Lockheed Martin (LMT) 10-K risk factor changes: FY2021 vs FY2020

We depend heavily on contracts with the U.S. [removed: Government, including contracts related to the F-35 program,] [added: Government] for a substantial portion of our business.

Changes in the U.S. Government’s [removed: priorities and] [added: priorities, or] delays or reductions in spending could have a material adverse effect on our business.

We derived [removed: 74%] [added: 71%] of our total [added: consolidated] net sales from the U.S. Government in [removed: 2020,] [added: 2021,] including [removed: 64%] [added: 62%] from the DoD.

Consequently, contracts are often partially funded initially and additional funds are committed only as Congress makes further [removed: appropriations.][added: appropriations over time.]

If we incur costs in excess of funds obligated on a [removed: contract,] [added: contract or in advance of a contract award,] we may be at risk [removed: for reimbursement] of [added: not being reimbursed for] those costs unless and until additional funds are obligated [removed: to] [added: under] the [removed: contract.][added: contract or the contract is awarded and funded.]

The F-35 program, which consists of multiple development, production and sustainment contracts, is our largest [removed: program.][added: program and represented 27% of our total consolidated net sales in 2021.]

Given the size and complexity of the F-35 program, we anticipate that there will be continual reviews related to aircraft performance, program schedule, cost, and requirements as part of the DoD, Congressional, and international [removed: partners’] [added: countries’] oversight and budgeting processes.

Current program challenges [removed: include, but are not limited to, supplier] [added: include supplier, Lockheed Martin] and partner performance (including COVID-19 [removed: related] [added: performance-related] challenges), software development, the [removed: availability and] receipt of funding for contracts on a timely basis, execution of future flight tests and findings resulting from testing and operating the aircraft, the level of cost associated with [removed: life-cycle operations and] [added: life cycle operations,] sustainment and [removed: warranties, continuing] [added: potential contractual obligations, and the ability] to [added: continue to] reduce the unit production [removed: costs,] [added: costs] and [removed: achieving cost targets.][added: improve affordability.]

[added: If appropriations were delayed or a government] shutdown were to occur and were to continue for an extended period of time, we could be at risk of program cancellations and other disruptions and nonpayment.

[removed: If] [added: When] the U.S. Government operates under a continuing resolution, new contract and program starts are restricted and funding for our programs may be unavailable, reduced or delayed.

Shifting funding [removed: priorities, including COVID-19 related spending,] [added: priorities] or federal budget compromises, could also result in reductions in overall defense spending [added: on an absolute or inflation-adjusted basis,] which could adversely impact our business.

Changes in funding priorities [removed: may afford new or additional opportunities for our businesses in terms of existing, follow-on or replacement programs, but] could also reduce opportunities in existing programs and in [removed: planned] [added: future] programs where we intend to compete.

While we would expect to compete and be well positioned as the incumbent on existing programs, we may not be successful [removed: or,] [added: and,] even if [added: we are] successful, the replacement programs may be funded at lower levels.

We are subject to [removed: a number of] procurement laws and regulations, including [added: those that enable] the U.S. [removed: Government’s ability] [added: Government] to terminate contracts for convenience.

We must comply with [removed: and are affected by] laws and regulations relating to the award, administration and performance of U.S. Government contracts.

[removed: In some instances, these] [added: Government contract] laws and regulations [added: can] impose terms or obligations that are different than those typically found in commercial transactions.

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

In addition, [removed: on those contracts for which we are teamed with others and are not] the [removed: prime contractor, the] U.S. Government could terminate a prime contract under which we are a subcontractor, notwithstanding the fact that our performance and the quality of the products or services we delivered were consistent with our contractual obligations as a subcontractor.

[removed: Additionally, our] [added: Our] programs for the U.S. Government often operate for periods of time under Undefinitized Contract Actions (UCAs), which means that we begin performing our obligations before the terms, specifications or price are finally agreed to between the parties.

The U.S. Government has [added: (and has exercised in] the [added: past) the] ability to unilaterally definitize contracts, which, absent a successful appeal, obligates us to perform under terms and conditions imposed by the U.S. Government.

[removed: The U.S. Government’s power to unilaterally definitize a contract] [added: This] can affect our ability to negotiate mutually agreeable contract terms and, if a contract is unilaterally imposed upon us, it may negatively affect our expected profit and cash flows on a program or impose burdensome terms.

Evolving U.S. Government procurement [removed: policies and] [added: policies,] increased emphasis on cost over performance and rapid acquisition [added: initiatives] could adversely affect our business.

Our customers also may [removed: pursue] [added: seek to negotiate] non-traditional contract provisions or contract [removed: types in negotiation of contracts.][added: types.]

[removed: By their nature, the] technical challenges, costs and timing of development programs are difficult to estimate and the use of fixed-price instead of cost-reimbursable contracts for such programs increases the financial risk to the contractor.

[removed: This increased risk may lead to losses on fixed price development programs or] [added: These risks] may cause us not to bid on [added: certain] future [removed: fixed-price development] programs, which could adversely affect our future growth prospects and financial performance.

In addition, given the customer’s emphasis on cost, even if we effectively manage program life-cycle and sustainment costs and meet customer affordability targets, the customer may elect to recompete programs at the end of existing contracts, which may result in a lost business [removed: opportunity.][added: opportunity or reduce operating margins.]

From time to time, the U.S. Government also has proposed contract [removed: terms] [added: terms, imposed internal policies,] or taken positions that represent fundamental changes from historical practices or that we believe are inconsistent with the FAR or other laws and regulations and which could adversely affect our business.

The DoD [removed: also] is increasingly pursuing rapid [removed: development and] acquisition [removed: of new technologies through rapid acquisition] pathways and [removed: procedures,] [added: procedures for new technologies,] including through [removed: other] [added: so called “other] transaction [removed: authority] [added: authority”] agreements (OTAs).

While OTAs do not currently represent a significant portion of our overall contracts (less than 2% of total backlog), in recent years the DoD has increased the frequency of use and [added: the] size of OTAs and we expect this trend to [removed: continue in the future.][added: continue.]

OTAs are exempt from many traditional procurement laws, including the FAR, and may be used, subject to certain conditions, for research, prototype development and [removed: follow on] [added: follow-on] production for a successful prototype.

These agencies review a contractor’s performance under its contracts, its cost structure, its business systems and [added: its] compliance with applicable laws, regulations and standards.

Additionally, any costs found to be misclassified may be subject to repayment and from time to time we have had substantial disagreements with government auditors regarding the allowability of costs incurred by us under government contracts, which [removed: further] delays payments even if we are correct in our positions.

We have unaudited or unsettled incurred cost claims related to past years, which limits our ability to issue final billings on contracts for which authorized and appropriated funds may be expiring or can result in [removed: substantial] delays in final billings and our ability to close out a contract.

[added: In] addition, we could suffer serious reputational harm if allegations of impropriety were made against us.

Similar government oversight [removed: exists] [added: and risks to our business and reputation exist] in most other countries where we conduct business.

Under each type of contract, if we are unable to control costs, [added: including due to greater than anticipated inflation or unexpected delays,] our operating results could be adversely affected, particularly if we are unable to [removed: justify] [added: demonstrate] an increase in contract value to our customers.

Cost overruns or the failure to perform on existing programs also may adversely affect our ability to retain existing programs and win future contract [removed: awards.][added: awards, or could cause the customer to terminate the contract for convenience.]

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

[removed: Other contracts included in our] [added: Our] backlog [removed: are] [added: also includes contracts] for the transition from development to production (e.g., [removed: LRIP] [added: low rate initial production (LRIP)] contracts), [removed: which includes] [added: where] the challenge of starting and stabilizing a manufacturing production and test line while the final design is being validated and managing change in requirements or [removed: capabilities.][added: capabilities create performance and financial risks to our business.]

[removed: Even if we are successful in obtaining an award, we] [added: We] may encounter bid protests from unsuccessful bidders on new program [removed: awards.][added: awards seeking to overturn the award.]

In addition, our ability to grow in key areas such as hypersonics programs, classified programs and next-generation franchise programs will also be affected by the overall budget environment, whether development programs transition to production and the timing of such transition, all of which are dependent on U.S. Government authorization and funding.

The F-35 program comprises a material portion of our revenue and reductions in funding for this program and risks related to the development, production, sustainment, performance, schedule, cost and requirements of the program could adversely affect our performance.

Our planned production rates and deliveries have been affected and could continue to be affected by COVID-19 or supplier delays which affect our results of operations.

We also may not be successful in making hardware and software upgrades and other modernization capabilities in a timely manner, including as a result of dependencies on suppliers, which could increase costs and create schedule delays.

Our ability to capture and retain future F-35 growth in development, production and sustainment is dependent on the success of our efforts to achieve F-35 sustainment performance, customer affordability, supply chain improvements, continued reliability improvements and other efficiencies, some of which are outside our control.

The U.S. Government may decide not to exercise option periods, which could result in a loss of expected sales or profits.

In addition, changes in contract financing policy for fixed-price contracts, such as changes in performance and progress payments policies, including a reversal or modification of the DoD’s March 2020 increase to the applicable progress payment rate from 80% to 90%, could significantly affect the timing of our cash flows.

By their nature, the

This has resulted in losses on certain fixed-price development programs and could result in additional losses in the future.

In addition, an increased number of contract solicitations require the contractor to bid upfront on cost-reimbursable development work and the follow-on fixed-price production options in one submission.

This requirement increases the risk that we may experience lower margins than expected, or a loss, on the production options because we must estimate the cost of producing a product before it has been developed.

See Note 1 – Organization and Significant Accounting Policies included in our Notes to Consolidated Financial Statements for further details about losses incurred on certain programs, including fixed-price development programs.

Our success also depends on our ability to continue to identify technological innovation and adapt it to our platforms in light of changes in procurement policies that emphasize acquiring technologies with shorter life cycles.

In addition, a significant portion of our contracts are classified by the U.S. Government, which impose security requirements that limit our ability to discuss our performance on these contracts, including any specific risks, disputes and claims.

Given broader inflation in the economy, we are monitoring the risk inflation presents to active and future contracts.

To date we have not seen broad based increases in costs from inflation that are material to the business as a whole; however, if we began to experience greater than expected supply chain and labor inflation our profits and margins under our contracts, in particular fixed price contracts, could be adversely affected.

If our actual costs exceed our estimates our profits are reduced and we could incur a loss.

For additional risks related to the DoD’s current use of fixed-price contracts see the risk factor above.

See Note 1 – Organization and Significant Accounting Policies included in our Notes to Consolidated Financial Statements for further details about losses incurred on certain fixed-price programs to date.

arise.

Our success in achieving these goals may depend, among other things, on accurately assessing our customers’ needs and our competitors’ capabilities, containing our total costs relative to competitors,

successfully and efficiently investing in emerging technologies, adopting innovative business models and adaptive pricing methods, effectively collaborating across our business areas, and adopting and integrating new digital manufacturing and operating technologies and tools into our product lifecycles and processes.

