Lockheed Martin (LMT) 10-K risk factor changes: FY2017 vs FY2016

[removed: We] [added: We] depend heavily on contracts with the U.S. Government for a substantial portion of our [removed: business.][added: business.]

We derived [removed: 71%] [added: 69%] of our total net sales from the U.S. Government in [removed: 2016,] [added: 2017,] including [removed: 59%] [added: 58%] from the Department of Defense (DoD).

The F-35 is our largest program and represented [removed: 23%] [added: 25%] of our total net sales in [removed: 2016] [added: 2017] and is expected to represent a higher percentage of our sales in future years.

Current program challenges include, but are not limited to, [added: increasing manufacturing capabilities to meet higher customer demand for new aircraft and sustainment activities,] supplier and partner performance, software development, level of cost associated with life cycle operations and sustainment and warranties, successfully negotiating and receiving funding for production contracts on a timely basis, executing future flight tests and findings resulting from testing and operating the aircraft.

Additionally, the U.S. Government may also enter into unilateral contract [removed: actions, which they recently did on the F-35 program.][added: actions.]

[removed: This] [added: A] unilateral contract action obligates us to perform under terms and conditions imposed by the U.S. Government.

[removed: We] [added: We] are subject to a number of procurement laws and regulations.

Our business and our reputation could be adversely affected if we fail to comply with these [removed: laws.][added: laws.]

[removed: Upon termination for convenience of a fixed-price type contract, we normally] are entitled to receive the purchase price for delivered items, reimbursement for allowable costs for work-in-process and an allowance for profit on the contract or adjustment for loss if completion of performance would have resulted in a loss.

As funds are typically appropriated on a [removed: fiscal-year] [added: fiscal year] basis and as the costs of a termination for convenience may exceed the costs of continuing a program in a given fiscal year, occasionally programs do not have sufficient funds appropriated to cover the termination costs were the government to terminate them for convenience.

[removed: Our] [added: Our] profitability and cash flow may vary based on the mix of our contracts and programs, our performance, our ability to control costs and evolving U.S. Government procurement [removed: policies.][added: policies.]

In these cases, the associated financial risks primarily relate to a reduction in fees and the program could be [removed: cancelled] [added: canceled] if cost, schedule or technical performance issues arise.

Other contracts in backlog are for the transition from development to production (e.g., [removed: LRIP] [added: Low Rate Initial Production (LRIP)] contracts), which includes the challenge of starting and stabilizing a manufacturing production and test line while the final design is being validated.

[removed: An example of customer budget pressures includes] [added: For example,] the U.S. Government [added: is now] requiring that bid and proposal costs be included in general and administrative costs, rather than charged directly to contracts in certain circumstances.

For [removed: example,] [added: example contrary to FAR,] the government has expressed a preference for requiring progress payments rather than performance based payments on new fixed-price contracts, which if implemented, delays our ability to recover a significant amount of costs incurred on a contract and thus affects the timing of our cash flows.

[removed: Increased] [added: Increased] competition and bid protests in a budget-constrained environment may make it more difficult to maintain our financial performance and customer [removed: relationships.][added: relationships.]

We are experiencing increased competition while, at the same time, [added: many of] our customers are facing budget [removed: constraints,] [added: pressures,] trying to do more with less by cutting costs, identifying more affordable solutions, performing certain work internally rather than hiring a contractor, and reducing product development cycles.

Additionally, our competitors are also focusing on increasing their international sales to partially mitigate the [added: effect of reduced U.S. Government budgets.]

[removed: We] [added: We] are the prime contractor on most of our contracts and if our subcontractors, suppliers or teaming agreement or venture partners fail to perform their obligations, our performance and our ability to win future business could be [removed: harmed.][added: harmed.]

There is a risk that [added: the contracting party does not perform and] we may have disputes with our contracting parties, including disputes regarding the quality and timeliness of work performed, the workshare provided to that party, customer concerns about the other party’s performance, our failure to extend existing task orders or issue new task orders, or our hiring the personnel of a subcontractor, teammate or venture partner or vice versa.

[removed: International] [added: International] sales may pose different [removed: risks.][added: risks.]

In [removed: 2016, 27%] [added: 2017, 30%] of our total net sales were from international customers.

[removed: We] [added: This percentage has been increasing and we] have a strategy to [added: continue to] grow international [removed: sales over the next several years,] [added: sales,] inclusive of sales of F-35 aircraft to our international partners and other countries.

In [removed: 2016,] [added: 2017,] approximately [removed: 66%] [added: 63%] of our sales to international customers were FMS and about [removed: 34%] [added: 37%] were DCS.

All sales to international customers are subject to U.S. and foreign laws and regulations, including, without limitation, [removed: regulations relating to anti-corruption,] import-export control, technology transfer restrictions, taxation, repatriation of earnings, exchange [added: controls, the Foreign Corrupt Practices Act and other anti-corruption laws and regulations, and the anti-boycott provisions of the U.S. Export Administration Act.]

[removed: Our] [added: Our efforts to minimize the likelihood and impact of adverse cyber security incidents and to protect data and intellectual property may not be successful and our] business could be negatively affected by cyber or other security threats or other [removed: disruptions.][added: disruptions.]

We routinely experience various cybersecurity threats, threats to our information technology infrastructure, unauthorized attempts to gain access to our company sensitive information, [removed: denial-of-service attacks, threats to the security of our facilities] and [removed: employees, and threats from terrorist acts,] [added: denial-of-service attacks] as do our customers, suppliers, subcontractors and venture partners.

We [removed: may] experience similar security threats at customer sites that we operate and manage.

The threats we face vary from attacks common to most industries to more advanced and persistent, highly organized [removed: adversaries who] [added: adversaries, including nation states, which] target us [added: and other defense contractors] because we protect national security information.

If we are unable to protect sensitive information, our customers or governmental authorities could question the adequacy of our threat mitigation and detection processes and [removed: procedures.][added: procedures, and depending on the severity of the incident, our customers’ data, our employees’ data, our intellectual property, and other third party data (such as teammates, venture partners, subcontractors, suppliers and vendors) could be compromised.]

Due to the evolving nature of these security [removed: threats,] [added: threats and] the [added: national security aspects of much of the data we protect, the] impact of any future incident cannot be predicted.

[removed: Although] [added: In addition to cyber threats,] we [removed: work cooperatively with] [added: experience threats to the security of] our [added: facilities and employees and threats from terrorist acts as do our] customers, suppliers, subcontractors, venture partners and [removed: acquisitions] [added: entities we acquire with whom we typically work cooperatively] to seek to minimize the impact of cyber threats, other security [removed: threats,] [added: threats] or business [removed: disruptions, we must rely on the safeguards put in place by these entities, which may affect the security of our information.][added: disruptions.]

[added: Additionally, some cyber technologies we develop under contract for our customers, particularly those related to] homeland security, may raise potential liabilities related to intellectual property and civil liberties, including privacy concerns, which may not be fully insured or indemnified by other [removed: means.][added: means or involve reputational risk.]

[removed: If] [added: If] we fail to manage acquisitions, divestitures, equity investments and other transactions successfully or if acquired entities or equity investments fail to perform as expected, our financial results, business and future prospects could be [removed: harmed.][added: harmed.]

[removed: To be successful, we must conduct due diligence to identify valuation issues and potential] loss contingencies; negotiate transaction terms; complete and close complex transactions; integrate acquired companies and employees; and realize anticipated operating synergies efficiently and effectively.

The most significant impact of our equity investments is in our Space [removed: Systems] business segment where approximately [removed: 25%] [added: 21%] of its [removed: 2016] [added: 2017] operating profit was derived from its share of earnings from equity method investees, particularly that in United Launch Alliance (ULA).

[removed: Due to the recent acquisition and valuation,] [added: As a result,] the carrying value and fair value of our Sikorsky reporting unit [removed: are currently] [added: continue to be] closely aligned.

Therefore, any business deterioration, contract [removed: cancelations] [added: cancellations] or terminations, or market pressures could cause our sales, earnings and cash flows to decline below current projections and could cause goodwill [added: and intangible assets] to be impaired.

Additionally, Sikorsky may not perform as expected, or demand for its products may be adversely affected by global economic conditions, including oil and gas trends that are outside of [removed: their] [added: our] control.

[removed: There] [added: There] can be no assurance that we will continue to increase our dividend or to repurchase shares of our common stock at current [removed: levels.][added: levels.]

Upon termination for convenience of a fixed-price type contract, we normally

In some circumstances, the U.S. Government is proposing positions that are inconsistent with the FAR and existing practice.

Another example is a recent challenge to overhead costs.

The U.S. Government’s pursuit of policies intended to cause us to absorb cost may become more aggressive if the U.S. Government concludes that our profitability justifies cost shifting without regard to the provisions of the FAR.

Additionally, the U.S. Government may fail to award us large competitive contracts in an effort to maintain a broader industrial base.

We could also be adversely affected by reputational issues experienced by our teammates that are outside of our control, which could adversely affect our ability to compete for contract awards.

We have a Computer Incident Response Team (CIRT) which has among its responsibilities defending against such attacks.

Additionally, we conduct regular periodic training of our employees as to the protection of sensitive information which includes training intended to prevent the success of “phishing” attacks.

As a consequence of their persistence, sophistication and volume, we may not be successful in defending against all such attacks.

However, we must rely on the safeguards put in place by these entities, as well as other entities, which we do not control, who have access to our information, and may affect the security of our information.

We have approximately 16,000 direct suppliers and even more indirect suppliers with a wide variety of systems and cyber security capabilities and we may not be successful in preventing adversaries from exploiting possible weak links in our supply chain.

We also must rely on this supply chain for detecting and reporting cyber incidents and so we may not be successful in reporting or responding to cyber security incidents in a timely manner.

Our enterprise risk management program includes threat detection and cyber security mitigation plans, and our disclosure controls and procedures address cyber security and include elements intended to ensure that there is an analysis of potential disclosure obligations arising from security breaches.

We also maintain compliance programs to address the potential applicability of restrictions against trading while in possession of material, nonpublic information generally and in connection with a cyber security breach.

However, we may not be successful in detecting, reporting or responding to cyber incidents in a timely manner.

To be successful, we must conduct due diligence to identify valuation issues and potential

As a result, we may not be successful in achieving the growth or other intended benefits of strategic investments.

Our payment of dividends and share repurchases could vary from historical practices or our stated expectations.

We recorded a net one-time tax charge, substantially all of which was non-cash, resulting from the estimated impact of the Tax Cuts and Jobs Act, which reduced our 2017 net earnings and resulted in a deficit in our total equity as of December 31, 2017.

As a Maryland corporation, so long as we are able to pay our indebtedness as it becomes due in the usual course of business, we anticipate that we would be able to pay dividends and make stock repurchases in an amount limited to our net earnings in either the current or the preceding fiscal year or from the net earnings for the preceding eight quarters, notwithstanding the deficit in our total equity.

