Lockheed Martin 2013 Annual Report Download - page 25

We have incurred and will continue to incur liabilities under various federal, state, local, and foreign statutes for
environmental protection and remediation. The extent of our financial exposure cannot in all cases be reasonably estimated at
this time. Among the variables management must assess in evaluating costs associated with these cases and remediation sites
generally are the status of site assessment, extent of the contamination, impacts on natural resources, changing cost estimates,
evolution of technologies used to remediate the site, and continually evolving governmental environmental standards and
cost allowability issues. For information regarding these matters, including current estimates of the amounts that we believe
are required for remediation or cleanup to the extent probable and estimable, see “Critical Accounting Policies –
Environmental Matters” in Management’s Discussion and Analysis of Financial Condition and Results of Operations and
“Note 13 – Legal Proceedings, Commitments, and Contingencies” of our consolidated financial statements.
We are involved in a number of legal proceedings. We cannot predict the outcome of litigation and other
contingencies with certainty.
Our business may be adversely affected by the outcome of legal proceedings and other contingencies that cannot be
predicted with certainty. As required by GAAP, we estimate loss contingencies and establish reserves based on our
assessment of contingencies where liability is deemed probable and reasonably estimable in light of the facts and
circumstances known to us at a particular point in time. Subsequent developments in legal proceedings may affect our
assessment and estimates of the loss contingency recorded as a liability or as a reserve against assets in our financial
statements. For a description of our current legal proceedings, see Item 3 – Legal Proceedings and “Note 13 – Legal
Proceedings, Commitments, and Contingencies” of our consolidated financial statements.
In order to be successful, we must attract and retain key employees and manage leadership transitions effectively.
Our business has a continuing need to attract and retain large numbers of skilled personnel, including personnel holding
security clearances, to meet contract schedules, support the growth of the enterprise, and to replace individuals who have
retired or departed for other reasons. To the extent that the demand for skilled personnel exceeds supply, we could experience
higher labor, recruiting, or training costs in order to attract and retain such employees, or could experience difficulties in
performing under our contracts if our needs for such employees were unmet. We increasingly compete with commercial
technology companies outside of the aerospace and defense industry for qualified technical and scientific positions as the
number of qualified domestic engineers is decreasing. To the extent that these companies grow faster than our industry, or
face fewer cost and product pricing constraints, they may be able to offer higher compensation to job candidates or our
existing employees. To the extent that we lose experienced personnel through wage competition, normal attrition (including
retirement), or specific actions such as workforce reductions, we must successfully manage the transfer of critical knowledge
from those individuals. This will become increasingly important as our workforce demographic shifts toward a higher
population that is nearing retirement. Additionally, we may face issues arising from our efforts to increase the efficiency of
our operations and improve the affordability of our products and services, including difficulties associated with moving or
consolidating operations, reducing the size of the workforce, attracting and retaining key personnel, and from compliance
with our legal obligations, including under Federal labor law and any applicable collective bargaining agreements. We also
must manage leadership development and succession planning throughout our business and have processes in place for
management transition and the transfer of knowledge. To the extent that we are unable to attract, develop, and retain
leadership talent successfully, we could experience business disruptions and impair our ability to achieve business objectives.
Historically, where employees are covered by collective bargaining agreements with various unions, we have been
successful in negotiating renewals to expiring agreements without any material disruption of operating activities. This does
not assure, however, that we will be successful in our efforts to negotiate renewals of our existing collective bargaining
agreements when they expire. If we were unsuccessful in those efforts, there is the potential that we could incur unanticipated
delays or expenses in the programs affected by any resulting work stoppages.
Our estimates and projections may prove to be inaccurate.
The accounting for some of our most significant activities is based on judgments and estimates, which are complex and
subject to many variables. For example, accounting for sales using the percentage-of-completion method requires that we
assess risks and make assumptions regarding schedule, cost, technical, and performance issues for each of our thousands of
contracts, many of which are long-term in nature. Another example is the $10.3 billion of goodwill assets recorded on our
Balance Sheet as of December 31, 2013 from previous acquisitions that were made over time, which represent greater than
25% of our total assets, and are subject to annual impairment testing and more frequent testing upon the occurrence of certain
events or significant changes in circumstances that indicate goodwill may be impaired. If we experience changes or factors
arise that negatively affect the expected cash flows of a reporting unit, we may be required to write off all or a portion of the
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