We took steps to comply with the executive order mandating COVID-19 vaccines across our workforce, with exceptions approved for employees based on medical reasons or religious beliefs, until it was enjoined by a federal court in December 2021.

As of December 31, 2021, more than 96% of our U.S. employee population had been vaccinated or received an approved exception.

If the executive order is reinstated on appeal, or new mandates implemented, it is uncertain to what extent compliance with any such vaccine mandates may result in adverse impacts such as workforce attrition for us or our suppliers or reduced morale or efficiency.

If the adverse impact is significant for us or our suppliers, our operations and ability to execute on our contracts could be adversely affected.

We have been working with our suppliers and customers to manage COVID-19 impacts, including by accelerating payments to certain suppliers based on a risk assessed need.

We could also be adversely affected by actions by

Advanced microelectronics, including semiconductors, underpin many of our current and future critical technologies and platforms and global shortages of these products due to COVID-19 or other supply chain challenges could result in increased procurement lead times and costs and potential shortages, which could impact our performance.

Because the identification and qualification of new or additional suppliers can take an extended period of time, issues with suppliers or trade actions that limit our ability to use certain suppliers can have an adverse impact on our business.

Complying with U.S. Government contracting regulations that limit the source or manufacture of suppliers and impose stringent cybersecurity regulations also may create challenges for our supply chain and increase costs.

To advance our innovation and position us to meet our customers’ requirements, we make investments in emerging technologies that we believe are needed to keep pace with rapid industry innovation and seek to collaborate with commercial entities that we believe have complementary technologies to ours.

In addition, our relationships and contracts with these commercial entities may present different risks and challenges, including with respect to intellectual property, liability and indemnification terms, than what we are accustomed to with our government customers.

In 2021, 28% of our total net sales were from international customers and these sales may grow in the future.

We believe DCS transactions present the greatest potential risks because they involve direct commercial relationships with parties with whom we typically have less familiarity.

This sanction does not apply to current, valid export licenses and authorizations; however, it does apply to any modifications or extensions of those licenses.

We have a number of contracts with Turkish industry for the Turkish Utility Helicopter Program (TUHP), which anticipates co-production with Turkish industry for production of T70 helicopters for use in Turkey, as well as the related provision of Turkish goods and services under buy-back or offset obligations, to include the future sales of helicopters built in Turkey for sale globally.

For example, since April 2021, we have received multiple denials from the U.S. Department of State for export, import and manufacturing licenses pertaining to TUHP.

These denials prevent us from performing certain significant obligations under contracts for TUHP, which has and will affect our sales and impact our ability to recover certain costs.

As a result of these license denials, we have provided force majeure notices under the affected contracts and these contracts may be restructured or terminated, which could result in a further reduction in sales, the imposition of penalties or assessment of damages, and increased unrecoverable costs.

It represented 28% of our total net sales in 2020.

If a government

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The amount of the fee recovered, if any, is related to the portion of the work accomplished prior to termination and is determined by negotiation.

We attempt to ensure that adequate funds are available by notifying the customer when its estimated costs, including those associated with a possible termination for convenience, approach levels specified as being allotted to its programs.

Under such circumstances we may have rights and there may be remedial actions available to us under applicable laws and the FAR.

The U.S. Government has unilaterally definitized contracts with us in the past, most notably the F-35 LRIP 9 contract in 2016 and more recently two FMS F-16 upgrade proposals in 2020, and may do so in the future.

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The U.S. Government generally has the right not to exercise option periods and may decide not to exercise an option period for various reasons.

Shorter life-cycle technologies rather than large platforms could also make our existing portfolio less competitive in the future.

As recommended by a June 2019 U.S. Government Accountability Office (GAO) Report on contract financing, the DoD has stated that it will conduct a comprehensive assessment of the effect that DoD contract financing and profit policies have on the defense industry.

We have no assurance regarding the full scope and recurrence of any study and what changes will be proposed, if any, and their impact on our working capital, cash flow, profit or results of operation.

Earlier changes proposed by the DoD in 2018 and later withdrawn would have had a negative effect on the timing of our cash flows.

In

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To the extent our actual costs vary from the estimates upon which the price was negotiated, we will generate more or less profit or could incur a loss.

Typically, we enter into three types of cost-reimbursable contracts: cost-plus-award-fee, cost-plus-incentive-fee, and cost-plus-fixed-fee.

Cost-plus-award-fee contracts provide for an award fee that varies within specified limits based on the customer’s assessment of our performance against a predetermined set of criteria, such as targets based on cost, quality, technical and schedule criteria.

Cost-plus-incentive-fee contracts provide for reimbursement of costs plus a fee that is adjusted by a formula based on the relationship of total allowable costs to total target costs (i.e., incentive based on cost) or reimbursement of costs plus an incentive to exceed stated performance targets (i.e., incentive based on performance).

The fixed-fee in a cost-plus-fixed-fee contract is negotiated at the inception of the contract and that fixed-fee does not vary with actual costs.

The competitive bidding process entails substantial costs and managerial time to prepare bids and proposals for contracts that may not be awarded to us or may be split among competitors.

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withdrawing the protest.

Even where a bid protest does not result in the loss of a contract award, the resolution can extend the time until contract activity can begin and, as a result, delay the recognition of sales.

Our success in competing and remaining cost-competitive may depend on our ability to adopt and integrate new digital manufacturing and operating technologies and tools into our product lifecycles and processes.

The global outbreak of the coronavirus disease 2019 (COVID-19) has negatively affected the U.S. and global economies, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place” and quarantine restrictions.

Many of these suppliers also supply parts for commercial aviation businesses which have been more significantly impacted by the pandemic due to the impacts on these markets.

We have identified a number of suppliers that have experienced delivery impacts due to COVID-19 and have been working to manage those impacts.

Delays in inspection, acceptance and payment by our customers, many of whom are teleworking, could also affect our sales and cash flows.

This is particularly an issue with respect to classified work that is unable to be done remotely.

Limitations on government operations can also impact regulatory approvals such as export licenses that are needed for international sales and deliveries.

In addition, we could experience delays in new program starts or awards of future work as well as the uncertain

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impact of contract modifications to respond to the pandemic.

Limitations on travel to customers could impact international orders.

We have been granted some travel exemptions to allow us to continue certain activities but we have no assurance that they will continue or additional restrictions will not be imposed.

If significant portions of our workforce are unable to work effectively, including because of illness, quarantines, absenteeism, government actions, facility closures, travel restrictions or other restrictions due to COVID-19, our operations will be impacted and this could create risks to the effectiveness of our internal controls.

Additionally, we have not previously experienced such a significant portion of our workforce working remotely for a prolonged period, so its effects on our long-term operations are unknown.

The impact of COVID-19 could worsen depending on the duration and spread of the COVID-19 pandemic or potential subsequent waves of COVID-19 infection in affected regions after they have begun to experience improvement.

Coronavirus-related costs for us and our suppliers are significant and we are seeking reimbursement of coronavirus-related costs under our U.S. Government contracts through a combination of equitable adjustments to the contract price and reimbursement of the costs under Section 3610 of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), which allows federal agencies to reimburse contractors for certain COVID-19 related costs from March 27, 2020 through March 31, 2021.

The MD&A generally discusses [removed: 2020] [added: 2021] and [removed: 2019] [added: 2020] items and year-to-year comparisons between [removed: 2020] [added: 2021] and [removed: 2019.][added: 2020.]

Discussions of [removed: 2018] [added: 2019] items and year-to-year comparisons between [removed: 2019] [added: 2020] and [removed: 2018] [added: 2019] that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results or Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, [removed: 2019] [added: 2020] filed with the SEC on [removed: February 7, 2020.][added: January 28, 2021.]

In [removed: 2020, 74%] [added: 2021, 71%] of our [removed: $65.4] [added: $67.0] billion in net sales were from the U.S. Government, either as a prime contractor or as a subcontractor (including [removed: 64%] [added: 62%] from the Department of Defense (DoD)), [removed: 25%] [added: 28%] were from international customers (including foreign military sales (FMS) contracted through the U.S. Government) and 1% were from U.S. commercial and other customers.

Recognizing that our customers are resource constrained, we [removed: are] [added: place considerable focus on affordability initiatives while] endeavoring to develop and extend our portfolio domestically in a disciplined [removed: manner] [added: manner,] with a focus on adjacent markets close to our core [removed: capabilities,] [added: capabilities] as well as growing our international sales.

We [removed: also expect to continue to innovate and] invest [removed: in technologies to fulfill new mission requirements for our customers, including through acquisitions, and invest] [added: substantially] in our people [removed: so that] [added: to ensure] we have the technical skills necessary to [removed: succeed.][added: succeed, and we expect to continue to invest internally on innovative technologies that address rapidly evolving mission requirements for our customers.]

[removed: The pandemic has presented unprecedented business challenges, and we have] [added: We] experienced impacts in each of our business areas related to COVID-19, primarily in [added: continued] increased coronavirus-related costs, delays in supplier deliveries, [removed: impacts of] travel restrictions, site access and quarantine [removed: requirements, and the impacts of] [added: restrictions, employee absences,] remote work and adjusted work schedules.

[removed: However, the] [added: The] ultimate impact of COVID-19 on our operations and financial performance in future periods, including our ability to execute our programs in the expected timeframe, remains uncertain and will depend on future [removed: pandemic related] [added: pandemic-related] developments, including the duration of the pandemic, [removed: any] potential subsequent waves of COVID-19 [removed: infection,] [added: infection or potential new variants,] the [removed: effectiveness, distribution] [added: effectiveness] and [removed: acceptance] [added: adoption] of COVID-19 [removed: vaccines,] [added: vaccines] and [added: therapeutics, supplier impacts and] related government actions to prevent and manage disease spread, [added: including the implementation of any federal, state, local or foreign vaccine mandates,] all of which are uncertain and cannot be predicted.

The long-term impacts of COVID-19 on government budgets and other funding priorities, including international priorities, that impact demand for our products and services [removed: and our business] are also difficult to predict but could negatively affect our future results [removed: of operations.][added: and performance.]

[removed: For additional risks to the corporation related to the COVID-19 pandemic, see] [added: See] Item 1A - Risk [removed: Factors.][added: Factors for a discussion of the risks related to the proposed transaction.]

[removed: 2021] [added: 2022] Financial Trends

We expect [removed: our 2021] [added: 2022] net sales to [removed: increase] [added: decrease] by approximately [removed: 4%] [added: 2%] from [removed: 2020] [added: 2021] levels.

Total business segment operating margin in [removed: 2021] [added: 2022] is expected to be approximately [removed: 11.0%] [added: 10.9%] and cash from operations [added: in 2022] is expected to be greater than or equal to [removed: $8.3 billion, net of $1.0 billion of planned pension contributions.][added: $7.9 billion.]