We also have no assurance as to the timing of any increase in our stockholders’ equity.

Any accident, failure of, or defect in our products or services, even if fully indemnified or insured, could

Following the five year transition period, CAS Harmonization was fully phased in during 2017, this better aligns the CAS pension cost and ERISA funding requirements.

This has the effect of lowering both the recovery of pension contributions, as it decreases our CAS pension costs, and our ERISA funding requirements during the affected periods.

Due to the complex nature of the products and services we offer, we may experience technical difficulties during the development of new products or technologies.

These technical difficulties could result in delays and higher costs, which may negatively impact our financial results, until such products or technologies are fully developed.

Additionally, there can be no assurance that our developmental projects will be successful or meet the needs of our customer.

Additionally, the possibility exists that our competitors may develop new technology or offerings that could cause our existing offerings to become obsolete.

If we fail in our development projects or if our new products or technologies fail to achieve customer acceptance, our ability to procure new contracts could be unsuccessful and this could negatively impact our financial results.

Additionally a substantial portion of our workforce are retirement-eligible or nearing retirement.

The freeze, which will be completed January 1, 2020, may encourage retirement-eligible personnel (generally age 55) to elect to retire earlier than anticipated.

Any delays or work stoppages

We acquired Sikorsky in November 2015 and recorded the assets acquired and liabilities assumed at fair value.

| --- | --- |

As discussed within the “Industry Considerations” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, the U.S. Government continues to face significant deficit reduction pressures and it is likely that discretionary spending by the U.S. Government will remain constrained for a number of years.

Under such conditions, large or complex programs, which consist of multiple contracts and phases, are potentially subject to increased scrutiny.

There is also uncertainty regarding actions that may be taken by the new Presidential Administration in light of recent criticisms of the F-35 program and other large defense programs.

President Trump has publicly expressed concerns over past cost overruns and delays in the program as well as overall program cost and has publicly requested that a competitor price out an alternative.

Defense Secretary Mattis recently ordered a review of the program, including a comparison review of the F-35C carrier variant with a fourth generation alternative.

Our Chairman, President and Chief Executive Officer has had discussions with President Trump on the importance of the F-35 program and our commitment to cut costs.

However, we may continue to face pressure to reduce costs from the new Presidential Administration relating to the F-35 program and ongoing contract negotiations.

##### [Table of Contents](#toc)

The U.S. Government’s unilateral contract action definitizing the LRIP 9 F-35 contract reflected differing U.S. Government and Lockheed Martin views as to costs, entitlement to performance-based payments and profitability and could negatively impact the profitability and cash flows of LRIP 9, LRIP 10 (which remains an undefinitized contract) and future production contracts.

effect of reduced U.S. Government budgets.

Additionally, the former IS&GS programs we moved to RMS and Space Systems in the fourth quarter of 2015 and retained could experience increased pricing pressures which could have a negative impact on our ability to win future follow-on contracts.

controls, the Foreign Corrupt Practices Act and other anti-corruption laws, and the anti-boycott provisions of the U.S. Export Administration Act.

Additionally, some cyber technologies we develop under contract for our customers, particularly those related to

Occurrence of any of these events could adversely affect our internal operations, the services we provide to our customers, our future financial results, our reputation, or our stock price.

Additionally, such events could result in the loss of competitive advantages derived from our research and development efforts or other intellectual property; early obsolescence of our products and services; or contractual penalties.

Approximately 3% and 7% of our Aeronautics and RMS business segments’ operating profit was derived from their shares of earnings from equity method investees, including their share in Advanced Military Maintenance, Repair and Overhaul Center LLC venture (AMMROC).

The acquired Sikorsky business may underperform relative to our expectations, the transaction may cause our financial results to differ from our expectations or the expectations of the investment community and we may not be able to achieve anticipated cost savings or other anticipated synergies.

On November 6, 2015, we completed the acquisition of Sikorsky.

We believe that we will benefit from the integration of our products and technologies with those of the Sikorsky business and realize synergies and potential for long-term growth, as well as expanded capabilities and customer relationships as a result of the acquisition.

However, we may not be able to capture anticipated synergies, tax benefits, cost savings, and business opportunities in the time frame anticipated, or at all.

Changes to the Federal statutory tax rate could have an impact on the tax benefits we expect in connection with the acquisition.

If we fail to maintain an effective system of internal controls over financial reporting there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Effective internal controls are necessary for us to provide reliable and accurate financial statements and to effectively prevent fraud.

As further described, in Part II Item 9A “Controls and Procedures” management has concluded that, because of a material weakness in internal controls within Sikorsky’s processes (specifically, Sikorsky did not adequately identify,

design and implement appropriate process-level controls for its processes and appropriate information technology controls for its information technology systems), which we acquired on November 6, 2015 and which operates as a business unit of our RMS business segment, our disclosure controls and procedures were not effective as of December 31, 2016.

We have and we will continue to enhance our controls at our Sikorsky business unit and we expect that the remediation of this material weakness will be completed prior to the end of fiscal year 2017.

However, we cannot be certain that these measures will be successful or that we will be able to prevent future significant deficiencies or material weaknesses.

Material inaccuracies in our financial statements would impair their value to management and our Board of Directors in making decisions as to the operation of our business, could impair our reputation and cause investors to lose confidence in our reported financial information, which could have a negative effect on investor confidence in our financial statements, the trading price of our stock and our access to capital.

The divestiture of our Information Systems & Global Solutions business may not achieve the intended benefits and may expose us to potential risks and liabilities.

We completed the divestiture of our IS&GS business on August 16, 2016, which merged with a subsidiary of Leidos Holdings Inc. (Leidos), in a Reverse Morris Trust transaction.

As part of the transaction, we also completed an exchange offer that resulted in a reduction of our outstanding common stock.

We undertook the divestiture because we believed that this business could achieve greater growth and create more value for customers and stockholders outside of Lockheed Martin and that we could benefit from greater strategic focus of our resources and management efforts.

We may not benefit as expected from the increased focus on our core business, strategic programs and objectives made possible by the split-off or from the reduced exposure to a shorter product cycle services business.

Additionally, the value of the transaction may also be reduced by potential liabilities related to post-closing adjustments and indemnities, which could adversely affect our results of operations.

If the divestiture of our Information Systems & Global Solutions business or certain internal transactions undertaken in anticipation of the divestiture are determined to be taxable in whole or in part, we and our stockholders may incur significant tax liabilities.

In connection with the divestiture of our IS&GS business, we obtained opinions of outside tax counsel that the merger and exchange offer will qualify as tax-free transactions to us and our stockholders, except to the extent that cash was paid to Lockheed Martin stockholders in lieu of fractional shares.

We have not sought or obtained a ruling from the Internal Revenue Service (IRS) on each of the tax consequences of the transaction.

An opinion of counsel is not binding on the IRS or the courts, which may disagree with the opinion.

In addition, the tax opinions are subject to customary qualifications and based on factual representations.

[removed: _Business Overview_][added: Business Overview]

In [removed: 2016, 71%] [added: 2017, 69%] of our [removed: $47.2] [added: $51.0] billion in net sales were from the U.S. Government, either as a prime contractor or as a subcontractor (including [removed: 59%] [added: 58%] from the Department of Defense (DoD)), [removed: 27%] [added: 30%] were from international customers (including foreign military sales (FMS) contracted through the U.S. Government) and [removed: 2%] [added: 1%] were from U.S. commercial and other customers.

We operate in four business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and [added: Space, previously known as] Space Systems.

We organize our business segments based on the nature of [added: the] products and services offered.

A significant component of our strategy in this environment is to focus on program execution, improving the quality and predictability of the delivery of our products and [removed: services] [added: services,] and placing security capability quickly into the hands of our U.S. and international customers at affordable prices.

We also expect to continue to invest in technologies to fulfill new mission requirements for our customers and invest in our people so that we have the technical skills necessary to succeed without limiting our ability to return [removed: substantially all] [added: a substantial portion] of our free cash [removed: flow1] [added: flow] to our investors in the form of dividends and share repurchases.

We expect [removed: 2017] [added: 2018] net sales will increase in the [removed: mid-single] [added: low-single] digit range from [removed: 2016] [added: 2017] levels.

The projected growth is driven by increased production and sustainment volume on the F-35 program at Aeronautics as well as increased volume [added: in tactical missiles programs] at [removed: MFC and RMS,] [added: MFC,] partially offset by decreased volume at [removed: Space Systems.][added: RMS and Space.]

Accordingly, we expect [removed: 2017] [added: that 2018] segment operating profit margin will [removed: decline from] [added: slightly increase over] our [removed: 2016] [added: 2017] margin [removed: to just above 10%.][added: of 10.2%.]

Our outlook for [removed: 2017] [added: 2018] assumes the U.S. Government continues to support and fund our key programs, consistent with the government fiscal year (GFY) [removed: 2017] [added: 2018] budget.

Changes in circumstances may require us to revise our assumptions, which could materially change our current estimate of [removed: 2017] [added: 2018] net sales and operating profit margin.

We expect the [removed: 2017] [added: net 2018] FAS/CAS pension [removed: adjustment] [added: benefit] to be approximately [removed: $880 million, which incorporates] [added: $1.0 billion assuming] a [removed: year end 2016] [added: 3.625%] discount rate [removed: of 4.125%, a 25] [added: (a 50] basis point decrease from the end of [removed: 2015;] [added: 2016),] an [removed: actual investment return during 2016 of] approximately [removed: 5.0%; a 50] [added: 13.00% return on plan assets in 2017 (a 550] basis point [removed: reduction in our] [added: increase from the expected rate of return at the end of 2016), and a 7.50% expected] long-term rate of return [removed: assumption from 8.00% to 7.50%;] [added: on plan assets in future years,] and the revised longevity assumptions released on October 20, [removed: 2016] [added: 2017] by the Society of Actuaries.

We [removed: do not expect to] [added: will] make contributions [added: of $5.0 billion] to our [removed: legacy] qualified defined benefit pension plans in [removed: 2017.][added: 2018.]

[removed: _Portfolio] [added: Portfolio] Shaping [removed: Activities_][added: Activities]

[removed: 1] We define free cash flow as cash from operations as determined under U.S. generally accepted accounting principles (GAAP), less capital expenditures as presented on our consolidated statements of cash flows.

[removed: Acquisition] [added: Acquisition] of Sikorsky Aircraft [removed: Corporation][added: Corporation]

On November 6, 2015, pursuant to a Stock Purchase Agreement, dated as of July 19, 2015 by and between us and United Technologies Corporation (UTC) and certain wholly-owned subsidiaries of UTC, we completed the acquisition of Sikorsky Aircraft Corporation [removed: (Sikorsky)] [added: and certain affiliated companies (collectively “Sikorsky”)] for $9.0 billion, net of cash acquired.

