Lockheed Martin 2013 Annual Report Download - page 91

The primary damages sought by the MTA are the cost to complete the contract and potential re-procurement costs. While we
are unable to estimate the cost of another contractor to complete the contract and the costs of re-procurement, we note that
our contract with the MTA had a total value of $323 million, of which $241 million was paid to us. We dispute the MTA’s
allegations and are defending against them. Additionally, following an investigation, our sureties on a performance bond
related to this matter, who were represented by independent counsel, concluded that the MTA’s termination of the contract
was improper. Finally, our declaratory judgment action was later amended to include claims for monetary damages against
the MTA. A bench trial of this matter is scheduled to begin on April 28, 2014.
On August 28, 2003, the U.S. Department of Justice (DOJ) filed complaints in partial intervention in two lawsuits filed
under the qui tam provisions of the Civil False Claims Act in the U.S. District Court for the Western District of Kentucky,
United States ex rel. Natural Resources Defense Council, et al., v. Lockheed Martin Corporation, et al., and United States ex
rel. John D. Tillson v. Lockheed Martin Energy Systems, Inc., et al. The DOJ alleges that we committed violations of the
Resource Conservation and Recovery Act at the Paducah Gaseous Diffusion Plant by not properly handling, storing, and
transporting hazardous waste and that we violated the False Claims Act by misleading Department of Energy officials and
state regulators about the nature and extent of environmental noncompliance at the plant. The complaint does not allege a
specific calculation of damages. On April 16, 2013, the parties attended a settlement conference ordered by the magistrate
judge. The conference focused on the parties’ sharply differing views of the merits of the case and did not significantly
contribute to our understanding of the damages sought. Accordingly, we cannot estimate the reasonably possible loss, or
range of loss, which could be incurred if the plaintiffs were to prevail in the allegations, but believe that we have substantial
defenses. We dispute the allegations and are defending against them.
Environmental Matters
We are involved in environmental proceedings and potential proceedings relating to soil and groundwater
contamination, disposal of hazardous waste, and other environmental matters at several of our current or former facilities, or
at third-party sites where we have been designated as a potentially responsible party (PRP). A substantial portion of
environmental costs will be included in our net sales and cost of sales in future periods pursuant to U.S. Government
regulations. At the time a liability is recorded for future environmental costs, we record a receivable for estimated future
recovery considered probable through the pricing of products and services to agencies of the U.S. Government, regardless of
the contract form (e.g., cost-reimbursable, fixed-price). We continuously evaluate the recoverability of our environmental
receivables by assessing, among other factors, U.S. Government regulations, our U.S. Government business base and
contract mix, and our history of receiving reimbursement of such costs. We include the portion of those environmental costs
expected to be allocated to our non-U.S. Government contracts, or that is determined to be unallowable for pricing under
U.S. Government contracts, in our cost of sales at the time the liability is established.
At December 31, 2013 and 2012, the aggregate amount of liabilities recorded relative to environmental matters was
$997 million and $950 million, most of which are recorded in other noncurrent liabilities on our Balance Sheets. We have
recorded receivables totaling $863 million and $821 million at December 31, 2013 and 2012, most of which are recorded in
other noncurrent assets on our Balance Sheets, for the estimated future recovery of these costs, as we consider the recovery
probable based on the factors previously mentioned. We project costs and recovery of costs over approximately 20 years.
Environmental cleanup activities usually span several years, which make estimating liabilities a matter of judgment
because of uncertainties with respect to assessing the extent of the contamination as well as such factors as changing
remediation technologies and continually evolving regulatory environmental standards. There are a number of former
operating facilities that we are monitoring or investigating for potential future remediation. We perform quarterly reviews of
the status of our environmental remediation sites and the related liabilities and receivables. Additionally, in our quarterly
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.
California and the U.S. Environmental Protection Agency (U.S. EPA) are each evaluating the need to regulate hexavalent
chromium in drinking water, distinct from the current standards which regulate total chromium. In 2011, California’s health risk
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