[removed: It does not incorporate the pending acquisition] [added: Pending Acquisition] of Aerojet Rocketdyne Holdings, [removed: Inc. announced on December 20, 2020.][added: Inc.]

The outlook for [removed: 2021] [added: 2022 also] assumes continued support and funding of our programs, [added: a U.S. federal statutory tax rate of 21%,] known impacts of COVID-19, and [removed: a statutory tax rate] [added: the continued acceleration] of [removed: 21%.][added: supplier payments, with a focus on small and at-risk businesses.]

Additionally, [removed: it] [added: the company’s outlook for 2022] assumes that there will not be significant reductions in customer budgets, changes in funding priorities and that the U.S. Government will not operate under a continuing resolution for an extended period in which new contract and program starts are restricted.

[added: It also does not incorporate the pending acquisition of Aerojet Rocketdyne Holdings, Inc.] Changes in circumstances may require us to revise our assumptions, which could materially change our current estimate of [removed: 2021] [added: 2022] net sales, [added: business segment] operating [removed: margin] [added: margin,] and cash flows.

We expect a total net FAS/CAS pension benefit of approximately $2.3 billion in [removed: 2021] [added: 2022] based on a [removed: 2.50%] [added: 2.875%] discount rate (a [removed: 75] [added: 37.5] basis point [removed: decrease] [added: increase] from the end of [removed: 2019),] [added: 2020),] an approximate [removed: 16.5%] [added: 10.5%] return on plan assets in [removed: 2020,] [added: 2021,] and a [removed: 7.00%] [added: 6.50%] expected long-term rate of return on plan assets in future years, among other assumptions.

We [added: do not] expect to make [added: required] contributions [removed: of approximately $1.0 billion] to our qualified defined benefit pension plans in [removed: 2021 and anticipate recovering approximately $2.1 billion of CAS pension cost.][added: 2022.]

[removed: We also may explore the divestiture of businesses that] no longer meet our needs or strategy or that could perform better outside of our organization.

On December 20, [removed: 2020] [added: 2020,] we entered into an agreement to acquire Aerojet Rocketdyne Holdings, Inc. (Aerojet Rocketdyne) for [removed: $56] [added: $51.00] per [removed: share in cash,] [added: share,] which is [removed: expected to be reduced to $51] [added: net of a $5.00] per share [removed: after Aerojet Rocketdyne pays a pre-closing] special [added: cash] dividend [added: Aerojet Rocketdyne paid] to its stockholders on March 24, 2021.

[removed: This represents] [added: At the time of announcement, this represented] a post-dividend equity value of approximately $4.6 billion, on a fully diluted as-converted basis, and a transaction value of approximately $4.4 billion after the assumption of Aerojet Rocketdyne’s [removed: projected] [added: then-projected] net [removed: cash balance.][added: cash.]

[removed: We] [added: If the transaction is completed, we] expect to finance the acquisition [added: primarily] through [removed: a combination of cash on hand and] new debt issuances.

[removed: International] [added: In 2021, international] customers accounted for [removed: 31%] [added: 35%] of Aeronautics’ [removed: 2020] net sales.

Other areas of international expansion at our Aeronautics business segment include the F-16 and C-130J [removed: programs.][added: programs, which continue to draw interest from international customers for new aircraft.]

In [removed: 2020,] [added: 2021,] international customers accounted for [removed: 25%] [added: 29%] of MFC’s net sales.

Additionally, we continue to see international demand for our tactical [removed: missile] and [removed: fire control] [added: strike missile] products, where we received orders for precision fires systems from [removed: Poland and Romania; and Apache] [added: Germany] and [removed: Low Altitude Navigation] [added: Taiwan] and [removed: Targeting Infrared] for [removed: Night (LANTIRN®) systems for Qatar.][added: Long Range Anti-Ship Missiles (LRASM) from Australia.]

In [removed: 2020,] [added: 2021,] international customers accounted for [removed: 25%] [added: 28%] of RMS’ net sales.

Our Multi-Mission Surface Combatant (MMSC) program [removed: provides] [added: will provide] surface combatant ships for international customers, such as the Kingdom of Saudi Arabia, designed to operate in shallow waters and the open ocean.

We have active development, production, and sustainment support of the [removed: S-70i] [added: S-70] Black Hawk® and MH-60 Seahawk® [removed: aircraft] [added: helicopters] to [removed: foreign military] [added: international] customers, including [removed: Chile,] [added: India, Philippines,] Australia, [removed: Denmark, Taiwan,] [added: Republic of Korea, Thailand,] the Kingdom of Saudi Arabia, [removed: Colombia,] and Greece.

[removed: International] [added: In 2021, international] customers accounted for [removed: 13%] [added: 8%] of Space’s [removed: 2020] net sales.

The majority of our Space business segment international sales [removed: are] [added: in 2021 were] from our majority share of AWE Management Limited (AWE), which [removed: operates] [added: operated] the United Kingdom’s nuclear deterrent [removed: program.][added: program until June 30, 2021.]

During [removed: 2020,] [added: 2021,] the F-35 program completed several milestones both domestically and internationally.

The U.S. Government continued testing the aircraft, including ship trials, mission and weapons systems evaluations, and the F-35 fleet recently surpassed [removed: 355,000] [added: 470,000] flight hours.

During the second half of [removed: 2020,] [added: 2021,] the U.S. Government awarded the production of [removed: 18] [added: 16] F-35 [removed: Block Buy] [added: Lot 15] aircraft in addition to the [removed: 448] [added: 967] aircraft previously awarded.

Since program inception, we have delivered [removed: 611] [added: 753] production F-35 [removed: aircraft,] [added: aircraft to U.S. and international customers, including 549 F-35A variants, 150 F-35B variants, and 54 F-35C variants,] demonstrating the F-35 program’s continued progress and longevity.

[removed: During 2020, we delivered 120 production aircraft to our U.S. and international partner countries, and we] [added: We] have [removed: 356 production] [added: 230] aircraft in [removed: backlog,] [added: backlog as of December 31, 2021 extending into 2023,] including orders from our international partner countries.

In response to COVID-19 F-35 [removed: supplier] delays and in conjunction with the F-35 Joint Program [removed: Office,] [added: Office (JPO),] we [removed: have] tapered our production [removed: rate, and we anticipate resuming a pre-COVID-19 production] rate in [removed: 2021.][added: 2020.]

Given the size and complexity of the F-35 program, we anticipate that there will be continual reviews related to aircraft performance, program schedule, cost, and requirements as part of the DoD, Congressional, and international [removed: partner] countries’ oversight and budgeting processes.

[removed: performance,] [added: Current program challenges include supplier, Lockheed Martin and partner performance (including COVID-19 performance-related challenges),] software development, [removed: level] [added: the receipt] of [removed: cost associated with life cycle operations and sustainment and warranties, receiving] funding for contracts on a timely basis, [removed: executing] [added: execution of] future flight [removed: tests,] [added: tests] and findings resulting from testing and operating the [removed: aircraft.][added: aircraft, the level of cost associated with life cycle operations, sustainment and potential contractual obligations, and the ability to continue to reduce the unit production costs and improve affordability.]

At December 31, [removed: 2020,] [added: 2021,] our backlog was [removed: $147.1] [added: $135.4] billion compared with [removed: $144.0] [added: $147.1] billion at December 31, [removed: 2019.][added: 2020.]

We will continue to invest in acquisitions, as appropriate, while deepening our connection to commercial industry through cooperative partnerships, joint ventures, and equity investments.

The COVID-19 pandemic continued to present business challenges in 2021.

During the first half of 2021, we had initiated a plan to reintroduce employees that had been working remotely to the workplace, however, we paused the reintroduction as COVID-19 cases rose in the second half of 2021.

Attendance for employees required to be onsite has fluctuated based on pandemic developments.

We continued to take measures to protect the health and safety of our employees, including encouraging employees to be vaccinated.

We will continue to monitor risk driven by the pandemic and, based on our current assessment, we expect to continue to accelerate payments to our suppliers based on risk assessed need through the end of 2022.

Consistent with our current acceleration approach, we will prioritize small and COVID-19 impacted businesses.

We are closely tracking developments regarding vaccine mandates.

Currently, all personnel working at DoD facilities, including Lockheed Martin employees, must comply with DoD’s process to attest to vaccination status.

Pursuant to the DoD mandate, this is required for physical access to DoD buildings and leased spaces in non-DoD buildings where official agency business is performed.

Additionally, until it was enjoined by a federal court in December 2021, pursuant to Executive Order 14042, referred to as the federal contractor vaccine mandate, all U.S. based employees of Lockheed Martin and most of its suppliers, industry partners and contractors working directly or indirectly on covered government contracts, or working at a facility where those contracts are performed, administered, or otherwise supported, were to be fully vaccinated, or have an

approved medical or religious accommodation by January 18, 2022.

This included employees who telework.

Although the federal contractor vaccine mandate has been enjoined, we continue to encourage all employees to be vaccinated, including booster shots.

We had taken steps to comply with the federal contractor vaccine mandate across our workforce until it was enjoined.

As of December 31, 2021, more than 96% of our U.S. employee population had been vaccinated or received an approved exception.

If the mandate is reinstated, or new mandates implemented, it is uncertain to what extent compliance with any such vaccine mandates may result in adverse impacts such as workforce attrition for us or our suppliers or reduce morale or efficiency.

If the adverse impact is significant for us or our suppliers, our operations and ability to execute on our contracts could be adversely affected.

The projected decline is driven by declines at three of the four business areas (MFC, RMS, and Space).

Specifically, these decreases are driven by the renationalization of the Atomic Weapons Establishment (AWE) at Space, the 2021 delivery of a training system on an international pilot training program at RMS not projected to repeat in 2022, as well as a decrease in Special Operations Forces Global Logistics Support Services (SOF GLSS) volume at MFC due to withdrawal of U.S. forces from Afghanistan.

Cash from operations assumes no pension contributions; and includes an estimated potential impact in 2022 of approximately $500 million from the provisions in the Tax Cuts and Jobs Act of 2017 that went into effect on January 1, 2022 eliminating the option to immediately deduct research and development expenditures in the period incurred and requiring companies to amortize such expenditures over five years.

The actual impact on 2022 cash from operations will depend on if and when these provisions are deferred, modified, or repealed by Congress, including if retroactively, and the amount of research and development expenses paid or incurred in 2022 among other factors.

See “Income Tax Expense” below and Item 1A.

Risk Factors for additional information regarding potential impacts of changes in tax laws and regulations, including the treatment of research and development costs.

No additional impacts to the company’s operations, supply chain, or financial results as a result of continued COVID-19 disruption have been incorporated into our outlook for 2022 as the company cannot predict how the pandemic will evolve or what impact it will continue to have.

The ultimate impacts of COVID-19 on our financial results remain uncertain and there can be no assurance that our underlying assumptions are correct.