[removed: Divestiture] [added: Divestiture] of the Information Systems & Global Solutions [removed: Business][added: Business]

On August 16, 2016, we [removed: completed the previously announced divestiture of the IS&GS] [added: divested our former Information Systems & Global Solutions (IS&GS)] business, which merged with [removed: a subsidiary of Leidos,] [added: Leidos Holdings, Inc. (Leidos),] in a Reverse Morris Trust transaction (the “Transaction”).

The Transaction was completed in a multi-step process pursuant to which we initially contributed the IS&GS business to Abacus Innovations Corporation (Abacus), a [removed: wholly-owned] [added: wholly owned] subsidiary of Lockheed Martin created to facilitate the Transaction, and the common stock of Abacus was distributed to participating Lockheed Martin stockholders through an exchange offer.

Based on an opinion of outside tax counsel, subject to customary qualifications and based on factual representations, [removed: both] the exchange offer and merger will qualify as tax-free transactions to Lockheed Martin and its stockholders, except to the extent that cash was paid to Lockheed Martin stockholders in lieu of fractional shares.

The entire special cash payment was used to repay debt, pay dividends and repurchase stock [removed: in] [added: during] the third and fourth quarters of 2016.

As a result of the Transaction, we recognized a net gain of approximately [added: $1.3 billion, including] $1.2 [removed: billion.][added: billion recognized in 2016.]

[removed: The net gain represents the $2.5 billion fair value of the shares of Lockheed Martin common stock exchanged and retired] as part of the exchange offer, plus the $1.8 billion one-time special cash payment, less the net book value of the IS&GS business of about $3.0 billion at August 16, 2016 and other adjustments of about $100 million.

[removed: The final] [added: During the fourth quarter of 2017, we recognized an additional] gain [removed: is subject to] [added: of $73 million, which reflects] certain post-closing adjustments, including [added: certain tax adjustments and the] final [added: determination of net] working [removed: capital and tax adjustments, which we expect to complete in 2017.][added: capital.]

We classified the operating results of [removed: the] [added: our former] IS&GS business as discontinued operations in our [added: consolidated] financial statements in accordance with U.S. GAAP, as the divestiture of this business represented a strategic shift that had a major effect on our operations and financial results.

[removed: Other][added: Other]

[removed: Space Systems’] [added: Consequently, our] operating results include 100% of AWE’s [removed: net] sales and 51% of [removed: AWE’s] [added: its] operating profit.

[removed: Previously,] [added: Prior to increasing our ownership interest,] we accounted for our investment in AWE using the equity method of accounting.

[removed: _Industry Considerations_][added: Industry Considerations]

[removed: U.S.] [added: U.S.] Government Funding [removed: Constraints]

The U.S. Government has not yet passed an [removed: annual budget] [added: appropriations bill] for [removed: Government Fiscal Year (GFY) 2017.][added: fiscal year 2018 (the U.S. Government’s fiscal year begins on October 1 and ends on September 30).]

Under this continuing resolution, partial-year funding at amounts consistent with appropriated levels for fiscal year [removed: 2016] [added: 2017] are available, subject to certain restrictions, [removed: however,] [added: but] new spending initiatives are not authorized.

However, during periods covered by continuing [removed: resolutions,] [added: resolutions] or until [added: the] regular [removed: annual] appropriation bills are passed, we may experience delays in procurement of products and services due to lack of [removed: funding] [added: funding,] and those delays may affect our results of [removed: operations, financial position and cash flows.][added: operations.]

We anticipate there will continue to be a significant amount of debate and negotiations within the U.S. Government over defense spending [removed: for GFY 2017] and [removed: beyond.][added: the debt ceiling.]

[removed: International Business][added: International Business]

We conduct business with international customers through each of our business [removed: segments.][added: segments through either FMS or direct sales to international customers.]

[removed: In our Aeronautics business segment, there] [added: There] continues to be strong international interest in the F-35 program, which includes commitments from the U.S. Government and eight international partner countries and three international customers, [added: as well as expressions of interest from other countries.]

The U.S. Government and the eight partner countries continue to work together on the design, testing, [removed: production] [added: production,] and sustainment of the [removed: F-35.][added: F-35 program.]

Other areas of international expansion at our Aeronautics business segment include the [removed: F-16 and] C-130J [added: and F-16] programs.

2018 Financial Trends

Effective January 1, 2018, we adopted two new accounting standards.

Accounting Standard Update (ASU) No. 2014-09, Revenue from Contracts with Customers, as amended (Topic 606) (commonly referred to as ASC 606) changes the way we recognize revenue from contracts with customers.

ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715) changes the income statement presentation of certain components of net periodic benefit cost related to defined benefit pension and other postretirement benefit plans.

See “Note 1 – Significant Accounting Policies” (under the caption “Recent Accounting Pronouncements”) included in our Notes to Consolidated Financial Statements for further discussion on the adoption of these standards.

The following table presents selected 2017 recast, unaudited financial data updated for the adoption of ASC 606 and ASU 2017-07 (in millions).

We are providing this information to assist in understanding our 2018 trend information in the following paragraphs, which includes the impacts of adopting these standards.

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| | | | | | | | | | | | | | | | | |

| | | Year Ended December 31, 2017 | | | | | | | | | | | | | | |

| | | Historical | | | | Adjustments for ASC 606 | | | | Adjustments for ASU 2017-07 | | | | Adjusted | | |

| Net sales | | | | | | (unaudited) | | | | (unaudited) | | | | (unaudited) | | |

| Aeronautics | | $ | 20,148 | | | $ | (738 | ) | | $ | — | | | $ | 19,410 | |

| Missiles and Fire Control | | 7,212 | | | | 82 | | | | — | | | | 7,294 | | |

| Rotary and Mission Systems | | 14,215 | | | | (552 | | ) | | — | | | | 13,663 | | |

| Space | | 9,473 | | | | 136 | | | | — | | | | 9,609 | | |

| Total net sales | | $ | 51,048 | | | $ | (1,072 | ) | | $ | — | | | $ | 49,976 | |

| Aeronautics | | $ | 2,164 | | | $ | 12 | | | $ | — | | | $ | 2,176 | |

| Missiles and Fire Control | | 1,053 | | | | (4 | | ) | | — | | | | 1,049 | | |

| Rotary and Mission Systems | | 905 | | | | (3 | | ) | | — | | | | 902 | | |

| Space | | 993 | | | | (13 | | ) | | — | | | | 980 | | |

| Total business segment operating profit | | 5,115 | | | | (8 | | ) | | — | | | | 5,107 | | |

| Total unallocated, net (a) | | 806 | | | | — | | | | 846 | | | | 1,652 | | |

| Total consolidated operating profit (a) | | $ | 5,921 | | | $ | (8 | ) | | $ | 846 | | | $ | 6,759 | |

| | |

| (a) | Total unallocated, net and consolidated operating profit includes an increase of $846 million in 2017, with a corresponding increase in other non-operating expense, net for the expected impact of adopting ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715) on January 1, 2018. See “Note 1 – Significant Accounting Policies” (under the caption “Recent Accounting Pronouncements”) included in our Notes to Consolidated Financial Statements for further discussion. |

Segment operating profit is expected to increase in the mid-single digit range from 2017 levels primarily driven by improved performance at RMS.

As a result of these contributions, we do not expect any material qualified defined benefit cash funding will be required until 2021.

We plan to fund these contributions using a mix of cash on hand and commercial paper.

While we do not anticipate a need to do so, our capital structure and resources would allow us to issue new debt if circumstances change (see “Capital Structure, Resources and Other” discussion below).

As a result of adopting ASU No. 2017-07, we expect to present a reclassification of non-service FAS net periodic benefit costs for all postretirement benefit plans (including the qualified defined benefit pension plans) of approximately $870 million for the fiscal year 2018 from consolidated operating profit to other non-operating income, net on our consolidated statements of earnings.

This reclassification has no impact on our total business segment operating profit or consolidated net earnings.

Business Segment 2018 Financial Trends

Operating profit is expected to increase in the low-single digit percentage range, resulting in slightly lower operating profit margins.

Operating profit is expected to increase in the low-single digit percentage range in 2018 as compared to 2017 due primarily to new development volume associated with recent key contract awards.

Accordingly, operating profit margin is expected to slightly decrease from 2017 levels.

We expect RMS’ net sales to decrease in the low-single digit percentage range as compared to 2017 driven primarily by lower volume in our Sikorsky business partially offset by higher volume in our training and logistics services and integrated warfare systems and sensors (IWSS) lines of business.

Operating profit is expected to increase in the low double digit percentage range driven by performance improvements in the IWSS and C4ISR and Undersea Systems and Sensors (C4USS) lines of business.

Operating profit margins are also expected to improve from 2017 levels.

Operating profit margin is expected to decline from 2016 levels primarily driven by higher volume on the F-35 program, which is dilutive to our overall profit margin, contract mix at MFC, lower AWE Management Limited (AWE) earnings as a result of the non-cash gain recognized in 2016 related the consolidation of AWE, amortization of AWE intangible assets in 2017 and lower equity earnings at Space Systems.

##### [Table of Contents](#toc)

_Business Developments_

Calculated using the Federal Statutory income tax rate, this election generates a cash tax benefit with an estimated net present value at the date of acquisition of $1.9 billion for us and our stockholders.

On August 24, 2016, our ownership interest in the AWE venture increased by 18% in exchange for our assuming a more significant role in managing the operations of the venture.

As a result of the increase, we now own a 51% interest in AWE

and control its operations and board of directors.

Accordingly, we are required to consolidate AWE, which has been aligned under our Space Systems business segment since August 24, 2016.

Under the equity method, none of AWE’s net sales and only 33% of AWE’s net earnings were included in operating profit of the Space Systems business segment.

Additionally, we paid $898 million during 2014 for acquisitions of businesses and investments in affiliates, net of cash acquired, primarily related to the following acquisitions:

| • | | Systems Made Simple – a provider of health information technology solutions, which was included in our divesture of the IS&GS business; |

| --- | --- | --- |

| • | | Zeta Associates, Inc. – a designer of systems that enable collection, processing, safeguarding and dissemination of information for intelligence and defense communities, which is included in our Space Systems business segment; and |

| • | | Industrial Defender – a provider of cybersecurity solutions for control systems in the oil and gas, utility and chemical industries, which was included in our divesture of the IS&GS business. |

Accordingly, the U.S. Government is currently operating under a continuing resolution funding measure through April 28, 2017.

During 2016, President Obama’s Administration and both houses of Congress proposed budget plans for GFY 2017 that were broadly divergent in how they would be implemented, but set overall national defense spending limits at amounts consistent with the current limit imposed by the Bipartisan Budget Act of 2015.

Significant differences remain in the various proposed budgets’ funding sources and the potential use of overseas continuing operations funds for additional DoD-based budget.

While we cannot predict budget resolution timing, we are hopeful that congressional deliberations can be concluded as soon as possible.

A substantial delay would require an extension of the continuing resolution to enable continuation of government operations beyond April 28, 2017.

