Lockheed Martin 2015 Annual Report Download - page 109

PSUs
In January 2015, we granted certain employees PSUs with an aggregate target award of approximately 0.2 million shares
of our common stock. The PSUs vest three years from the grant date based on continuous service, with the number of shares
earned (0% to 200% of the target award) depending upon the extent to which we achieve certain financial and market
performance targets measured over the period from January 1, 2015 through December 31, 2017. About half of the PSUs
were valued at $192.28 per PSU in a manner similar to RSUs mentioned above as the financial targets are based on our
operating results. 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. The remaining PSUs
were valued at $188.96 per PSU using a Monte Carlo model as the performance target is related to our total shareholder
return 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.
Note 14 – 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 sanctions or relief. We believe the probability is remote that the outcome
of each of these matters, including the legal proceedings described 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, where there is at least a reasonable
possibility that a loss may have been incurred, 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. We follow a thorough process in which we seek to
estimate the reasonably possible loss or range of loss, and only if we are unable to make such an estimate do 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
As a result of our acquisition of Sikorsky, we have assumed the defense of and any potential liability for the following
civil False Claims Act lawsuit. In October 2014, the U.S. Government filed a complaint in the U.S. District Court for the
Eastern District of Wisconsin alleging that Sikorsky and two of its wholly-owned subsidiaries, Derco Aerospace (Derco) and
Sikorsky Support Services, Inc. (SSSI), violated the civil False Claims Act in connection with a contract that the U.S. Navy
awarded to SSSI in June 2006 to support the Navy’s T-34 and T-44 fixed-wing turboprop training aircraft. SSSI
subcontracted with Derco primarily to procure and manage the spare parts for the training aircraft. The Government alleges
that SSSI overbilled the Navy on the contract because Derco added profit and overhead costs to the price of the spare parts
that Derco procured and then sold to SSSI. The Government also claims that SSSI submitted false Certificates of Final
Indirect Costs in the years 2006 through 2012.
The Government’s complaint asserts numerous claims for violations of the False Claims Act, breach of contract and
unjust enrichment. In a late April 2015 court filing, the Government disclosed that it seeks damages of approximately
$45 million, subject to trebling, plus statutory penalties of approximately $13 million, all totaling approximately
$147 million. We believe that we have substantial legal and factual defenses to the government’s claims. Although we
continue to evaluate liability and exposure, we do not currently believe that it is probable that we will incur a material loss.
If, contrary to our expectations, the Government prevails in this matter and proves damages at the high end of the range
sought and is successful in having these trebled, the outcome could have an adverse effect on our results of operations in the
period in which a liability is recognized and on our cash flows for the period in which any damages are paid.
Additionally, by letter dated July 13, 2015, the United States Department of Justice notified Sikorsky that it had opened
a criminal investigation into this matter, and requested that Sikorsky and its two subsidiaries voluntarily produce documents.
Sikorsky and its subsidiaries cooperated fully in the investigation. On February 4, 2016, we were informed that the
Department of Justice is closing the criminal investigation with no action to the corporate entities or individuals.
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