We also may explore the divestiture of businesses that

Renationalization of the Atomic Weapons Establishment Program

On June 30, 2021, the UK Ministry of Defence terminated the contract to operate the UK’s nuclear deterrent program and assumed control of the entity that manages the program (referred to as the renationalization of the Atomic Weapons Establishment (AWE program)).

Accordingly, the AWE program’s ongoing operations, including the entity that manages the program, are no longer included in our financial results as of that date, however, during 2021, AWE generated sales of $885 million and operating profit of $18 million, which are included in Space’s financial results for the year ended December 31, 2021.

During the year ended December 31, 2020, AWE generated sales of $1.4 billion and operating profit of $35 million, which are included in Space’s financial results for 2020.

The transaction was approved by Aerojet Rocketdyne’s stockholders on March 9, 2021.

As part of the regulatory review process of the transaction, on September 24, 2021, we and Aerojet Rocketdyne each certified substantial compliance with the Federal Trade Commission’s (FTC) requests for additional information, known as a “second request.” On January 11, 2022, the parties provided an updated notice of their intended closing date under their timing agreement with the FTC, whereby the parties agreed that they would not close the transaction before January 27, 2022, to enable the parties to discuss the scope and nature of the merchant supply and firewall commitments previously offered to the FTC by Lockheed Martin.

We have been advised by the FTC that its concerns regarding the transaction cannot be addressed adequately by the terms of a consent order.

We believe it is highly likely that the FTC will vote to sue to block the transaction and expect they will make a decision before January 27, 2022.

If the FTC sues to block the transaction, we could elect to defend the lawsuit within 30 days or terminate the merger agreement.

If the FTC does not file a lawsuit to block the transaction before January 27, 2022, the parties could proceed to close the transaction, but there is no assurance that the FTC would not file a lawsuit challenging the transaction after the closing since the parties have not reached agreement on the terms of a consent order.

Under the terms of the merger agreement, either party may terminate the transaction if it has not closed on or before March 21, 2022.

A copy of the merger agreement between the companies can be found in Lockheed Martin’s Form 8-K filing with the Securities and Exchange Commission on December 21, 2020.

On May 28, 2021, the Administration submitted to Congress the President’s fiscal year (FY) 2022 budget request, which proposes $753 billion for total national defense spending including $715 billion for the DoD, a 1.6% increase above the FY 2021 enacted amounts for both total national defense and the DoD (a U.S. Government fiscal year starts on October 1 and ends on September 30).

We continue to focus on affordability initiatives.

The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government in March 2020 and has negatively affected the U.S. and global economies, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place” and quarantine restrictions.

We have taken measures to protect the health and safety of our employees, work with our customers and suppliers to minimize disruptions and support our community in addressing the challenges posed by this ongoing global pandemic.

Despite these challenges, Lockheed Martin and the U.S. Government’s pro-active efforts, especially with regard to the supply chain, helped to partially mitigate the disruptions caused by COVID-19 on our operations in 2020.

In addition, favorable contract award timing, strong operational performance and lower travel and overhead expenditures due to COVID-19 restrictions partially offset the impacts of COVID-19 on our financial results in 2020.

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In accordance with the Department of Homeland Security’s identification of the Defense Industrial Base as a critical infrastructure sector in March 2020, our U.S. production facilities have continued to operate in support of essential products and services required to meet national security commitments to the U.S. Government and the U.S. military.

Although we are designated as a critical infrastructure workforce, operations have been adjusted in response to the pandemic, including, most significantly, a reduction in the F-35 production rate primarily due to supplier delays.

The reduction delayed 2020 F-35 deliveries by 18 aircraft.

Due to the supplier delays, we implemented a temporary schedule adjustment for the F-35 production workforce in Fort Worth, Texas.

While the F-35 production workforce resumed their pre-COVID-19 work schedule in the third quarter of 2020, staffing levels at our facilities, our customer facilities, and our supplier facilities have and could continue to fluctuate as a result of COVID-19, which could negatively impact our business.

In addition, countries other than the U.S. have different responses to the pandemic that can affect our international operations and the operations of our suppliers and customers.

Base closures, travel restrictions, and quarantine requirements both within and outside the U.S. have affected our normal operations and resulted in some schedule delays and future or prolonged occurrences of these could adversely affect our ability to achieve future contract milestones and our results of operations.

The U.S. Government has taken actions in response to COVID-19 to increase the progress payment rates in new and existing contracts and accelerate contract awards to provide cash flow and liquidity for companies in the Defense Industrial Base, including large prime contractors like Lockheed Martin and smaller suppliers.

We continue to proactively monitor our supply chain and have implemented multiple actions to help mitigate the effects of COVID-19, including accelerating payments to suppliers within our global supply base as a result of the actions taken by the DoD in changing the progress payment policy.

We plan to continue to accelerate payments to the supply chain assuming the continuation of the current DoD progress payment policy in order to mitigate COVID-19 risks, prioritizing impacted suppliers and small businesses.

As described in Item 1A, Risk Factors of our Annual Report on Form 10-K, we rely on other companies and the U.S. Government to provide materials, major components and products, and to perform a portion of the services that are provided to our customers under the terms of most of our contracts.

Many of these suppliers also supply parts for commercial aviation businesses which have been more significantly impacted by the pandemic due to the impacts on these markets.

Global supply chain disruption caused by the response to COVID-19 has impacted some of our programs and could impact our ability to perform on our contracts, in particular in instances where there is not a qualified second source of supply.

We have identified a number of suppliers that have experienced delivery impacts due to COVID-19 and have been working to manage those impacts.

However, if alternatives or other mitigations are not effective, deliveries and other milestones on affected programs could be adversely impacted.

Our work in production facilities and labs has continued throughout the pandemic, consistent with guidance from federal, state and local officials to minimize the spread of COVID-19.

We have taken actions to equip employees with personal protective equipment, establish minimum staffing and social distancing policies, sanitize workspaces more frequently, adopt alternate work schedules and institute other measures aimed to sustain production and related services while minimizing the transmission of COVID-19.

In addition, we have implemented a flexible teleworking policy for employees who can meet our customer commitments remotely, and a significant portion of our workforce is currently teleworking.

It remains uncertain when and on what scale teleworking employees will return to work in person.

We have not previously experienced such a significant portion of our workforce working remotely for a prolonged period, so its effects on our long-term operations are unknown.

Coronavirus-related costs for us and our suppliers are significant and we are seeking reimbursement of coronavirus-related costs under our U.S. Government contracts through a combination of equitable adjustments to the contract price and reimbursement of the costs under Section 3610 of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), which allows federal agencies to reimburse contractors at the minimum applicable contract billing rate for costs arising from certain paid leave, including sick leave a contractor provides to keep its employees or subcontractors in a ready state, as well as to protect the life and safety of government and contractor personnel from March 27, 2020 through March 31, 2021.

Reimbursement of any costs under Section 3610 of the CARES Act increases sales, but is not expected to be at a profit or fee and so would have the effect of reducing our margins in future periods.

These cost increases, including costs for employees whose jobs cannot be performed remotely and for certain costs incurred prior to March 27, 2020, may not be fully recoverable under our contracts, particularly fixed-price contracts, or adequately covered by insurance.

We also have no assurance that Congress will appropriate funds to cover the reimbursement of defense contractors authorized by the CARES Act, which could reduce funds available for other U.S. Government defense priorities.

We also deferred certain payroll taxes in 2020 as provided for in the CARES Act, which has the effect of increasing our cash from operations in 2020, but reducing cash from operations in 2021 and 2022.

We continue to work with our customers, employees, suppliers and communities to address the impacts of COVID-19 and to take actions in an effort to mitigate adverse consequences.

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The projected growth is driven by increases across all four business areas.

Specifically, the increased growth is driven by F-35, F-16 and classified programs at Aeronautics, increased volume within integrated air and missile defense at MFC, increased volume on Sikorsky helicopter program and training and logistics solutions programs at RMS, and hypersonics volume (including an acquisition of Integration Innovation Inc.’s (i3) hypersonics portfolio in November 2020) at Space.

The preliminary outlook for 2021 reflects the UK Ministry of Defense’s intent to re-nationalize the Atomic Weapons Establishment program (AWE program) on June 30, 2021.

Acquisitions

The acquisition provides the corporation the opportunity to integrate Aerojet Rocketdyne’s propulsion systems more effectively into its products, generate cost and revenue synergies, and improve efficiencies in Aerojet Rocketdyne's production operations.

The transaction will also allow customers incorporating Aerojet Rocketdyne products to offer more timely, innovative and affordable solutions, and reduce the prices paid by the U S.

Government for systems it buys.

The estimated fair value of our outstanding debt was [removed: $16.9] [added: $15.4] billion at December 31, [removed: 2020] [added: 2021] and the outstanding principal amount was [removed: $13.3] [added: $12.8] billion, excluding unamortized discounts and issuance costs of $1.1 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: 2020.][added: 2021.]

Our most significant foreign currency exposures relate to the British pound sterling, the euro, the Canadian [removed: dollar and] [added: dollar,] the Australian [removed: dollar.][added: dollar, the Norwegian Kroner and the Polish Zloty.]

The aggregate notional amount of our outstanding interest rate swaps at December 31, [removed: 2020] [added: 2021] and [removed: 2019] [added: 2020] was [removed: $572] [added: $500] million and [removed: $750] [added: $572] million.

The aggregate notional amount of our outstanding foreign currency hedges at December 31, [removed: 2020] [added: 2021] and [removed: 2019] [added: 2020] was [removed: $3.4] [added: $4.0] billion and [removed: $3.8] [added: $3.4] billion.

At December 31, [removed: 2020] [added: 2021] and [removed: 2019,] [added: 2020,] the net fair value of our derivative instruments was not material (see “Note [removed: 17] [added: 16] – Fair Value Measurements” included in our Notes to Consolidated Financial Statements).

As of December 31, [removed: 2020,] [added: 2021,] investments in the trust totaled [removed: $2.0] [added: $2.1] 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: 2020.][added: 2021.]

We are exposed to equity market risk through certain marketable securities held by our Lockheed Martin Ventures fund.

The fair value of our marketable securities held by the fund was $132 million as of December 31, 2021.

A 10% decrease in the market price of our marketable equity securities as of December 31, 2021 would not have a material impact on the carrying amounts of these securities or our consolidated financial statements.

Many of the same factors that could result in an adverse movement of equity market prices affect our non-marketable equity investments, although we cannot always quantify the impacts directly.

Financial markets are volatile, which could negatively affect the valuations and prospects of the companies we invest in, their ability to raise additional capital, and the likelihood of our ability to realize value in our investments through liquidity events such as initial public offerings, mergers, and private sales.

As a result, we do not have material foreign currency transaction exposure, including exposure to the pound sterling or euro should there be material foreign currency fluctuations due to the United Kingdom departing from the European Union (commonly referred to as Brexit).