While we think it is unlikely, a continuing resolution and its associated budget constraints could be extended for the full 2017 fiscal year should the varying budget positions remain unresolved.

In the event of a full year continuing resolution, we would anticipate some level of impact against our 2017 orders and associated backlog level, but minimal impact to sales, earnings and cash flows in 2017 as a large portion of our backlog work is already funded from prior fiscal years, or we could face a government shutdown of unknown duration.

as well as expressions of interest from other countries.

For example, Denmark formally committed in 2016 to 27 F-35A variant aircraft.

Japan received its first F-35A variant and two F-35A variant aircraft arrived in Israel.

Additionally in 2016, Aeronautics received an undefinitized contract modification to the Low Rate Initial Production (LRIP) 10 advance acquisition contract, which included 35 international orders.

Aeronautics received a contract in 2016 with Korea for F-16 upgrades, extending work beyond 2020.

The C-130J Super Hercules aircraft continued to draw interest from various international customers, including contracts in 2016 from France and Israel.

In 2016, Poland became the first international customer for the Joint Air-to-Surface Standoff Missile-Extended Range (JASSM-ER), a long range, conventional air-to-ground, precision-guided standoff missile.

In 2016, we were designated as the combat systems integrator for Australia’s Future Submarine program.

We expect the System Development and Demonstration portion of the development contracts will be substantially complete in 2017, with less significant efforts continuing into 2019.

On November 2, 2016, the U.S. Government unilaterally issued a contract (referred to as LRIP 9) to purchase 57 F-35 aircraft, including 42 F-35A conventional takeoff and landing variant (F-35A) aircraft at a production price that is 5.5% less than the production price for the F-35A variant in its previous contract to acquire F-35 aircraft (referred to as LRIP 8).

The unilateral contract action obligates us to perform under terms and conditions imposed by the U.S. Government.

At the time of the U.S. Government’s decision to issue the unilateral contract, the parties had reached agreement in principle on

certain terms and conditions of the contract.

However, certain key terms remained under negotiation, including the amount of cost to perform the contract, price and payment terms.

We will continue to execute on the F-35 program and are evaluating our options and path forward.

Although the amount at issue on the LRIP 9 contract is not a significant percentage of the overall contract value, the unilateral contract action could negatively affect profit and cash flows on the LRIP 9 and LRIP 10 (which remains undefinitized) contracts, and establish a precedent for future F-35 production contracts.

There is also uncertainty regarding actions that may be taken by the new Presidential Administration in light of recent criticisms of the F-35 program.

President Trump has publicly expressed concerns over past cost overruns and delays in the program as well as overall program cost and has publicly requested that a competitor price out an alternative.

Defense Secretary Mattis recently ordered a review of the program, including a comparison review of the F-35C carrier variant with a fourth generation alternative.

The estimated fair value of our outstanding debt was [removed: $16.2] [added: $16.8] billion at December 31, [removed: 2016] [added: 2017] and the outstanding principal amount was [removed: $15.3] [added: $15.5] billion, excluding unamortized discounts and issuance costs of [removed: $1.0] [added: $1.2] billion.

A 10% change in the level of interest rates would not have a material impact on the fair value of our outstanding debt at December 31, [removed: 2016.][added: 2017.]

The aggregate notional amount of our outstanding interest rate swaps at [added: both] December 31, [removed: 2016] [added: 2017] and [removed: 2015] [added: 2016] was $1.2 [removed: billion and $1.5] billion.

The aggregate notional amount of our outstanding foreign currency hedges at December 31, [removed: 2016] [added: 2017] and [removed: 2015] [added: 2016] was [removed: $4.0] [added: $4.1] billion and [removed: $4.1] [added: $4.0] billion.

At December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] the net fair value of our derivative instruments was not material (see “Note 16 – Fair Value [removed: Measurements”)] [added: Measurements”] included in our Notes to Consolidated Financial Statements).

A 10% [removed: appreciation or devaluation of the hedged currency as compared to the level] [added: unfavorable exchange rate movement] of [added: our] foreign [removed: exchange rates for currencies under contract at December 31, 2016] [added: currency contracts] would not have a material impact on the aggregate net fair value of such contracts or our consolidated financial statements.

As of December 31, [removed: 2016,] [added: 2017,] investments in the trust totaled [removed: $1.2] [added: $1.4] billion and are reflected at fair value on our consolidated balance sheet in other noncurrent assets.

Both the change in the fair value of the trust and the change in the value of the liabilities are recognized on our consolidated statements of earnings in other unallocated, net and were not material for the year ended December 31, [removed: 2016.][added: 2017.]

Additionally, as we enter into foreign currency contract to hedge foreign currency exposure on underlying transactions we believe that any movement on our foreign currency contracts would be offset by movement on the underlying transactions and, therefore, when taken together do not create material risk.

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##### [Table of Contents](#toc)

[removed: General][added: General]

In [removed: 2016, 71%] [added: 2017, 69%] of our [removed: $47.2] [added: $51.0] billion in net sales were from the U.S. Government, either as a prime contractor or as a subcontractor (including [removed: 59%] [added: 58%] from the Department of Defense (DoD)), [removed: 27%] [added: 30%] were from international customers (including foreign military sales (FMS) contracted through the U.S. Government) and [removed: 2%] [added: 1%] were from U.S. commercial and other customers.

Our main areas of focus are in defense, space, intelligence, [removed: and] homeland [removed: security.][added: security and information technology, including cybersecurity.]

We operate in an environment characterized by [added: both] increasing complexity in global security and continuing economic pressures in the U.S. and globally.

We also expect to continue to invest in technologies to fulfill new mission requirements for our customers and invest in our people so that we have the technical skills necessary to [removed: succeed without limiting our ability to return cash to our investors in the form of dividends and share repurchases.][added: succeed.]

We operate in four business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and [added: Space, previously known as] Space Systems.

[removed: _Aeronautics_][added: Aeronautics]

In [removed: 2016,] [added: 2017,] our Aeronautics business segment generated net sales of [removed: $17.8] [added: $20.1] billion, which represented [removed: 38%] [added: 39%] of our total consolidated net sales.

In [removed: 2016,] [added: 2017,] U.S. Government customers accounted for [removed: 66% and] [added: 63%,] international customers accounted for [removed: 34%] [added: 36% and U.S. commercial and other customers accounted for 1%] of Aeronautics’ net sales.

Net sales from Aeronautics’ combat aircraft products and services represented [removed: 28%] [added: 30%] of our total consolidated net sales in [added: 2017 and 28% in] both 2016 and [removed: 2015, and 26% in 2014.][added: 2015.]

| • | [removed: |] F-35 Lightning II Joint Strike Fighter [removed: –] [added: -] international multi-role, multi-variant, fifth generation stealth fighter; |

| • | [removed: |] C-130 Hercules [removed: –] [added: -] international tactical airlifter; |

| • | [removed: |] F-16 Fighting Falcon [removed: –] [added: -] low-cost, combat-proven, international multi-role fighter; |

| • | [removed: |] F-22 Raptor [removed: –] [added: -] air dominance and multi-mission fifth generation stealth fighter; and |

| • | [removed: |] C-5M Super Galaxy [removed: –] [added: -] strategic airlifter. |

The F-35 program is our largest program, generating [removed: 23%] [added: 25%] of our total consolidated net sales, as well as [removed: 62%] [added: 64%] of Aeronautics’ net sales in [removed: 2016.][added: 2017.]

Production of the aircraft is expected to continue for many years given the U.S. Government’s current inventory objective of [removed: 2,443] [added: 2,456] aircraft for the Air Force, Marine Corps and Navy; commitments from our eight international partners and three international customers; as well as expressions of interest from other countries.

During [removed: 2016,] [added: 2017,] we delivered [removed: 46] [added: 66] aircraft to our U.S. and international partners, resulting in total deliveries of [removed: 200] [added: 266] production aircraft as of December 31, [removed: 2016.][added: 2017.]

[removed: We have 173 production aircraft in backlog as of December 31, 2016,] [added: 2017,] including orders from our international partners.

For additional information on the F-35 program, [removed: including a discussion of the unilateral contract action,] see “Status of the [removed: F-35] [added: F‑35] Program” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We delivered [removed: 24] [added: 26] C-130J aircraft in [removed: 2016,] [added: 2017,] including [removed: five] [added: seven] to international customers.

We have [removed: 88] [added: 64] aircraft in our backlog as of December 31, [removed: 2016] [added: 2017] with advanced funding from customers for additional C-130J aircraft not currently in backlog.

As of December 31, [removed: 2016,] [added: 2017,] we have [removed: eight F-16] [added: four C-5] aircraft in backlog with all deliveries expected in [removed: 2017.][added: 2018.]

Although existing production contracts provide for deliveries of [removed: F-16] [added: C-5M] aircraft through [removed: late 2017,] [added: mid-2018,] we continue to seek [removed: international opportunities to deliver] additional [removed: aircraft] [added: modernization opportunities for the C-5 Galaxy fleet] beyond [removed: 2017.][added: 2018.]

[added: While production and deliveries of F-16 aircraft were completed in 2017 from our Fort Worth, Texas facilities,] Aeronautics [removed: also provides] [added: continues to provide] service-life extension, modernization and other upgrade programs for our customers’ [removed: F-16] [added: F‑16] aircraft, with existing contracts continuing for several years.

As of December 31, [removed: 2016,] [added: 2017,] we had delivered [removed: 41 C-5M] [added: 48 C‑5M] aircraft under these modernization activities, including [removed: nine] [added: seven] C-5M aircraft delivered in [removed: 2016.][added: 2017.]

In addition to the [removed: above] aircraft [removed: programs,] [added: programs discussed above,] Aeronautics is involved in advanced development programs incorporating innovative design and rapid prototype applications.

Our Advanced Development Programs (ADP) organization, also known as Skunk Works®, is focused on future systems, including unmanned [added: and manned] aerial systems and next generation capabilities for advanced strike, intelligence, surveillance, reconnaissance, situational awareness and air mobility.

[removed: _Missiles] [added: Missiles] and Fire [removed: Control_][added: Control]

In [removed: 2016,] [added: 2017,] our MFC business segment generated net sales of [removed: $6.6] [added: $7.2] billion, which represented 14% of our total consolidated net sales.

