| LEGAL PROCEEDINGS AND CONTINGENCIES | NOTE 7 – LEGAL PROCEEDINGS 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 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
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 Aircraft Corporation
(Sikorsky), we 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 intervention in the U.S.
District Court for the Eastern District of Wisconsin in a lawsuit
brought by qui tam relator Mary Patzer, a former Derco employee.
The Government alleged 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 T-44
On March 16, 2017, the U.S. Government filed a notice of
partial intervention in a lawsuit also pending in the U.S. District
Court for the Eastern District of Wisconsin brought by qui
tam Truth-in-Negotiations
The Government currently seeks damages in these lawsuits of
approximately $52 million, subject to trebling, plus statutory
penalties. We believe that we have legal and factual defenses to
the Government’s claims. Although we continue to evaluate our
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 or near $52 million and is successful in having
such damages 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.
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 re-procurement,
Environmental Matters
We are involved in proceedings and potential proceedings relating
to soil, sediment, surface water and groundwater contamination,
disposal of hazardous waste and other environmental matters at
several of our current or former facilities and 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 continually 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, our history of receiving
reimbursement of such costs, and efforts by some U.S. Government
representatives to limit such reimbursement. We include the
portion of those environmental costs expected to be allocated to
our non-U.S.
At June 25, 2017 and December 31, 2016, the aggregate
amount of liabilities recorded relative to environmental matters
was $975 million and $1.0 billion, most of which are
recorded in other noncurrent liabilities on our consolidated
balance sheets. We have recorded receivables totaling
$839 million and $870 million at June 25, 2017 and
December 31, 2016, most of which are recorded in other
noncurrent assets on our consolidated 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 remediation activities usually span many 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 changing regulatory environmental standards. There
are a number of former and present 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 pursue claims for recovery of costs incurred or
contribution to site cleanup costs against other PRPs, including
the U.S. Government, and are conducting remediation activities
under various consent decrees, orders, and agreements relating to
soil, groundwater, sediment or surface water contamination at
certain sites of former or current operations. Under agreements
related to certain sites in California and New York, the U.S.
Government reimburses us an amount equal to a percentage, specific
to each site, of expenditures for certain remediation activities in
the U.S. Government’s capacity as a PRP under the
Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA).
In addition to the proceedings and potential proceedings discussed
above, the current standard in California for the maximum level of
the contaminant hexavalent chromium in drinking water is
10 parts per billion (ppb). This standard is being challenged
by the California Manufacturers and Technology Association (CMTA)
as being lower than is required to protect public health. If the
standard remains at 10 ppb, it will not have a material impact
on our existing remediation costs in California. The U.S.
Environmental Protection Agency (U.S. EPA) is considering whether
to regulate hexavalent chromium.
In addition, California is reevaluating its existing drinking water
standard of 6 ppb for perchlorate, and the U.S. EPA is taking steps
to regulate perchlorate in drinking water. If substantially lower
standards are adopted, in either California or at the federal level
for perchlorate or for hexavalent chromium, we expect a material
increase in our estimates for environmental liabilities and the
related assets for the portion of the increased costs that are
probable of future recovery in the pricing of our products and
services for the U.S. Government. The amount that would be
allocable to our non-U.S.
Letters of Credit, Surety Bonds and Third-Party
Guarantees
We have entered into standby letters of credit and surety bonds
issued on our behalf by financial institutions, and directly issued
guarantees to third parties primarily relating to advances received
from customers and the guarantee of future performance on certain
contracts. Letters of credit and surety bonds generally are
available for draw down in the event we do not perform. In some
cases, we may guarantee the contractual performance of third
parties such as venture partners. We had total outstanding letters
of credit, surety bonds and third-party guarantees aggregating
$3.7 billion at both June 25, 2017 and December 31,
2016. Third-party guarantees do not include guarantees of
subsidiaries and other consolidated entities.
At June 25, 2017 and December 31, 2016, third-party
guarantees totaled $715 million and $709 million, of
which approximately 60% and 56% related to guarantees of
contractual performance of ventures to which we currently are or
previously were a party. This amount represents our estimate
of the maximum amount we would expect to incur upon the contractual
non-performance
United Launch Alliance
In connection with our 50% ownership interest of ULA, we and The
Boeing Company (Boeing) are required to provide ULA an additional
capital contribution if ULA is unable to make required payments
under its inventory supply agreement with Boeing. As of
June 25, 2017, ULA’s total remaining obligation to
Boeing under the inventory supply agreement was $120 million.
The parties have agreed to defer the remaining payment obligation,
as it is more than offset by other commitments to ULA. Accordingly,
we do not expect to be required to make a capital contribution to
ULA under this agreement.
In addition, both we and Boeing have cross-indemnified each other
for guarantees by us and Boeing of the performance and financial
obligations of ULA under certain launch service contracts. We
believe ULA will be able to fully perform its obligations, as it
has done through June 25, 2017, and that it will not be
necessary to make payments under the cross-indemnities or
guarantees. |