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In [removed: 2020, 74%] [added: 2021, 71%] of our [removed: $65.4] [added: $67.0] billion in net sales were from the U.S. Government, either as a prime contractor or as a subcontractor (including [removed: 64%] [added: 62%] from the Department of Defense (DoD)), [removed: 25%] [added: 28%] were from international customers (including foreign military sales (FMS) contracted through the U.S. Government) and 1% were from U.S. commercial and other customers.

Recognizing that our customers are resource constrained, we [removed: are] [added: place considerable focus on affordability initiatives while] endeavoring to develop and extend our portfolio domestically in a disciplined [removed: manner] [added: manner,] with a focus on adjacent markets close to our core [removed: capabilities,] [added: capabilities] as well as growing our international sales.

We [removed: also expect to continue to innovate and] invest [removed: in technologies to fulfill new mission requirements for our customers, including through acquisitions, and invest] [added: substantially] in our people [removed: so that] [added: to ensure] we have the technical skills necessary to [removed: succeed.][added: succeed, and we expect to continue to invest internally on innovative technologies that address rapidly evolving mission requirements for our customers.]

On December 20, 2020, we entered into an agreement to acquire Aerojet Rocketdyne Holdings, Inc. (Aerojet [removed: Rocketdyne).][added: Rocketdyne) for $51.00 per share, which is net of a $5.00 per share special cash dividend Aerojet Rocketdyne paid to its stockholders on March 24, 2021.]

For more information [removed: regarding the proposed transaction,] [added: concerning offset agreements,] see [added: “Contractual Commitments” in] Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations, Note 2 – Strategic Action included in our Consolidated Financial Statements] [added: Operations] and Item 1A - Risk Factors.

In [removed: 2020,] [added: 2021,] our Aeronautics business segment generated net sales of [removed: $26.3] [added: $26.7] billion, which represented 40% of our total consolidated net sales.

In [removed: 2020,] [added: 2021,] U.S. Government customers accounted for [removed: 69%] [added: 65%] and international customers accounted for [removed: 31%] [added: 35%] of Aeronautics’ net sales.

Net sales from Aeronautics’ combat aircraft products and services represented [removed: 33%] [added: 32%] of our total consolidated net sales in [removed: 2020] [added: 2021] and [removed: 32% in both 2019] [added: 2019,] and [removed: 2018.][added: 33% in 2020.]

The F-35 program is our largest program, generating [removed: 28%] [added: 27%] of our total consolidated net sales, as well as [removed: 69%] [added: 68%] of Aeronautics’ net sales in [removed: 2020.][added: 2021.]

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

[removed: 120] [added: In 2021, we delivered 142] aircraft, including [removed: 46] [added: 68] to international customers, resulting in total deliveries of [removed: 611] [added: 753] production aircraft since program inception.

We have [removed: 356 production] [added: 230] aircraft in backlog as of December 31, [removed: 2020,] [added: 2021 extending into 2023,] including orders from our international partner countries.

We delivered 22 C-130J aircraft in [removed: 2020.][added: 2021.]

We have [removed: 87] [added: 79] aircraft in our backlog as of December 31, [removed: 2020.][added: 2021, extending into 2025.]

In [removed: 2020,] [added: 2021,] our MFC business segment generated net sales of [removed: $11.3] [added: $11.7] billion, which represented 17% of our total consolidated net sales.

In [removed: 2020,] [added: 2021,] U.S. Government customers accounted for [removed: 75%] [added: 71%] and international customers accounted for [removed: 25%] [added: 29%] of MFC’s net sales.

MFC provides air and missile defense systems; tactical missiles and air-to-ground precision strike weapon systems; logistics; fire control systems; mission operations support, readiness, engineering support and integration services; manned and [removed: unmanned ground vehicles; and energy management solutions.]

- The Multiple Launch Rocket System (MLRS), Hellfire, [added: and] Joint Air-to-Surface Standoff Missile (JASSM) [removed: and Javelin] tactical missile programs.

IRST21 provides long-range infrared detection and tracking of airborne threats [added: and is used on several fixed-wing aircraft.]

In [removed: 2020,] [added: 2021,] our RMS business segment generated net sales of [removed: $16.0] [added: $16.8] billion, which represented 25% of our total consolidated net sales.

In [removed: 2020,] [added: 2021,] U.S. Government customers accounted for [removed: 72%,] [added: 70%,] international customers accounted for [removed: 25%] [added: 28%] and U.S. commercial and other customers accounted for [removed: 3%] [added: 2%] of RMS’ net sales.

Net sales from RMS’ Sikorsky helicopter programs represented [removed: 9%] [added: 10%] of our consolidated net sales in [removed: 2020 and 2019,] [added: 2021,] and [removed: 10%] [added: 9%] in [removed: 2018.][added: 2020 and 2019.]

In [removed: 2020,] [added: 2021,] our Space business segment generated net sales of [removed: $11.9] [added: $11.8] billion, which represented 18% of our total consolidated net sales.

Space’s customers include the U.S. Air Force, U.S. [removed: Navy] [added: Space Force, U.S. Navy, National Aeronautics] and [added: Space Administration (NASA), Missile Defense Agency (MDA) and] various government agencies of the U.S. and other countries along with commercial customers.

In [removed: 2020,] [added: 2021,] U.S. Government customers accounted for [removed: 87%] [added: 92%] and international customers [removed: accounted for 13% of Space’s net sales.]

Net sales from Space’s satellite products and services represented [removed: 11%] [added: 10%] of our total consolidated net sales in [removed: 2020, 2019] [added: 2021] and [removed: 2018.][added: 11% in 2020 and 2019.]

Space is engaged in the [removed: research, design,] [added: research and] development, [added: design,] engineering and production of satellites, space transportation systems, and strategic, advanced strike, and defensive systems.

- The Orion Multi-Purpose Crew Vehicle (Orion), a spacecraft for [removed: the National Aeronautics and Space Administration (NASA)] [added: NASA] utilizing new technology for human exploration missions beyond low earth orbit.

Our broad portfolio of products and services competes both domestically and internationally against products and services of other large aerospace and defense companies, numerous smaller competitors and, increasingly, [added: emerging competitors, including startups and] non-traditional defense contractors.

Changes within the industry we operate in, such as vertical integration by our peers, could negatively impact [removed: us.][added: us without appropriate remedies to protect our interests.]

[removed: We may compete against] U.S. [removed: and non-U.S.] companies (or teams) for contract awards by international governments.

[removed: These fluctuations may] negatively affect the price and availability of certain materials.

We rely on other companies to provide materials, major components and products, [added: including advanced microelectronics such as semiconductors,] and to perform a portion of the services that are provided to our customers under the terms of most of our contracts.

For more information on the risks related to our suppliers and raw materials, see Item [removed: 1A.][added: 1A - Risk Factors.]

For more information regarding the U.S. Government’s and other governments’ right to terminate our [removed: contracts,] [added: contracts and the risks of doing work internationally,] see Item 1A - Risk Factors.

For more information on the [removed: risks] [added: risk] of [removed: doing work internationally,] [added: climate-change related regulation,] see Item 1A - Risk Factors.

[added: The business risks and capital requirements] associated with classified contracts historically have not differed materially from those of our other U.S. Government contracts.

See “Note 1 – [added: Organization and] Significant Accounting Policies” (under the caption “Research and development and similar costs”) included in our Notes to Consolidated Financial Statements.

Due to the specialized nature of our business, our performance depends on identifying, attracting, developing, [removed: motivating,] [added: motivating] and retaining a highly skilled workforce in multiple areas, including engineering, science, manufacturing, information technology, cybersecurity, business development and strategy and management.

During [removed: 2020,] [added: 2021,] our human capital efforts were focused on [removed: accelerating] [added: continuing to accelerate] the transformation of our technology for workforce management through investments in upgraded systems and processes, and continuing to increase our agility to meet the quickly changing needs of the business, [removed: considering the challenges of the global pandemic and social] [added: all while maintaining a respectful, challenging, supportive] and [removed: political unrest.][added: inclusive working environment.]

We will continue to invest in acquisitions, as appropriate, while deepening our connection to commercial industry through cooperative partnerships, joint ventures, and equity investments.

Pending Acquisition of Aerojet Rocketdyne Holdings, Inc.

At the time of announcement, this represented a post-dividend equity value of approximately $4.6 billion, on a fully diluted as-converted basis, and a transaction value of approximately $4.4 billion after the assumption of Aerojet Rocketdyne’s then-projected net cash.

The transaction was approved by Aerojet Rocketdyne’s stockholders on March 9, 2021.

As part of the regulatory review process of the transaction, on September 24, 2021, we and Aerojet Rocketdyne each certified substantial compliance with the Federal Trade Commission’s (FTC) requests for additional information, known as a “second request.” On January 11, 2022, the parties provided an updated notice of their intended closing date under their timing agreement with the FTC, whereby the parties agreed that they would not close the transaction before January 27, 2022, to enable the parties to discuss the scope and nature of the merchant supply and firewall commitments previously offered to the FTC by Lockheed Martin.

We have been advised by the FTC that its concerns regarding the transaction cannot be addressed adequately by the terms of a consent order.

We believe it is highly likely that the FTC will vote to sue to block the transaction and expect they will make a decision before January 27, 2022.

If the FTC sues to block the transaction, we could elect to defend the lawsuit within 30 days or terminate the merger agreement.

If the FTC does not file a lawsuit to block the transaction before January 27, 2022, the parties could proceed to close the transaction, but there is no assurance that the FTC would not file a lawsuit challenging the transaction after the closing since the parties have not reached agreement on the terms of a consent order.

Under the terms of the merger agreement, either party may terminate the transaction if it has not closed on or before March 21, 2022.

See Item 1A - Risk Factors for a discussion of the risks related to the proposed transaction.

Business Segments

Aeronautics also has contracts with the U.S. Government for classified programs.

This was an increase from the 120 aircraft delivered in 2020 when the production rate was tapered as a result of coronavirus disease 2019 (COVID-19) related delays.

While the production rate in 2021 improved from its 2020 levels, it continued to be impacted by COVID-19.

We anticipate delivering 148-153 aircraft in 2022.

In 2023 and beyond, we anticipate delivering 156 aircraft for the foreseeable future.

As of December 31, 2021, we have 128 F-16 aircraft in backlog, extending into 2027.

unmanned ground vehicles; and energy management solutions.

RMS also has contracts with the U.S. Government for classified programs.

accounted for 8% of Space’s net sales.

As previously announced, on June 30, 2021 the UK Ministry of Defence terminated the contract to operate the UK’s nuclear deterrent program and assumed control of the entity that manages the program (referred to as the renationalization of the Atomic Weapons Establishment (AWE program)).

Accordingly, the AWE program, including the entity that manages the program, was no longer included in our financial results as of that date.

- Next Generation Interceptor (NGI), a program with the MDA utilizing next generation propulsion and sensors to provide homeland missile defense.