In [removed: 2016,] [added: 2017,] U.S. Government customers accounted for [removed: 61%,] [added: 64%,] international customers accounted for [removed: 37%] [added: 34%] and U.S. commercial and other customers accounted for 2% of MFC’s net sales.

| • | [removed: |] The Patriot Advanced Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD) air and missile defense programs. PAC-3 is an advanced defensive missile for the U.S. Army and international customers designed to intercept and eliminate incoming airborne threats using kinetic energy. THAAD is a transportable defensive missile system for the U.S. Government and international customers designed to engage targets both within and outside of the Earth’s atmosphere. |

| • | [removed: |] The Multiple Launch Rocket System (MLRS), Hellfire, Joint Air-to-Surface Standoff Missile (JASSM) and Javelin tactical missile programs. MLRS is a highly mobile, automatic system that fires surface-to-surface rockets and missiles from the M270 and High Mobility Artillery Rocket System platforms produced for the U.S. Army and international customers. Hellfire is an air-to-ground missile used on rotary and fixed-wing aircraft, which is produced for the U.S. Army, Navy, Marine Corps and international customers. JASSM is an air-to-ground missile launched from fixed-wing aircraft, which is produced for the [removed: U.S. Air Force and international customers. Javelin is a shoulder-fired anti-armor rocket system, which is produced for the U.S. Army, Marine Corps and international customers.] |

| • | [removed: |] The Apache, [removed: Sniper®] [added: SNIPER®] and Low Altitude Navigation and Targeting Infrared for Night (LANTIRN®) fire control systems programs. The Apache fire control system provides weapons targeting capability for the Apache helicopter for the U.S. Army and international customers. Sniper is a targeting system for several fixed-wing aircraft and LANTIRN is a combined navigation and targeting system for several fixed-wing aircraft. Both Sniper and LANTIRN are produced for the U.S. Air Force and international customers. |

| • | [removed: |] The Special Operations Forces Contractor Logistics Support Services (SOF CLSS) program provides logistics support services to the special operations forces of the U.S. military. In [removed: 2016] [added: August 2017,] we [removed: submitted] [added: were awarded] a [removed: bid] [added: contract] for the Special Operations Forces Global Logistics Support Services (SOF GLSS) [removed: contract,] [added: program,] which is a competitive follow-on contract to SOF CLSS. [removed: We anticipate an award decision on the follow-on contract in mid-2017.] |

[removed: _Rotary] [added: Rotary] and Mission [removed: Systems_][added: Systems]

In [removed: 2016,] [added: 2017,] our RMS business [removed: segment, previously known as Mission Systems and Training (MST),] [added: segment] generated net sales of [removed: $13.5] [added: $14.2] billion, which represented 28% of our total consolidated net sales.

In [removed: 2016,] [added: 2017,] U.S. Government customers accounted for [removed: 68%,] [added: 69%,] international customers accounted for 28% and U.S. commercial and other customers accounted for [removed: 4%] [added: 3%] of RMS’ net sales.

| • | [removed: |] The Black Hawk and Seahawk helicopters manufactured for U.S. and foreign governments. |

| • | [removed: |] The Aegis Combat System [added: (Aegis)] serves as a fleet ballistic missile defense system for the U.S. Navy and international customers and is also a sea and land-based element of the U.S. missile defense system. |

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The System Development and Demonstration (SDD) portion of the development contracts was substantially completed in 2017, with over 99% of flight test objectives met through over 9,200 flights.

Approximately 70 flights remain and are expected to be completed in early 2018.

Additionally, the final logistics and training capability is planned for 2018 and new Third Life structural testing added to the SDD portion in 2013 is scheduled to be completed in 2019.

We have 235 production aircraft in backlog as of December 31,

We delivered eight F-16 aircraft in 2017 and continue to seek international opportunities to deliver additional aircraft.

In November 2017, the U.S. and Bahrain signed a government-to-government agreement, or a Letter of Offer and Acceptance (LOA), regarding the sale of new production Block 70 aircraft for the Royal Bahraini Air Force.

We are transitioning F-16 production to Greenville, South Carolina, to support the Bahrain production program and other emerging F-16 production requirements.

Sustainment activities for our customers’ C-5 Galaxy aircraft are expected to continue for several years.

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U.S. Air Force and international customers.

Javelin is a shoulder-fired anti-armor rocket system, which is produced for the U.S. Army, Marine Corps and international customers.

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| | |

Recent Developments

_Divestiture of the Information Systems & Global Solutions Business_

On August 16, 2016, we completed the divestiture of our Information Systems & Global Solutions (IS&GS) business, which merged with a subsidiary of Leidos Holdings, Inc. (Leidos), in a Reverse Morris Trust transaction.

This transaction represents the culmination of the strategic review of our government information technology (IT) business and our technical services business performed in 2015 to explore whether the IS&GS business could achieve greater growth and create more value for customers and stockholders outside of Lockheed Martin.

The IS&GS business generated annual net sales of $5.6 billion in 2015 and $3.4 billion in 2016 through the August 16, 2016 divestiture date.

As part of the transaction, we also completed an exchange offer that resulted in a reduction of our common stock outstanding by approximately 9.4 million shares (approximately 3%).

Based on an opinion of outside tax counsel, subject to customary qualifications and based on factual representations, both the exchange offer and merger will qualify as tax-free transactions to us and our stockholders, except to the extent that cash was paid to our stockholders in lieu of fractional shares.

Additionally, we received a one-time special cash payment of $1.8 billion in connection with the divestiture of the IS&GS business.

The operating results of the IS&GS business have been classified as discontinued operations for all periods presented.

See “Note 3 – Acquisitions and Divestitures” included in our Notes to Consolidated Financial Statements for additional information about the divestiture of the IS&GS business.

_AWE Management Limited_

On August 24, 2016, our ownership interest in the AWE Management Limited (AWE) venture increased from 33% to 51% in exchange for our assuming a more significant role in managing the operations of the venture.

AWE operates the United Kingdom’s nuclear deterrent program and generated net sales of about $1.5 billion and net earnings of about $85 million in 2015.

As a result of the increase in ownership interest, we now hold a 51% controlling interest in AWE.

Accordingly, we are required to consolidate AWE.

AWE continues to be aligned under our Space Systems business segment.

Prior to August 24, 2016, we accounted for our investment in AWE using the equity method of accounting.

See “Note 3 –Acquisitions and Divestitures” included in our Notes to Consolidated Financial Statements for additional information about the consolidation of AWE.

##### [Table of Contents](#toc)

| --- | --- | --- |

We expect the System Development and Demonstration portion of the development contracts will be substantially complete in 2017, with less significant efforts continuing into 2019.

On November 2, 2016, the U.S. Government unilaterally definitized Low Rate Initial Production (LRIP) 9, which covers 57 aircraft.

Aeronautics currently produces F-16 aircraft for international customers with deliveries of new aircraft planned through 2017.

Aeronautics also provides service-life extension, modernization and other upgrade programs for our customers’ F-16 aircraft.

We delivered 12 F-16 aircraft in 2016.

As of December 31, 2016, we have 11 C-5 aircraft in backlog with backlog extending into 2018.

On November 6, 2015, we acquired Sikorsky Aircraft Corporation (Sikorsky) and aligned it under our RMS business segment.

Sikorsky is one of the world’s largest helicopter companies and designs, manufactures, services and supports military and commercial helicopters.

Additionally, Sikorsky offers full-spectrum aftermarket service and support solutions to commercial and military customers worldwide.

| • | | The Space Fence system, an advanced ground-based radar system for the U.S. Air Force designed to enhance the way objects in space are tracked and increase the ability to prevent collisions between such objects. |

| • | | The TPQ-53 Radar System, a sensor that quickly locates and neutralizes mortar and rocket threats, produced for the U.S. Army and international customers. |

| • | | AWE venture, which operates the United Kingdom’s nuclear deterrent program. |

| • | | The Geostationary Operational Environmental Satellite R-Series (GOES-R), which is the National Oceanic and Atmospheric Association’s next generation of meteorological satellites. |

| • | | The Mobile User Objective System (MUOS), a next-generation narrow-band satellite communication system for the U.S. Navy. |

On August 24, 2016, we obtained a controlling interest in the AWE venture, and as a result, we are required to consolidate AWE.

Previously, we accounted for our investment in AWE using the equity method of accounting.

See “Note 3 – Acquisitions and Divestitures” included in our Notes to Consolidated Financial Statements for additional information about the consolidation of AWE.

Operating profit for our Space Systems business segment also includes our share of earnings for our 50% ownership interest in United Launch Alliance (ULA).

Patents

regulate our international efforts.

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 [removed: environment,] [added: environment] and are subject to contingencies related to certain businesses we previously owned.

We believe the probability is remote that the outcome of [added: each of] these matters will have a material adverse effect on the [removed: Corporation] [added: 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.

For information regarding these matters, including current estimates of the amounts that we believe are required for remediation or clean-up to the extent estimable, see “Critical Accounting Policies [removed: –] [added: -] Environmental Matters” in Management’s Discussion and Analysis of Financial Condition and Results of Operations and “Note 14 – Legal Proceedings, Commitments and Contingencies” included in our Notes to Consolidated Financial Statements.

[added: U.S.] Government investigations of us, whether relating to government contracts or conducted for other reasons, could result in administrative, civil, or criminal liabilities, including repayments, fines or penalties being imposed upon us, suspension, proposed debarment, debarment from eligibility for future U.S. Government contracting, or suspension of export privileges.

Due in part to the complexity and pervasiveness of these requirements, we are a party to or have property subject to various lawsuits, proceedings and remediation obligations.

ITEM 4.

Mine Safety Disclosures

Not applicable.

| --- | --- |

As a result, we are a party to or have property subject to various lawsuits or proceedings involving environmental protection matters.

Due in part to their complexity and pervasiveness, such requirements have resulted in us being involved with related legal proceedings, claims and remediation obligations.

U.S.

##### [Table of Contents](#toc)

[removed: 10-K 1 d290249d10k.htm FORM] [added: Form] 10-K

[removed: ##### [Table] [added: Table] of [removed: Contents](#toc)][added: Contents]

[removed: UNITED STATES][added: UNITED STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: Washington,] [added: Washington,] D.C. [removed: 20549][added: 20549]

[removed: Form 10-K][added: Form 10-K]

[removed: ANNUAL] [added: ANNUAL] REPORT PURSUANT TO SECTION 13 OR 15(d) [removed: OF][added: OF]

[removed: THE] [added: THE] SECURITIES EXCHANGE ACT OF [removed: 1934][added: 1934]

For the fiscal year ended December 31, [removed: 2016][added: 2017]

[removed: LOCKHEED] [added: LOCKHEED] MARTIN [removed: CORPORATION][added: CORPORATION]

| [removed: Maryland | |] [added: Maryland] | | [removed: 52-1893632] [added: 52-1893632] |

| (State or other jurisdiction of incorporation or organization) | | [removed: | |] (I.R.S. Employer Identification No.) |

[removed: 6801] [added: 6801] Rockledge Drive, Bethesda, Maryland 20817-1877 [removed: (301/897-6000)][added: (301/897-6000)]

[removed: Securities] [added: Securities] registered pursuant to Section 12(b) of the [removed: Act:][added: Act:]

| Title of each class | | [removed: | |] Name of each exchange on which registered |

| Common Stock, $1 par value | | [removed: | |] New York Stock Exchange |

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, [removed: or] a smaller reporting [added: company or an emerging growth] company.

