Lockheed Martin 2015 Annual Report Download - page 110

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 the 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.
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, and that the MTA is
seeking damages of approximately $190 million. 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 of approximately $95 million. This
matter was taken under submission by the District Court in December 2014, after a five-week bench trial and the filing of
post-trial pleadings by the parties. We expect a decision in 2016.
We have reached an agreement to settle with the U.S. Department of Justice (DOJ) and the qui tam relators two lawsuits
in which the DOJ filed complaints in partial intervention on August 28, 2003. The lawsuits, 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., were filed by the relators in 1999 under the civil qui tam provisions of the
False Claims Act in the U.S. District Court for the Western District of Kentucky and alleged that we committed violations of
the Resource Conservation and Recovery Act (RCRA) 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 parties are
finalizing the terms of the settlement agreement, which is considered a tentative agreement until it is formally approved by
the United States Government. The amount of the settlement is not material. We believe that we have substantial defenses to
all of the allegations and have agreed to settle the case to avoid the costs of further litigation of this matter which has been
ongoing in excess of sixteen years. We will admit no liability or wrongdoing in resolving the matter. See Item 3 - Legal
Proceedings of our Annual Report on Form 10-K for the year ended December 31, 2015 for additional information.
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 not be recoverable under U.S.
Government contracts, in our cost of sales at the time the liability is established.
At December 31, 2015 and 2014, the aggregate amount of liabilities recorded relative to environmental matters was
$1.0 billion and $965 million, most of which are recorded in other noncurrent liabilities on our Balance Sheets. We have
recorded receivables totaling $858 million and $836 million at December 31, 2015 and 2014, 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.
Our acquisition of Sikorsky included certain environmental remediation liabilities that are among those recorded on our
Balance Sheet, along with the related receivables for probable future recovery. These amounts did not materially impact our
consolidated financial statements.
Environmental cleanup activities usually span several years, which makes 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
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