These fluctuations may

Our Business Resource Groups are voluntary, employee-led groups that are open to all employees while focusing on workplace issues specific to racial/ethnic, gender, sexual orientation/gender identity, disability or veteran status.

Additionally, our representation of veterans remains outstanding, at almost four times the current annual national percentage of veterans in the civilian workforce.

| Overall | | | | | | 23% | | | | | | 29% | | | | | | 21% | | | | | | 10% | | |

| Executives(b) | | | | | | 23% | | | | | | 15% | | | | | | 20% | | | | | | 11% | | |

We also have continued a teleworking policy that encourages flexible working arrangements for employees who can meet our customer commitments remotely, which we believe helps recruit and retain talent.

We continue to take steps to protect our employees from COVID-19 while sustaining production and related services, including by establishing minimum staffing and social distancing and mask wearing policies consistent with current governmental guidance, cleaning common areas more frequently, implementing a flexible teleworking policy for employees who can work from home, encouraging employee vaccinations while monitoring potential vaccine mandates, and instituting other measures designed to mitigate and prevent the spread of COVID-19.

We may compete against U.S. and non-

As a result of these environmental protection laws, we are involved in environmental remediation at some of our current and former facilities and at third-party-owned sites where we have been designated a potentially responsible party as a result of our prior activities and those of our predecessor companies.

There is an increasing global regulatory focus on greenhouse gas ("GHG") emissions and their potential impacts relating to climate change.

Future laws, regulations or policies in response to concerns over GHG emissions such as carbon taxes, mandatory reporting and disclosure obligations and changes in procurement policies could significantly increase our operational and compliance burdens and costs.

We monitor developments in climate-change related regulation for their potential effect on us and also have a comprehensive sustainability program that seeks to mitigate our impact on the environment, including targets to reduce our GHG emissions.

subsequent events, changed circumstances, changes in expectations, or the estimates and assumptions associated with them.

We continue to focus on affordability initiatives.

Strategic Action

We currently expect the transaction to close in the second half of 2021, subject to the satisfaction of customary closing conditions, including regulatory approvals and approval by Aerojet Rocketdyne’s stockholders.

In 2020, we delivered

[Table of Contents](#i74878167aa2c40f9af03ce44bcca91e2_7)[](#i74878167aa2c40f9af03ce44bcca91e2_7)

This was a decrease from 134 aircraft delivered in the year ended December 31, 2019 due to the impacts of coronavirus disease 2019 (COVID-19) on the F-35 production rate in 2020 and we expect the production rate in 2021 to continue to be impacted by COVID-19.

Our C-130J backlog extends into 2025.

In 2020, the U.S. Government awarded contracts for new production F-16 Block 70/72 aircraft for Taiwan (66 aircraft) and Bulgaria (8 aircraft).

As of December 31, 2020, we have 128 F-16 aircraft in backlog.

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

[Table of Contents](#i74878167aa2c40f9af03ce44bcca91e2_7)[](#i74878167aa2c40f9af03ce44bcca91e2_7)

and is used on several fixed-wing aircraft.

- The Advanced Extremely High Frequency (AEHF) system, the next generation of highly secure communications satellites for the U.S. Air Force.

[Table of Contents](#i74878167aa2c40f9af03ce44bcca91e2_7)[](#i74878167aa2c40f9af03ce44bcca91e2_7)

- The United Kingdom’s (UK) nuclear deterrent program operated by the AWE Management Limited (AWE) joint venture.

On November 2, 2020, the UK Ministry of Defense (MOD) announced its intention to re-nationalize the program on June 30, 2021.

For more information concerning offset agreements, see “Contractual Commitments and Off-Balance Sheet Arrangements” in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 1A - Risk Factors.

[Table of Contents](#i74878167aa2c40f9af03ce44bcca91e2_7)[](#i74878167aa2c40f9af03ce44bcca91e2_7)

Risk Factors.

The business risks and capital requirements

[Table of Contents](#i74878167aa2c40f9af03ce44bcca91e2_7)[](#i74878167aa2c40f9af03ce44bcca91e2_7)

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| Overall | | | | | | 23% | | | | | | 28% | | | | | | 22% | | | | | | 9% | | |

| Executives(b) | | | | | | 22% | | | | | | 14% | | | | | | 21% | | | | | | 9% | | |

In response to COVID-19, we took action to protect our employees’ safety and health, including by equipping employees with personal protective equipment, establishing minimum staffing and social distancing policies, sanitizing workspaces more frequently, adopting alternate work schedules and instituting other measures aimed at minimizing the transmission of COVID-19 while sustaining production and related services.

In addition, we have implemented a flexible teleworking policy for employees who can meet our customer commitments remotely, and a significant portion of our workforce began teleworking in mid-March 2020 and were continuing to telework as of December 31, 2020.

For more information on our response to COVID-19, see Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The SEC also

[Table of Contents](#i74878167aa2c40f9af03ce44bcca91e2_7)[](#i74878167aa2c40f9af03ce44bcca91e2_7)

We are a party to [removed: 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 environment, and are subject to contingencies related to certain businesses we previously owned.

We believe the probability is remote that the outcome of each of these matters will have a material adverse effect on the corporation as a whole, notwithstanding that the unfavorable resolution of any matter may have a material effect on our net earnings [added: and cash flows] in any particular interim reporting period.

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| [removed: ☒] [added: ☒] | | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | | |

For the fiscal year ended December 31, [removed: 2020][added: 2021]

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: 26, 2020,] [added: 25, 2021,] was approximately [removed: $99.3] [added: $105.3] billion.

There were [removed: 280,103,431] [added: 272,326,925] shares of our common stock, $1 par value per share, outstanding as of January [removed: 22, 2021.][added: 19, 2022.]

Portions of Lockheed Martin Corporation’s [removed: 2021] [added: 2022] Definitive Proxy Statement are incorporated by reference into Part III of this Form 10‑K.

The [removed: 2021] [added: 2022] Definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.

For the Year Ended December 31, [removed: 2020][added: 2021]

| ITEM 1. | | | [removed: [Business](#i74878167aa2c40f9af03ce44bcca91e2_13)] [added: [Business](#i2095368da61d4a139df8d11ec3dcb825_13)] | | | [removed: [3](#i74878167aa2c40f9af03ce44bcca91e2_13)] [added: [3](#i2095368da61d4a139df8d11ec3dcb825_13)] | | |

| ITEM 1A. | | | [Risk [removed: Factors](#i74878167aa2c40f9af03ce44bcca91e2_16)] [added: Factors](#i2095368da61d4a139df8d11ec3dcb825_16)] | | | [removed: [10](#i74878167aa2c40f9af03ce44bcca91e2_16)] [added: [11](#i2095368da61d4a139df8d11ec3dcb825_16)] | | |

| ITEM 1B. | | | [Unresolved Staff [removed: Comments](#i74878167aa2c40f9af03ce44bcca91e2_19)] [added: Comments](#i2095368da61d4a139df8d11ec3dcb825_19)] | | | [removed: [24](#i74878167aa2c40f9af03ce44bcca91e2_19)] [added: [25](#i2095368da61d4a139df8d11ec3dcb825_19)] | | |

| ITEM 2. | | | [removed: [Properties](#i74878167aa2c40f9af03ce44bcca91e2_22)] [added: [Properties](#i2095368da61d4a139df8d11ec3dcb825_22)] | | | [removed: [24](#i74878167aa2c40f9af03ce44bcca91e2_22)] [added: [25](#i2095368da61d4a139df8d11ec3dcb825_22)] | | |

| ITEM 3. | | | [Legal [removed: Proceedings](#i74878167aa2c40f9af03ce44bcca91e2_25)] [added: Proceedings](#i2095368da61d4a139df8d11ec3dcb825_25)] | | | [removed: [25](#i74878167aa2c40f9af03ce44bcca91e2_25)] [added: [26](#i2095368da61d4a139df8d11ec3dcb825_25)] | | |

| ITEM 4. | | | [Mine Safety [removed: Disclosures](#i74878167aa2c40f9af03ce44bcca91e2_28)] [added: Disclosures](#i2095368da61d4a139df8d11ec3dcb825_28)] | | | [removed: [25](#i74878167aa2c40f9af03ce44bcca91e2_28)] [added: [26](#i2095368da61d4a139df8d11ec3dcb825_28)] | | |

| ITEM 4(a). | | | [Information about our Executive [removed: Officers](#i74878167aa2c40f9af03ce44bcca91e2_31)] [added: Officers](#i2095368da61d4a139df8d11ec3dcb825_31)] | | | [removed: [26](#i74878167aa2c40f9af03ce44bcca91e2_31)] [added: [27](#i2095368da61d4a139df8d11ec3dcb825_31)] | | |

| ITEM 5. | | | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#i74878167aa2c40f9af03ce44bcca91e2_37)] [added: Securities](#i2095368da61d4a139df8d11ec3dcb825_37)] | | | [removed: [28](#i74878167aa2c40f9af03ce44bcca91e2_37)] [added: [28](#i2095368da61d4a139df8d11ec3dcb825_37)] | | |

| ITEM 6. | | | [Selected Financial [removed: Data](#i74878167aa2c40f9af03ce44bcca91e2_40)] [added: Data](#i2095368da61d4a139df8d11ec3dcb825_40)] | | | [removed: [30](#i74878167aa2c40f9af03ce44bcca91e2_40)] [added: [30](#i2095368da61d4a139df8d11ec3dcb825_40)] | | |

| ITEM 7. | | | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#i74878167aa2c40f9af03ce44bcca91e2_43)] [added: Operations](#i2095368da61d4a139df8d11ec3dcb825_43)] | | | [removed: [32](#i74878167aa2c40f9af03ce44bcca91e2_43)] [added: [32](#i2095368da61d4a139df8d11ec3dcb825_43)] | | |

| ITEM 7A. | | | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#i74878167aa2c40f9af03ce44bcca91e2_70)] [added: Risk](#i2095368da61d4a139df8d11ec3dcb825_70)] | | | [removed: [63](#i74878167aa2c40f9af03ce44bcca91e2_70)] [added: [61](#i2095368da61d4a139df8d11ec3dcb825_70)] | | |

| ITEM 8. | | | [Financial Statements and Supplementary [removed: Data](#i74878167aa2c40f9af03ce44bcca91e2_73)] [added: Data](#i2095368da61d4a139df8d11ec3dcb825_73)] | | | [removed: [64](#i74878167aa2c40f9af03ce44bcca91e2_73)] [added: [63](#i2095368da61d4a139df8d11ec3dcb825_73)] | | |

| ITEM 9. | | | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#i74878167aa2c40f9af03ce44bcca91e2_187)] [added: Disclosure](#i2095368da61d4a139df8d11ec3dcb825_154)] | | | [removed: [107](#i74878167aa2c40f9af03ce44bcca91e2_187)] [added: [107](#i2095368da61d4a139df8d11ec3dcb825_154)] | | |