See the definitions of “large accelerated filer,” “accelerated [removed: filer” and] [added: filer,”] “smaller reporting [added: company,” and “emerging growth] company” in Rule 12b-2 of the Exchange Act.

| Large accelerated filer ☒ | [removed: |] Accelerated filer ☐ | | Non-accelerated filer ☐ | [removed: |] Smaller reporting company ☐ | [added: Emerging growth company ☐ |]

The aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant computed by reference to the last sales price of such stock, as of the last business day of the registrant’s most recently completed second fiscal quarter, which was June [removed: 24, 2016,] [added: 23, 2017,] was approximately [removed: $72.1] [added: $80.3] billion.

There were [removed: 290,315,668] [added: 285,570,742] shares of our common stock, $1 par value per share, outstanding as of January [removed: 27, 2017.][added: 26, 2018.]

[removed: DOCUMENTS] [added: DOCUMENTS] INCORPORATED BY [removed: REFERENCE][added: REFERENCE]

Portions of Lockheed Martin Corporation’s [removed: 2017] [added: 2018] Definitive Proxy Statement are incorporated by reference into Part III of this Form [removed: 10-K.][added: 10‑K.]

[removed: For] [added: For] the Year Ended December 31, [removed: 2016][added: 2017]

| [removed: PART I | | | | Page] [added: PART I] | | [added: Page] |

| ITEM 1. | [removed: | [Business](#tx290249_1) | | | 3] [added: [Business](#s8C2FEC11A01E9DF29DD472DCE3EBEC97)] | [added: [3](#s8C2FEC11A01E9DF29DD472DCE3EBEC97)] |

| ITEM 1A. | [removed: |] [Risk [removed: Factors](#tx290249_2) | | | 10] [added: Factors](#sC9D818C10C45122E186672DCE40DAA61)] | [added: [9](#sC9D818C10C45122E186672DCE40DAA61)] |

| ITEM 1B. | [removed: |] [Unresolved Staff [removed: Comments](#tx290249_3) | | | 19] [added: Comments](#sBF8EC89F4F438C19307A72DCE43F658F)] | [added: [17](#sBF8EC89F4F438C19307A72DCE43F658F)] |

| ITEM 2. | [removed: | [Properties](#tx290249_4) | | | 20] [added: [Properties](#s1602FFB925D17126840F72DCDFD20E42)] | [added: [18](#s1602FFB925D17126840F72DCDFD20E42)] |

| ITEM 3. | [removed: |] [Legal [removed: Proceedings](#tx290249_5) | | | 20] [added: Proceedings](#s2173EC62D0639D463ED072DCE492893D)] | [added: [18](#s2173EC62D0639D463ED072DCE492893D)] |

| ITEM 4. | [removed: |] [Mine Safety [removed: Disclosures](#tx290249_6) | | | 21] [added: Disclosures](#s68EBB3194D9B3A86538D72DCE4B4A0BD)] | [added: [18](#s68EBB3194D9B3A86538D72DCE4B4A0BD)] |

| ITEM 4(a). | [removed: |] [Executive Officers of the [removed: Registrant](#tx290249_7) | | | 22] [added: Registrant](#s3670236B2DBFDF9D769072DCE4E5F0F6)] | [added: [19](#s3670236B2DBFDF9D769072DCE4E5F0F6)] |

| [removed: PART II | | | |] [added: PART II] | | |

| ITEM 5. | [removed: |] [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#tx290249_8) | | | 23] [added: Securities](#s7FFF85D28241C261E44072DCDE92405C)] | [added: [20](#s7FFF85D28241C261E44072DCDE92405C)] |

| ITEM 6. | [removed: |] [Selected Financial [removed: Data](#tx290249_9) | | | 25] [added: Data](#s0E7E5057D7625BCFA71572DCE55A3511)] | [added: [22](#s0E7E5057D7625BCFA71572DCE55A3511)] |

| ITEM 7. | [removed: |] [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#tx290249_10) | | | 27] [added: Operations](#s4D6090314CCE4929087472DCE58CEA12)] | [added: [24](#s4D6090314CCE4929087472DCE58CEA12)] |

| ITEM 7A. | [removed: |] [Quantitative and Qualitative Disclosures About Market [removed: Risk](#tx290249_11) | | | 59] [added: Risk](#s681366831512AFA4153472DCE6FB2C6C)] | [added: [56](#s681366831512AFA4153472DCE6FB2C6C)] |

| ITEM 8. | [removed: |] [Financial Statements and Supplementary [removed: Data](#tx290249_12) | | | 61] [added: Data](#s82B7F7D069199C61ED3C72DCE72C366D)] | [added: [58](#s82B7F7D069199C61ED3C72DCE72C366D)] |

| ITEM 9. | [removed: |] [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#tx290249_13) | | | 105] [added: Disclosure](#sE2A85224DB016948853872DCECF594F7)] | [added: [103](#sE2A85224DB016948853872DCECF594F7)] |

| ITEM 9A. | [removed: |] [Controls and [removed: Procedures](#tx290249_14) | | | 105] [added: Procedures](#sCF1DBD7DEDA2EEC980A472DCED09BBB4)] | [added: [103](#sCF1DBD7DEDA2EEC980A472DCED09BBB4)] |

10-K 1 lmtq4201710k.htm FORM 10-K

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Lockheed Martin Corporation

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| [SIGNATURES](#s8A9830861944B4AA12B572DCEEFD9FCC) | | [110](#s8A9830861944B4AA12B572DCEEFD9FCC) |

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Table of Contents

| [SIGNATURES](#tx290249_23) | | | | | 114 | |

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##### [Table of Contents](#toc)

At December 31, [removed: 2016,] [added: 2017,] we owned or leased building space (including offices, manufacturing plants, warehouses, service centers, laboratories and other facilities) at approximately [removed: 400] [added: 375] locations primarily in the U.S. Additionally, we manage or occupy [removed: various Government-owned] [added: approximately 15 government-owned] facilities under lease and other arrangements.

At December 31, [removed: 2016,] [added: 2017,] we had significant operations in the following locations:

| • | [removed: | Aeronautics –] [added: Aeronautics -] Palmdale, California; Marietta, Georgia; Greenville, South Carolina; and Fort Worth, Texas. |

| • | [removed: | Missiles] [added: Missiles] and Fire [removed: Control –] [added: Control \-] Camden, Arkansas; [removed: Lexington, Kentucky;] Ocala and Orlando, Florida; [added: Lexington, Kentucky;] and Grand Prairie, Texas. |

| • | [removed: | Rotary] [added: Rotary] and Mission [removed: Systems –] [added: Systems \-] Colorado Springs, Colorado; [added: Shelton and] Stratford, Connecticut; [removed: Orlando,] [added: Orlando and Jupiter,] Florida; Moorestown/Mt. Laurel, New Jersey; Owego and Syracuse, New York; [removed: Akron, Ohio;] Manassas, Virginia; and Mielec, Poland. |

| • | [removed: | Space Systems –] [added: Space \-] Sunnyvale, California; Denver, Colorado; [removed: Albuquerque, New Mexico;] Valley Forge, Pennsylvania; and Reading, England. |

| • | [removed: | Corporate activities –] [added: Corporate activities \-] Bethesda, Maryland. |

The following is a summary of our square feet of floor space by business segment at December 31, [removed: 2016] [added: 2017] (in millions):

| | | [removed: Owned] [added: Owned] | | [removed: Leased] | | [removed: Government- Owned] [added: Leased] | | [removed: Total] | [added: | Government- Owned | | | | Total | | |]

| Missiles and Fire Control | | [removed: 6.2] [added: 6.3] | | [removed: 2.9] | | [added: 2.8 | | | |] 1.8 | | [added: | |] 10.9 | [added: | |]

| Rotary and Mission Systems | | 11.2 | | [removed: 7.6] | | [added: 6.6 | | | |] 0.4 | | [removed: 19.2] | [added: | 18.2 | | |]

| Corporate activities | | 2.7 | | [removed: 1.0] | | [added: 0.9 | | | |] — | | [removed: 3.7] | [added: | 3.6 | | |]

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| Aeronautics | | 5.0 | | | | 2.1 | | | | 14.4 | | | | 21.5 | | |

| Space | | 8.6 | | | | 1.9 | | | | 6.7 | | | | 17.2 | | |

| Total | | 33.8 | | | | 14.3 | | | | 23.3 | | | | 71.4 | | |

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In connection with the increase in ownership interest of AWE Management Limited, we assumed 5.8 million square feet of Government-owned floor space.

As a result of our divestiture of the IS&GS business, we reduced our owned and leased floor space by 3.4 million square feet.

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| Aeronautics | | 5.8 | | 2.4 | | 14.5 | | 22.7 |

| Space Systems | | 8.4 | | 2.4 | | 13.6 | | 24.4 |

| Total | | 34.3 | | 16.3 | | 30.3 | | 80.9 |

Our executive officers as of February [removed: 9, 2017] [added: 6, 2018] are listed below, with their ages on that date, positions and offices currently held, and principal occupation and business experience during at least the last five years.

[removed: Richard] [added: Richard] F.

Ambrose (age [removed: 58),] [added: 59),] Executive Vice President [removed: –] [added: -] Space [removed: Systems]

Mr. Ambrose has served as Executive Vice President of Space [removed: Systems] since April 2013.

He previously served as Vice President and Deputy, Space [removed: Systems] from July 2012 to March [removed: 2013; and President, Information Systems & Global Solutions – Security from January 2011 to June 2012.][added: 2013.]

[removed: Dale] [added: Dale] P.

Bennett (age [removed: 60),] [added: 61),] Executive Vice President [removed: –] [added: -] Rotary and Mission [removed: Systems][added: Systems]

[removed: Orlando] [added: Orlando] P.

Carvalho (age [removed: 58),] [added: 59),] Executive Vice President [removed: – Aeronautics][added: - Aeronautics]

He previously served as Executive Vice President and General Manager, F-35 Program from March 2012 to March [removed: 2013; Vice President and Deputy, F-35 Program from August 2011 to March 2012.][added: 2013.]

[removed: Brian] [added: Brian] P.

Colan (age [removed: 56),] [added: 57),] Vice President, Controller, and Chief Accounting [removed: Officer][added: Officer]

He previously served as Vice President and Controller, Missiles and Fire Control from January 2013 to August [removed: 2014; and Vice President and Controller, Electronic Systems from October 2011 to January 2013.][added: 2014.]

[removed: Edwards] [added: Frank St. John] (age [removed: 60),] [added: 51),] Executive Vice President [removed: –] [added: -] Missiles and Fire [removed: Control][added: Control]

Mr. [removed: Edwards] [added: St. John] has served as Executive Vice President of Missiles and Fire Control since [removed: December 2012.][added: January 2018.]

[removed: Marillyn] [added: Marillyn] A.

