Lockheed Martin 2015 Annual Report Download - page 28

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 14 – Legal
Proceedings, Commitments and Contingencies” of our consolidated financial statements.
Our success depends, in part, on our ability to maintain a qualified workforce.
Due to the specialized nature of our business, our future performance is highly dependent upon our ability to maintain a
workforce with the requisite skills in multiple areas including: engineering, science, manufacturing, information technology,
cybersecurity, business development and strategy and management. Our operating performance is also dependent upon
personnel who hold security clearances and receive substantial training in order to work on certain programs or tasks.
Additionally, as we expand our operations internationally, it will be increasingly important to hire and retain personnel with
relevant experience in local laws, regulations, customs, traditions and business practices.
We face a number of challenges that may affect personnel retention such as our endeavors to increase the efficiency of
our operations and improve the affordability of our products and services such as workforce reductions and consolidating and
relocating certain operations. Additionally, our workforce demographic continues to shift toward a higher proportion of
employees nearing retirement. In June 2014, we amended certain of our defined benefit pension plans for non-union
employees to freeze future retirement benefits, which may encourage retirement-eligible personnel to elect to retire earlier
than anticipated.
To the extent that we lose experienced personnel, it is critical that we develop other employees, hire new qualified
personnel, and successfully manage the transfer of critical knowledge. Competition for personnel is intense, and we may not
be successful in hiring or retaining personnel with the requisite skills or clearances. We increasingly compete with
commercial technology companies outside of the aerospace and defense industry for qualified technical, cyber and scientific
positions as the number of qualified domestic engineers is decreasing and the number of cyber professionals is not keeping
up with demand. To the extent that these companies grow at a faster rate or face fewer cost and product pricing constraints,
they may be able to offer more attractive compensation and other benefits to candidates or our existing employees. 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; we could experience difficulty in performing our contracts if we were unable to
do so. We also must manage leadership development and succession planning throughout our business. While we have
processes in place for management transition and the transfer of knowledge, the loss of key personnel, coupled with an
inability to adequately train other personnel, hire new personnel or transfer knowledge, could significantly impact our ability
to perform under our contracts.
Approximately 18% of our employees are covered by collective bargaining agreements with various unions.
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 in
the future. If we encounter difficulties with renegotiations or renewals of collective bargaining arrangements or are
unsuccessful in those efforts, we could incur additional costs and experience work stoppages. Union actions at suppliers can
also affect us. Any delays or work stoppages could adversely affect our ability to perform under our contracts, which could
negatively impact our results of operations, cash flows, and financial condition.
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. Additionally, we initially allocate the purchase price of acquired businesses
based on a preliminary assessment of the fair value of identifiable assets acquired and liabilities assumed. The size and
breadth of significant acquisitions, such as Sikorsky, necessitate the use of a one year measurement period to adequately
analyze and assess a number of factors used in establishing the asset and liability fair values as of the acquisition date and
could result in adjustments to asset and liability balances, including changes in fair values of contracts assumed, fixed assets,
inventories and deferred revenue and changes in fair values of intangible assets and goodwill, as well as changes to the
amortization periods assigned to these assets. Any potential adjustments made could be material in relation to the preliminary
purchase price allocations recorded on acquisition dates. Another example is the $13.6 billion of goodwill assets recorded on
our Balance Sheet as of December 31, 2015 from previous acquisitions which represent greater than 27% of our total assets.
These goodwill assets are subject to annual impairment testing and more frequent testing upon the occurrence of certain
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