| ITEM 9A. | | | [Controls and [removed: Procedures](#i74878167aa2c40f9af03ce44bcca91e2_190)] [added: Procedures](#i2095368da61d4a139df8d11ec3dcb825_157)] | | | [removed: [107](#i74878167aa2c40f9af03ce44bcca91e2_190)] [added: [107](#i2095368da61d4a139df8d11ec3dcb825_157)] | | |

| ITEM 9B. | | | [Other [removed: Information](#i74878167aa2c40f9af03ce44bcca91e2_196)] [added: Information](#i2095368da61d4a139df8d11ec3dcb825_163)] | | | [removed: [109](#i74878167aa2c40f9af03ce44bcca91e2_196)] [added: [109](#i2095368da61d4a139df8d11ec3dcb825_163)] | | |

| ITEM 10. | | | [Directors, Executive Officers and Corporate [removed: Governance](#i74878167aa2c40f9af03ce44bcca91e2_202)] [added: Governance](#i2095368da61d4a139df8d11ec3dcb825_169)] | | | [removed: [109](#i74878167aa2c40f9af03ce44bcca91e2_202)] [added: [109](#i2095368da61d4a139df8d11ec3dcb825_169)] | | |

| ITEM 11. | | | [Executive [removed: Compensation](#i74878167aa2c40f9af03ce44bcca91e2_205)] [added: Compensation](#i2095368da61d4a139df8d11ec3dcb825_172)] | | | [removed: [109](#i74878167aa2c40f9af03ce44bcca91e2_205)] [added: [109](#i2095368da61d4a139df8d11ec3dcb825_172)] | | |

| ITEM 12. | | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#i74878167aa2c40f9af03ce44bcca91e2_208)] [added: Matters](#i2095368da61d4a139df8d11ec3dcb825_175)] | | | [removed: [110](#i74878167aa2c40f9af03ce44bcca91e2_208)] [added: [110](#i2095368da61d4a139df8d11ec3dcb825_175)] | | |

| ITEM 13. | | | [Certain Relationships and Related Transactions, and Director [removed: Independence](#i74878167aa2c40f9af03ce44bcca91e2_211)] [added: Independence](#i2095368da61d4a139df8d11ec3dcb825_178)] | | | [removed: [110](#i74878167aa2c40f9af03ce44bcca91e2_211)] [added: [110](#i2095368da61d4a139df8d11ec3dcb825_178)] | | |

| ITEM 14. | | | [Principal Accounting Fees and [removed: Services](#i74878167aa2c40f9af03ce44bcca91e2_214)] [added: Services](#i2095368da61d4a139df8d11ec3dcb825_181)] | | | [removed: [110](#i74878167aa2c40f9af03ce44bcca91e2_214)] [added: [110](#i2095368da61d4a139df8d11ec3dcb825_181)] | | |

| ITEM 15. | | | [Exhibits and Financial Statement [removed: Schedules](#i74878167aa2c40f9af03ce44bcca91e2_220)] [added: Schedules](#i2095368da61d4a139df8d11ec3dcb825_187)] | | | [removed: [111](#i74878167aa2c40f9af03ce44bcca91e2_220)] [added: [111](#i2095368da61d4a139df8d11ec3dcb825_187)] | | |

| ITEM 16. | | | [Form 10-K [removed: Summary](#i74878167aa2c40f9af03ce44bcca91e2_223)] [added: Summary](#i2095368da61d4a139df8d11ec3dcb825_190)] | | | [removed: [114](#i74878167aa2c40f9af03ce44bcca91e2_223)] [added: [114](#i2095368da61d4a139df8d11ec3dcb825_190)] | | |

| ITEM 9C. | | | [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](#i2095368da61d4a139df8d11ec3dcb825_1569) | | | [109](#i2095368da61d4a139df8d11ec3dcb825_1569) | | |

| [SIGNATURES](#i2095368da61d4a139df8d11ec3dcb825_193) | | | | | | [115](#i2095368da61d4a139df8d11ec3dcb825_193) | | |

[Table of Contents](#i74878167aa2c40f9af03ce44bcca91e2_7)[](#i74878167aa2c40f9af03ce44bcca91e2_7)

[Table of Contents](#i74878167aa2c40f9af03ce44bcca91e2_7)[](#i74878167aa2c40f9af03ce44bcca91e2_7)

| [SIGNATURES](#i74878167aa2c40f9af03ce44bcca91e2_226) | | | | | | [115](#i74878167aa2c40f9af03ce44bcca91e2_226) | | |

[Table of Contents](#i74878167aa2c40f9af03ce44bcca91e2_7)[](#i74878167aa2c40f9af03ce44bcca91e2_7)

At December 31, [removed: 2020,] [added: 2021,] we owned or leased building space (including offices, manufacturing plants, warehouses, service centers, laboratories and other facilities) at approximately [removed: 385] [added: 362] locations primarily in the U.S. Additionally, we manage or occupy approximately [removed: 15] [added: 10] government-owned facilities under lease and other arrangements.

At December 31, [removed: 2020,] [added: 2021,] we had significant operations in the following locations:

- Space \- Huntsville, Alabama; Sunnyvale, California; Denver, Colorado; Cape Canaveral, Florida; [added: and] Valley Forge, [removed: Pennsylvania; and Reading, England.][added: Pennsylvania.]

The following is a summary of our square feet of floor space owned, leased, or utilized by business segment at December 31, [removed: 2020] [added: 2021] (in millions):

| Rotary and Mission Systems | | | | | | 11.3 | | | | | | | | | [removed: 5.8] [added: 5.4] | | | | | | | | | [removed: 0.6] [added: 0.2] | | | | | | | | | [removed: 17.7] [added: 16.9] | | | | | |

| Corporate activities | | | | | | [removed: 2.5] [added: 2.4] | | | | | | | | | [removed: 0.9] [added: 1.0] | | | | | | | | | — | | | | | | | | | 3.4 | | | | | |

| Aeronautics | | | | | | 5.5 | | | | | | | | | 3.0 | | | | | | | | | 14.7 | | | | | | | | | 23.2 | | | | | |

| Missiles and Fire Control | | | | | | 7.7 | | | | | | | | | 2.8 | | | | | | | | | 2.2 | | | | | | | | | 12.7 | | | | | |

| Space | | | | | | 9.2 | | | | | | | | | 2.9 | | | | | | | | | 0.9 | | | | | | | | | 13.0 | | | | | |

| Total | | | | | | 36.1 | | | | | | | | | 15.1 | | | | | | | | | 18.0 | | | | | | | | | 69.2 | | | | | |

Our government owned floor space decreased by 4.5 million square feet due to the renationalization of AWE.

[Table of Contents](#i74878167aa2c40f9af03ce44bcca91e2_7)[](#i74878167aa2c40f9af03ce44bcca91e2_7)

| Aeronautics | | | | | | 5.1 | | | | | | | | | 3.0 | | | | | | | | | 14.5 | | | | | | | | | 22.6 | | | | | |

| Missiles and Fire Control | | | | | | 7.0 | | | | | | | | | 3.1 | | | | | | | | | 1.7 | | | | | | | | | 11.8 | | | | | |

| Space | | | | | | 8.9 | | | | | | | | | 2.7 | | | | | | | | | 5.4 | | | | | | | | | 17.0 | | | | | |

| Total | | | | | | 34.8 | | | | | | | | | 15.5 | | | | | | | | | 22.2 | | | | | | | | | 72.5 | | | | | |

Our executive officers as of January [removed: 28, 2021] [added: 25, 2022] 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: Ambrose] [added: Lightfoot, Jr.] (age [removed: 62),] [added: 58),] Executive Vice President - Space

Mr. [removed: Ambrose] [added: Lightfoot] has served as Executive Vice President of Space since [removed: April 2013.][added: January 2022.]

Colan (age [removed: 60),] [added: 61),] Vice President, Controller, and Chief Accounting Officer

Greene (age [removed: 62),] [added: 63),] Executive Vice President - Missiles and Fire Control

He previously served as Vice President, Tactical and Strike Missiles in our MFC segment from August 2017 to August 2019; [added: and] Vice President, Precision Fires and Combat Maneuver Systems in our MFC segment from January 2016 to August [removed: 2017; and Vice President, Program Management in our MFC segment from 2011 to January 2016.][added: 2017.]

[removed: She previously] [added: Mr. Taiclet has] served as [removed: Chairman,] [added: Chairman since March 2021 and] President and Chief Executive Officer [removed: from January 2014 to] [added: of Lockheed Martin since] June 2020.

Hill (age [removed: 56),] [added: 57),] Executive Vice President - Rotary and Mission Systems

Lavan (age [removed: 61),] [added: 62),] Senior Vice President, General Counsel and Corporate Secretary

Mollard (age [removed: 63),] [added: 64), Acting Chief Financial Officer,] Vice President and Treasurer

Mr. Mollard has served as [added: Acting Chief Financial Officer since August 2021 and] Vice President and Treasurer since April 2016.

St. John (age [removed: 54),] [added: 55),] Chief Operating Officer

Taiclet (age [removed: 60),] [added: 61), Chairman,] President and Chief Executive Officer

Ulmer (age [removed: 56), Acting] [added: 57),] Executive Vice President - Aeronautics

Mr. Ulmer has served as [removed: Acting] Executive Vice President, Aeronautics since [removed: December 1, 2020 and as Vice President and General Manager, F-35 Lightning II Program since March 2018.][added: February 2021.]

Robert M.

He previously served as Vice President, Operations at our Space segment since June 2021.

Prior to that, he served as Vice President, Strategy and Business Development of Space from May 2019 to June 2021.

Prior to joining Lockheed Martin in 2019, Mr. Lightfoot served as President, LSINC Corporation, a provider of product development and engineering services, from May 2018 to May 2019.

Prior to that he was Associate Administrator at the National Aeronautics & Space Administration (NASA), the agency’s highest-ranking civil service position, from March 2012 until April 2018.

He served as Vice President and General Manager, F-35 Lightning II Program from March 2018 to January 2021.

Richard F.

Marillyn A.

Hewson (age 67), Executive Chairman

Ms. Hewson has served as Executive Chairman since June 2020.

He previously served as Vice President, Corporate Financial Planning and Analysis from 2003 to April 2016.

Kenneth R.

Possenriede (age 60), Chief Financial Officer

Mr. Possenriede has served as Chief Financial Officer since February 2019.

He previously served as Vice President of Finance and Program Management in our Aeronautics segment from April 2016 to February 2019.

Prior to that, he served as Vice President and Treasurer from 2011 through April 2016.

Mr. Taiclet has served as President and Chief Executive Officer of Lockheed Martin since June 2020.

[Table of Contents](#i74878167aa2c40f9af03ce44bcca91e2_7)[](#i74878167aa2c40f9af03ce44bcca91e2_7)

He previously served as Vice President of Operations for Advanced Development Programs, also known as Skunk Works®, from January 2014 to March 2016.

