expected option life of five years for both 2012
and 2011.
PSUs
In January 2013, we granted certain employees PSUs with an aggregate target award of 0.3 million shares of our
common stock. PSUs vest three years from the date of grant based on continuous service with the number of shares earned
depending upon the extent to which we achieve certain financial and market performance targets measured over the period
from January 1, 2013 through December 31, 2015. The number of shares earned can range from 0% to 200% of the target
award. About half of these awards were valued at $89.24 per PSU in a manner similar to RSUs discussed above as the
financial targets are based on our operations. We recognize the grant-date fair value of these PSUs, less estimated forfeitures,
as compensation expense ratably over the vesting period based on the number of awards expected to vest at each reporting
date and, therefore, the associated compensation expense recognized could vary from year to year. The remaining PSUs were
valued at $61.13 per PSU using a Monte Carlo model as the performance target is related to our total shareholder return
(TSR) relative to our peer group. We recognize the grant-date fair value of these awards, less estimated forfeitures, as
compensation expense ratably over the vesting period regardless as to whether or not the TSR performance target is
achieved.
Note 13 – Legal Proceedings, Commitments, and Contingencies
We are a party to or have property subject to litigation and other proceedings that arise in the ordinary course of our
business, including matters arising under provisions relating to the protection of the environment, and are subject to
contingencies related to certain businesses we previously owned. These types of matters could result in fines, penalties,
compensatory or treble damages or non-monetary relief. We believe the probability is remote that the outcome of each of
these matters, including the legal proceedings discussed below, will have a material adverse effect on the Corporation as a
whole, notwithstanding that the unfavorable resolution of any matter may have a material effect on our net earnings in any
particular interim reporting period. Among the factors that we consider in this assessment are the nature of existing legal
proceedings and claims, the asserted or possible damages or loss contingency (if estimable), the progress of the case, existing
law and precedent, the opinions or views of legal counsel and other advisers, our experience in similar cases and the
experience of other companies, the facts available to us at the time of assessment, and how we intend to respond to the
proceeding or claim. Our assessment of these factors may change over time as individual proceedings or claims progress.
Although we cannot predict the outcome of legal or other proceedings with certainty, GAAP requires us to disclose an
estimate of the reasonably possible loss or range of loss or make a statement that such an estimate cannot be made for
contingencies where there is at least a reasonable possibility that a loss may have been incurred. We have a thorough process
to determine an estimate of the reasonably possible loss or range of loss before we conclude and disclose that an estimate
cannot be made. Accordingly, unless otherwise indicated below in our discussion of legal proceedings, a reasonably possible
loss or range of loss associated with any individual legal proceeding cannot be estimated.
Legal Proceedings
On April 24, 2009, we filed a declaratory judgment action against the New York Metropolitan Transportation Authority
and its Capital Construction Company (collectively, the MTA) asking the U.S. District Court for the Southern District of
New York to find that the MTA is in material breach of our agreement based on the MTA’s failure to provide access to sites
where work must be performed and customer-furnished equipment necessary to complete the contract. The MTA filed an
answer and counterclaim alleging that we breached the contract, and subsequently terminated the contract for alleged default.
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