Hewson (age [removed: 63),] [added: 64),] Chairman, President and Chief Executive [removed: Officer][added: Officer]

Ms. Hewson has served as Chairman, President and Chief Executive Officer of Lockheed Martin since January [removed: 2014.][added: 2014 and as Chief Executive Officer and President from January 2013 to December 2013.]

[removed: Maryanne] [added: Maryanne] R.

Lavan (age [removed: 57),] [added: 58),] Senior Vice President, General Counsel and Corporate [removed: Secretary][added: Secretary]

[removed: John] [added: John] W.

Mollard (age [removed: 59),] [added: 60),] Vice President and [removed: Treasurer][added: Treasurer]

[removed: Bruce] [added: Bruce] L.

Tanner (age [removed: 57),] [added: 58),] Executive Vice President and Chief Financial [removed: Officer][added: Officer]

[removed: PART II][added: PART II]

Prior to that, she has served over 30 years at Lockheed Martin in roles of increasing responsibility.

He previously served as Executive Vice President and Deputy, Programs, Missiles and Fire Control from June 2017 to January 2018.

Prior to that, he served as Vice President, Orlando Operations and Tactical Missiles/Combat Maneuver Systems from 2011 to May 2017.

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| ITEM 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |

At January 26, 2018, we had 27,731 holders of record of our common stock, par value $1 per share.

Our common stock is traded on the New York Stock Exchange (NYSE) under the symbol LMT.

Information concerning the high and low reported sales prices of Lockheed Martin common stock and dividends paid during the past two years is as follows:

Common Stock - Dividends Paid Per Share and Market Prices

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| | | Dividends Paid Per Share | | | | | | | | Stock Prices (High-Low) | | | | | | | | | | | | | | |

| Quarter | | 2017 | | | | 2016 | | | | 2017 | | | | | | | | 2016 | | | | | | |

| First | | $ | 1.82 | | | $ | 1.65 | | | $ | 274.57 | | \- | $ | 248.00 | | | $ | 223.19 | | \- | $ | 200.47 | |

| Second | | 1.82 | | | | 1.65 | | | | 284.98 | | | \- | 264.04 | | | | 245.37 | | | \- | 218.34 | | |

| Third | | 1.82 | | | | 1.65 | | | | 311.36 | | | \- | 274.69 | | | | 266.93 | | | \- | 235.28 | | |

| Fourth | | 2.00 | | | | 1.82 | | | | 323.94 | | | \- | 303.31 | | | | 269.90 | | | \- | 228.50 | | |

| Year | | $ | 7.46 | | | $ | 6.77 | | | $ | 323.94 | | \- | $ | 248.00 | | | $ | 269.90 | | \- | $ | 200.47 | |

Stockholder Return Performance Graph

The following graph compares the total return on a cumulative basis of $100 invested in Lockheed Martin common stock on December 31, 2012 to the Standard and Poor’s (S&P) 500 Index and the S&P Aerospace & Defense Index.


The S&P Aerospace & Defense Index comprises Arconic Inc., General Dynamics Corporation, Harris Corporation, L3 Technologies, Inc., Lockheed Martin Corporation, Northrop Grumman Corporation, Raytheon Company, Rockwell Collins, Inc., Textron Inc., The Boeing Company, Transdigm Group Inc., and United Technologies Corporation.

The stockholder return performance indicated on the graph is not a guarantee of future performance.

This graph is not deemed to be “filed” with the U.S. Securities and Exchange Commission or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934 (the Exchange Act), and should not be deemed to be incorporated by reference into any of our prior or subsequent filings under the Securities Act of 1933 or the Exchange Act.

Purchases of Equity Securities

There were no sales of unregistered equity securities during the quarter ended December 31, 2017.

The following table provides information about our repurchases of our common stock registered pursuant to Section 12 of the Exchange Act during the quarter ended December 31, 2017.

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| Period (a) | | Total Number of Shares Purchased | | | Average Price Paid Per Share | | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b) | | | Amount Available for Future Share Repurchases Under the Plans or Programs (b) | | |

| | | | | | | | | | | | | (in millions) | | |

| September 25, 2017 – October 29, 2017 | | 666,380 | | | $ | 314.86 | | | 666,275 | | | $ | 3,794 | |

| October 30, 2017 – November 26, 2017 | | 524,021 | | | $ | 311.03 | | | 524,010 | | | $ | 3,631 | |

| November 27, 2017 – December 31, 2017 | | 418,796 | | | $ | 314.71 | | | 408,049 | | | $ | 3,503 | |

| Total | | 1,609,197 | | (c) | $ | 313.57 | | | 1,598,334 | | | | | |

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| (a) | We close our books and records on the last Sunday of each month to align our financial closing with our business processes, except for the month of December, as our fiscal year ends on December 31. As a result, our fiscal months often differ from the calendar months. For example, September 25, 2017 was the first day of our October 2017 fiscal month. |

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Not applicable.

##### [Table of Contents](#toc)

| ITEM 4(a). | Executive Officers of the Registrant. |

He previously served as President, Mission Systems & Sensors from August 2011 to December 2012.

Richard H.

He previously served as Executive Vice President, Program and Technology Integration, Missiles and Fire Control from June 2012 to December 2012; and Vice President, Tactical Missiles and Combat Maneuver Systems from July 2005 to June 2012.

Having served over 30 years at Lockheed Martin in roles of increasing responsibility, she held the positions of Chief Executive Officer and President from January 2013 to December 2013; President and Chief Operating Officer from November 2012 to December 2012; and Executive Vice President – Electronic Systems from January 2010 to November 2012.

| [removed: _(In] [added: (In] millions, except per share [removed: data)_] [added: data)] | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | |

| [removed: Operating results] [added: Operating results] | | | | | | | | | | | | | | | | | | | | |

| Net sales | | [removed: $] [added: $] | [removed: 47,248] [added: 51,048] | | | $ | [removed: 40,536] [added: 47,248] | | | $ | [removed: 39,946] [added: 40,536] | | | $ | [removed: 39,243] [added: 39,946] | | | $ | [removed: 40,573] [added: 39,243] | |

| Operating profit [removed: (a)(b)] [added: (a)(b)(c)] | | [added: 5,921] | [removed: 5,549] | | | [added: 5,549] | [removed: 4,712] | | | [added: 4,712] | [removed: 5,012] | | | [added: 5,012] | [removed: 4,066] | | | [added: 4,066] | [removed: 3,748] | |

| Net earnings from continuing operations [removed: (a)(b)] [added: (a)(b)(c)(d)] | | [added: 1,929] | [removed: 3,753] | | | [added: 3,753] | [removed: 3,126] | | | [added: 3,126] | [removed: 3,253] | | | [added: 3,253] | [removed: 2,701] | | | [added: 2,701] | [removed: 2,297] | |

| Net earnings from discontinued operations [removed: (c)] [added: (e)] | | [added: 73] | [removed: 1,549] | | | [added: 1,549] | [removed: 479] | | | [added: 479] | [removed: 361] | | | [added: 361] | [removed: 280] | | | [added: 280] | [removed: 448] | |

| Net earnings [removed: (b)] [added: (b)(c)(d)] | | [added: 2,002] | [removed: 5,302] | | | [added: 5,302] | [removed: 3,605] | | | [added: 3,605] | [removed: 3,614] | | | [added: 3,614] | [removed: 2,981] | | | [added: 2,981] | [removed: 2,745] | |

| Basic [removed: (a)(b)] [added: (a)(b)(c)(d)] | | [added: 6.70] | [removed: 12.54] | | | [added: 12.54] | [removed: 10.07] | | | [added: 10.07] | [removed: 10.27] | | | [added: 10.27] | [removed: 8.42] | | | [added: 8.42] | [removed: 7.10] | |

| Diluted [removed: (a)(b)] [added: (a)(b)(c)(d)] | | [added: 6.64] | [removed: 12.38] | | | [added: 12.38] | [removed: 9.93] | | | [added: 9.93] | [removed: 10.09] | | | [added: 10.09] | [removed: 8.27] | | | [added: 8.27] | [removed: 6.99] | |

| Basic | | [added: 0.26] | [removed: 5.17] | | | [added: 5.17] | [removed: 1.55] | | | [added: 1.55] | [removed: 1.14] | | | [added: 1.14] | [removed: 0.87] | | | [added: 0.87] | [removed: 1.38] | |

| Diluted | | [added: 0.25] | [removed: 5.11] | | | [added: 5.11] | [removed: 1.53] | | | [added: 1.53] | [removed: 1.12] | | | [added: 1.12] | [removed: 0.86] | | | [added: 0.86] | [removed: 1.36] | |

| Basic [removed: (b)] [added: (b)(c)(d)] | | [added: 6.96] | [removed: 17.71] | | | [added: 17.71] | [removed: 11.62] | | | [added: 11.62] | [removed: 11.41] | | | [added: 11.41] | [removed: 9.29] | | | [added: 9.29] | [removed: 8.48] | |

| Diluted [removed: (b)] [added: (b)(c)(d)] | | [added: 6.89] | [removed: 17.49] | | | [added: 17.49] | [removed: 11.46] | | | [added: 11.46] | [removed: 11.21] | | | [added: 11.21] | [removed: 9.13] | | | [added: 9.13] | [removed: 8.36] | |

| [removed: Cash] [added: Cash] dividends declared per common [removed: share] [added: share] | | [removed: $] [added: $] | [removed: 6.77] [added: 7.46] | | | $ | [removed: 6.15] [added: 6.77] | | | $ | [removed: 5.49] [added: 6.15] | | | $ | [removed: 4.78] [added: 5.49] | | | $ | [removed: 4.15] [added: 4.78] | |

| [removed: Balance sheet (d)] [added: Balance sheet (f)] | | | | | | | | | | | | | | | | | | | | |

| Cash, cash equivalents and short-term investments (b) | | [removed: $] [added: $] | [removed: 1,837] [added: 2,861] | | | $ | [removed: 1,090] [added: 1,837] | | | $ | [removed: 1,446] [added: 1,090] | | | $ | [removed: 2,617] [added: 1,446] | | | $ | [removed: 1,898] [added: 2,617] | |

| Total current assets [removed: (e)] [added: (g)] | | [added: 17,461] | [removed: 15,108] | | | [added: 15,108] | [removed: 14,573] | | | [added: 14,573] | [removed: 10,684] | | | [added: 10,684] | [removed: 12,081] | | | [added: 12,081] | [removed: 12,401] | |

| Goodwill [removed: (f)] [added: (h)] | | [added: 10,807] | [removed: 10,764] | | | [added: 10,764] | [removed: 10,695] | | | [added: 10,695] | [removed: 7,964] | | | [added: 7,964] | [removed: 7,698] | | | [added: 7,698] | [removed: 7,697] | |

| Total assets [removed: (b)(e)(f)] [added: (b)(g)(h)] | | [added: 46,521] | [removed: 47,806] | | | [added: 47,806] | [removed: 49,304] | | | [added: 49,304] | [removed: 37,190] | | | [added: 37,190] | [removed: 36,352] | | | [added: 36,352] | [removed: 38,890] | |

| Total current liabilities [removed: (e)] [added: (g)] | | [added: 12,637] | [removed: 12,542] | | | [added: 12,542] | [removed: 13,918] | | | [added: 13,918] | [removed: 10,954] | | | [added: 10,954] | [removed: 10,983] | | | [added: 10,983] | [removed: 11,993] | |

| Total debt, net [removed: (g)] [added: (i)] | | [added: 14,263] | [removed: 14,282] | | | [added: 14,282] | [removed: 15,261] | | | [added: 15,261] | [removed: 6,142] | | | [added: 6,142] | [removed: 6,127] | | | [added: 6,127] | [removed: 6,280] | |

| Total liabilities [removed: (b)(e)(g)] [added: (b)(g)(i)] | | [added: 47,130] | [removed: 46,200] | | | [added: 46,200] | [removed: 46,207] | | | [added: 46,207] | [removed: 33,790] | | | [added: 33,790] | [removed: 31,434] | | | [added: 31,434] | [removed: 38,851] | |

| Total [added: (deficit)] equity [removed: (b)] [added: (b)(d)] | | [added: (609] | [removed: 1,606] | [added: )] | | [added: 1,606] | [removed: 3,097] | | | [added: 3,097] | [removed: 3,400] | | | [added: 3,400] | [removed: 4,918] | | | [added: 4,918] | [removed: 39] | |

| [removed: Common] [added: Common] shares in stockholders’ equity at [removed: year-end] [added: year-end] | | [added: 284] | [removed: 289] | | | [added: 289] | [removed: 303] | | | [added: 303] | [removed: 314] | | | [added: 314] | [removed: 319] | | | [added: 319] | [removed: 321] | |

| [removed: Cash] [added: Cash] flow [removed: information] [added: information] | | | | | | | | | | | | | | | | | | | | |

| Net cash provided by operating activities [removed: (b)(h)] [added: (b)(j)] | | [removed: $] [added: $] | [removed: 5,189] [added: 6,476] | | | $ | [removed: 5,101] [added: 5,189] | | | $ | [removed: 3,866] [added: 5,101] | | | $ | [removed: 4,546] [added: 3,866] | | | $ | [removed: 1,561] [added: 4,546] | |

| Net cash used for investing activities [removed: (i)] [added: (k)] | | [added: (1,147] | [removed: (985] | [removed: )] [added: )] | | [added: (985] | [removed: (9,734] | ) | | [added: (9,734] | [removed: (1,723] | ) | | [added: (1,723] | [removed: (1,121] | ) | | [added: (1,121] | [removed: (1,177)] | [added: )] |

| Net cash [removed: provided by] (used for) [added: provided by] financing activities [removed: (j)] [added: (l)] | | [added: (4,305] | [removed: (3,457] | [removed: )] [added: )] | | [added: (3,457] | [removed: 4,277] | [added: )] | | [added: 4,277] | [removed: (3,314] | [removed: )] | | [added: (3,314] | [removed: (2,706] | ) | | [added: (2,706] | [removed: (2,068)] | [added: )] |

| [removed: |] (a) | Our operating profit and net earnings from continuing operations and earnings per share from continuing operations were affected by severance charges of $80 million ($52 million or $0.17 per share, after tax) in 2016; severance charges of $82 million ($53 million or $0.17 per share, after tax) in 2015; severance charges of $156 million ($101 million or $0.31 per share, after tax) in 2013. See “Note 15 – Restructuring Charges” included in our Notes to Consolidated Financial Statements for a discussion of 2016 and 2015 restructuring charges. |

| [removed: |] (b) | The impact of our postretirement benefit plans can cause our operating profit, net earnings, cash flows and certain amounts recorded on our consolidated balance sheets to fluctuate. Accordingly, our earnings were affected by a FAS/CAS pension adjustment of [added: $876 million in 2017,] $902 [removed: million,] [added: million in 2016,] $400 million [removed: and] [added: in 2015,] $317 million in [removed: 2016, 2015 and 2014] [added: 2014,] and $(500) million [removed: and $(832) million] in [removed: 2013 and 2012.] [added: 2013.] We made [added: $46 million in 2017,] $23 million in [removed: 2016] [added: 2016,] and $5 million in 2015 of pension contributions (for our [removed: newly established] Sikorsky [removed: plan),] [added: plan) and] $2.0 billion in 2014, [added: and] $2.25 billion in 2013 [removed: and $3.6 billion in 2012] (for our legacy plans), and these contributions caused fluctuations in our operating cash flows and cash balance between each of those years. Fluctuations in our total assets, total liabilities and [removed: stockholders’] equity between years [removed: 2012] [added: 2013] to 2014 primarily were due to the annual measurement of the funded status of our postretirement benefit plans. See “Critical Accounting Policies [removed: –] [added: -] Postretirement Benefit Plans” in Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information. |

| [removed: | (c)] [added: (e)] | Our net earnings from discontinued operations includes a $1.2 billion net gain in 2016 related to the [removed: divesture] [added: divestiture] of our IS&GS business. |

| [removed: | (d)] [added: (f)] | Certain prior period amounts have been reclassified to conform to current year presentation. |

| [removed: | (e)] [added: (g)] | Included in total current assets are assets of discontinued operations of $1.0 billion in 2015, $900 million in 2014, [removed: $1.0 billion in 2013,] and [removed: $1.1] [added: $1.0] billion in [removed: 2012.] [added: 2013.] Included in total current liabilities are liabilities of discontinued operations of $900 million in each of the years 2015, 2014 and [removed: 2013 and $1.0 billion in 2012.] [added: 2013.] Included in total assets are assets of discontinued operations of $4.1 billion in 2015, $4.2 billion in 2014, [removed: $3.9 billion in 2013,] and [removed: $4.0] [added: $3.9] billion in [removed: 2012.] [added: 2013.] Included in total liabilities are liabilities of discontinued operations of $1.2 billion in [added: each of the years] 2015, [removed: $1.2 billion in] 2014, [removed: $1.2 billion in 2013,] and [removed: $1.3 billion in 2012.] [added: 2013.] |

| [removed: | (f)] [added: (h)] | The increase in our goodwill and total assets from 2014 to 2015 was primarily attributable to the Sikorsky acquisition, which resulted in an increase in goodwill and total assets as of December 31, 2015 of $2.8 billion and $11.7 billion, respectively. |

| [removed: | (g)] [added: (i)] | The increase in our total debt and total liabilities from 2014 to 2015 was primarily a result of the debt incurred to fund the Sikorsky acquisition, as well as the issuance of debt in February of 2015 for general corporate purposes (see “Note 3 – Acquisitions and Divestitures” and “Note 10 – Debt” included in our Notes to Consolidated Financial Statements). |

| [removed: | (h)] [added: (j)] | The fluctuations in our net cash provided by operating activities between years [removed: 2012] [added: 2013] to [removed: 2016] [added: 2017] were due to changes in pension contributions, working capital and tax payments made. See “Liquidity and Cash Flows” in Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information. |

| [removed: | (i)] [added: (k)] | The increase in our cash used for investing activities in 2015 was attributable to acquisitions of businesses, including the $9.0 billion acquisition of Sikorsky in 2015, net of cash acquired (see “Note 3 – Acquisitions and Divestitures” included in our Notes to Consolidated Financial Statements). |

| [removed: | (j)] [added: (l)] | The increase in our cash provided by financing activities in 2015 was primarily a result of the debt incurred to fund the Sikorsky acquisition (see “Note 10 – Debt” included in our Notes to Consolidated Financial Statements). The increase in our cash used for financing activities in 2014 was due to decreased proceeds from stock option exercises; higher dividends paid and increased payments for repurchases of common stock. See “Liquidity and Cash Flows” in Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information. |

| [removed: | (k)] [added: (m)] | Backlog at December 31, [removed: 2016 and] 2015 includes approximately [removed: $14.7 billion and approximately] $15.6 billion related to Sikorsky and excludes backlog at December 31, 2015, 2014, [removed: 2013] and [removed: 2012] [added: 2013] of $4.8 billion, $6.0 billion, [removed: $6.3 billion] and [removed: $6.7] [added: $6.3] billion related to our IS&GS business, which we divested in 2016. |

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| Backlog (m) | | $ | 99,936 | | | $ | 96,158 | | | $ | 94,756 | | | $ | 74,500 | | | $ | 76,300 | |

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| (c) | In the fourth quarter of 2017, we recorded a previously deferred non-cash gain of $198 million related to properties sold in 2015 as a result of completing our remaining obligations, which increased net earnings from continuing operations by $122 million ($0.42 per share). |

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| (d) | In the fourth quarter of 2017, we recorded a net one-time tax charge of $1.9 billion ($6.69 per share), substantially all of which was non-cash, primarily related to the estimated impact of the Tax Cuts and Jobs Act (see “Note 9 – Income Taxes” included in our Notes to Consolidated Financial Statements). This charge along with our annual re-measurement adjustment related to our postretirement benefit plans of $1.4 billion resulted in a deficit in our total equity as of December 31, 2017. |

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The operating results of the IS&GS business have been classified as discontinued operations for all periods presented and the assets and liabilities of the IS&GS business have been classified as assets and liabilities of discontinued operations for all periods presented.

However, the cash flows generated by the IS&GS business have not been reclassified in our cash flow information as we retained the cash as part of the divestiture of the IS&GS business.

See “Note 3 – Acquisitions and Divestitures” included in our Notes to Consolidated Financial Statements for additional information about the divestiture of the IS&GS business.

| Backlog (k) | | $ | 96,200 | | | $ | 94,800 | | | $ | 74,500 | | | $ | 76,300 | | | $ | 75,600 | |

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##### [Table of Contents](#toc)

[removed: _Report] [added: Report] of Ernst & Young [removed: LLP,_][added: LLP,]

[removed: _Independent] [added: Independent] Registered Public Accounting [removed: Firm,_][added: Firm,]

[removed: _on] [added: on] the Audited Consolidated Financial [removed: Statements_][added: Statements]

We have audited the accompanying consolidated balance sheets of Lockheed Martin Corporation [added: (the “Corporation”)] as of December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] and the related consolidated statements of earnings, comprehensive income, equity, and cash [removed: flows] [added: flows,] for each of the three years in the period ended December 31, [removed: 2016.][added: 2017.]

Our responsibility is to express an opinion on [removed: these] [added: the Corporation’s] financial statements based on our audits.

We conducted our audits in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material [removed: misstatement.][added: misstatement, whether due to error or fraud.]

[removed: An audit includes] [added: Such procedures include] examining, on a test basis, evidence [removed: supporting] [added: regarding] the amounts and disclosures in the financial statements.

[removed: An audit] [added: Our audits] also [removed: includes assessing] [added: included evaluating] the accounting principles used and significant estimates made by management, as well as evaluating the overall [added: presentation of the] financial [removed: statement presentation.][added: statements.]