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At January [removed: 22, 2021,] [added: 19, 2022,] we had [removed: 24,929] [added: 24,045] holders of record of our common stock, par value $1 per share.

The following graph compares the total return on a cumulative basis through December 31, [removed: 2020] [added: 2021] of $100 invested in Lockheed Martin common stock on December 31, [removed: 2015] [added: 2016] to the Standard and Poor’s (S&P) 500 Index and the S&P Aerospace & Defense Index.

[removed: ][added: ]

The S&P Aerospace & Defense Index comprises General Dynamics Corporation, Howmet Aerospace Inc., Huntington Ingalls Industries, L3Harris Technologies, Inc., Lockheed Martin Corporation, Northrop Grumman Corporation, Raytheon Technologies Corporation, [removed: Teledyne Technologies Incorporated,] Textron Inc., The Boeing Company, and Transdigm Group Inc. The stockholder return performance indicated on the graph is not a guarantee of future performance.

There were no sales of unregistered equity securities during the quarter ended December 31, [removed: 2020.][added: 2021.]

The following table provides information about our repurchases of our common stock [added: that is] registered pursuant to Section 12 of the [added: Securities] Exchange Act of 1934 during the quarter ended December 31, [removed: 2020.][added: 2021.]

For example, [removed: October 26, 2020] [added: November 29, 2021] was the first day of our [removed: November 2020] [added: December 2021] fiscal month.

The total remaining authorization for future common share repurchases under our share repurchase program was [removed: $3.0] [added: $3.9] billion as of December 31, [removed: 2020.][added: 2021.]

[removed: (c)During] [added: (d)During] the quarter ended December 31, [removed: 2020,] [added: 2021,] the total number of shares purchased included [removed: 9,987] [added: 11,143] shares that were transferred to us by employees in satisfaction of tax withholding obligations associated with the vesting of restricted stock units.

| September 27, 2021 – October 31, 2021 (c) | | | | | | 3,886,168 | | | | | | $ | 329.66 | | | | | 3,885,811 | | | | | | $ | 3,923 | |

| November 1, 2021 – November 28, 2021 | | | | | | — | | | | | | $ | — | | | | | — | | | | | | $ | 3,923 | |

| November 29, 2021 – December 31, 2021 | | | | | | 10,786 | | | | | | $ | 333.81 | | | | | — | | | | | | $ | 3,923 | |

| Total (c)(d) | | | | | | 3,896,954 | | | | | | $ | 329.83 | | | | | 3,885,811 | | | | | | | | |

(c)During the fourth quarter of 2021, we entered into an accelerated share repurchase (ASR) agreement to repurchase $2.0 billion of our common stock.

Under the terms of the ASR agreement we entered into in October 2021, we paid $2.0 billion and received an initial delivery of 3,621,111 shares of our common stock.

Upon final settlement of the ASR agreement in January 2022, we received an additional 2,183,284 shares of our common stock based on the average price paid per share of $344.57, calculated with reference to the volume-weighted average price (VWAP) of our common stock over the term of the agreement, less a negotiated discount.

Average Price Paid Per Share in the table above does not include ASR shares.

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| September 28, 2020 – October 25, 2020 | | | | | | — | | | | | | $ | — | | | | | — | | | | | | $ | 3,011 | |

| October 26, 2020 – November 29, 2020 | | | | | | 87 | | | | | | $ | 350.79 | | | | | — | | | | | | $ | 3,011 | |

| November 30, 2020 – December 31, 2020 | | | | | | 9,900 | | | | | | $ | 366.61 | | | | | — | | | | | | $ | 3,011 | |

| Total (c) | | | | | | 9,987 | | | | | | $ | 366.47 | | | | | — | | | | | | | | |

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| *(In millions, except per share data)* | | | | | | [removed: 2020] [added: 2021] | | | | | | [removed: 2019] [added: 2020] | | | | | | [removed: 2018] [added: 2019] | | | | | | [removed: 2017] [added: 2018] | | | | | | [removed: 2016] [added: 2017] | | |

| Net sales | | | | | | $ | [removed: 65,398] [added: 67,044] | | | | | $ | [removed: 59,812] [added: 65,398] | | | | | $ | [removed: 53,762] [added: 59,812] | | | | | $ | [removed: 49,960] [added: 53,762] | | | | | $ | [removed: 47,290] [added: 49,960] | |

| Operating profit [removed: (a)(b)(c)(d)(e)(f)] [added: (a)(b)] | | | | | | [removed: 8,644] [added: 9,123] | | | | | | [removed: 8,545] [added: 8,644] | | | | | | [removed: 7,334] [added: 8,545] | | | | | | [removed: 6,744] [added: 7,334] | | | | | | [removed: 5,888] [added: 6,744] | | |

| Net earnings from continuing operations [removed: (a)(b)(d)(e)(f)(g)(h)] [added: (a)(b)(c)(d)(e)(f)(g)(i)] | | | | | | [removed: 6,888] [added: 6,315] | | | | | | [removed: 6,230] [added: 6,888] | | | | | | [removed: 5,046] [added: 6,230] | | | | | | [removed: 1,890] [added: 5,046] | | | | | | [removed: 3,661] [added: 1,890] | | |

| Net (loss) earnings from discontinued operations [removed: (i)] | | | | | | [removed: (55)] [added: —] | | | | | | [removed: —] [added: (55)] | | | | | | — | | | | | | [removed: 73] [added: —] | | | | | | [removed: 1,512] [added: 73] | | |

| Net earnings [removed: (b)(c)(d)(e)(f)(g)(h)] [added: (a)(b)(c)(d)(e)(f)(g)(i)] | | | | | | [removed: 6,833] [added: 6,315] | | | | | | [removed: 6,230] [added: 6,833] | | | | | | [removed: 5,046] [added: 6,230] | | | | | | [removed: 1,963] [added: 5,046] | | | | | | [removed: 5,173] [added: 1,963] | | |

| Basic [removed: (a)(b)(d)(e)(f)(g)(h)] [added: (a)(b)(c)(d)(e)(f)(g)(i)] | | | | | | [removed: 24.60] [added: 22.85] | | | | | | [removed: 22.09] [added: 24.60] | | | | | | [removed: 17.74] [added: 22.09] | | | | | | [removed: 6.56] [added: 17.74] | | | | | | [removed: 12.23] [added: 6.56] | | |

| Diluted [removed: (a)(b)(d)(e)(f)(g)(h)] [added: (a)(b)(c)(d)(e)(f)(g)(i)] | | | | | | [removed: 24.50] [added: 22.76] | | | | | | [removed: 21.95] [added: 24.50] | | | | | | [removed: 17.59] [added: 21.95] | | | | | | [removed: 6.50] [added: 17.59] | | | | | | [removed: 12.08] [added: 6.50] | | |

| Earnings (loss) [added: earnings] from discontinued operations per common share | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Basic | | | | | | [removed: (0.20)] [added: —] | | | | | | [removed: —] [added: (0.20)] | | | | | | — | | | | | | [removed: 0.26] [added: —] | | | | | | [removed: 5.05] [added: 0.26] | | |

| Diluted | | | | | | [removed: (0.20)] [added: —] | | | | | | [removed: —] [added: (0.20)] | | | | | | — | | | | | | [removed: 0.25] [added: —] | | | | | | [removed: 4.99] [added: 0.25] | | |

| Basic [removed: (a)(b)(d)(e)(f)(g)(h)] [added: (a)(b)(c)(d)(e)(f)(g)(i)] | | | | | | [removed: 24.40] [added: 22.85] | | | | | | [removed: 22.09] [added: 24.40] | | | | | | [removed: 17.74] [added: 22.09] | | | | | | [removed: 6.82] [added: 17.74] | | | | | | [removed: 17.28] [added: 6.82] | | |

| Diluted [removed: (a)(b)(d)(e)(f)(g)(h)] [added: (a)(b)(c)(d)(e)(f)(g)(i)] | | | | | | [removed: 24.30] [added: 22.76] | | | | | | [removed: 21.95] [added: 24.30] | | | | | | [removed: 17.59] [added: 21.95] | | | | | | [removed: 6.75] [added: 17.59] | | | | | | [removed: 17.07] [added: 6.75] | | |

| Cash dividends declared per common share | | | | | | $ | [removed: 9.80] [added: 10.60] | | | | | $ | [removed: 9.00] [added: 9.80] | | | | | $ | [removed: 8.20] [added: 9.00] | | | | | $ | [removed: 7.46] [added: 8.20] | | | | | $ | [removed: 6.77] [added: 7.46] | |

| Cash, cash equivalents and short-term investments [removed: (b)] | | | | | | $ | [removed: 3,160] [added: 3,604] | | | | | $ | [removed: 1,514] [added: 3,160] | | | | | $ | [removed: 772] [added: 1,514] | | | | | $ | [removed: 2,861] [added: 772] | | | | | $ | [removed: 1,837] [added: 2,861] | |

| Total current assets | | | | | | [removed: 19,378] [added: 19,815] | | | | | | [removed: 17,095] [added: 19,378] | | | | | | [removed: 16,103] [added: 17,095] | | | | | | [removed: 17,505] [added: 16,103] | | | | | | [removed: 14,780] [added: 17,505] | | |

| Goodwill | | | | | | [removed: 10,806] [added: 10,813] | | | | | | [removed: 10,604] [added: 10,806] | | | | | | [removed: 10,769] [added: 10,604] | | | | | | [removed: 10,807] [added: 10,769] | | | | | | [removed: 10,764] [added: 10,807] | | |

| Total assets [removed: (b)] [added: (h)] | | | | | | [removed: 50,710] [added: 50,873] | | | | | | [removed: 47,528] [added: 50,710] | | | | | | [removed: 44,876] [added: 47,528] | | | | | | [removed: 46,620] [added: 44,876] | | | | | | [removed: 47,560] [added: 46,620] | | |

| Total current liabilities | | | | | | [removed: 13,933] [added: 13,997] | | | | | | [removed: 13,972] [added: 13,933] | | | | | | [removed: 14,398] [added: 13,972] | | | | | | [removed: 12,913] [added: 14,398] | | | | | | [removed: 12,456] [added: 12,913] | | |

| Total debt, net | | | | | | [removed: 12,169] [added: 11,676] | | | | | | [removed: 12,654] [added: 12,169] | | | | | | [removed: 14,104] [added: 12,654] | | | | | | [removed: 14,263] [added: 14,104] | | | | | | [removed: 14,282] [added: 14,263] | | |

| Total liabilities [removed: (b)(k)] [added: (c)(h)] | | | | | | [removed: 44,672] [added: 39,914] | | | | | | [removed: 44,357] [added: 44,672] | | | | | | [removed: 43,427] [added: 44,357] | | | | | | [removed: 47,396] [added: 43,427] | | | | | | [removed: 46,083] [added: 47,396] | | |

| Total equity (deficit) [removed: (b)(g)] [added: (c)(i)] | | | | | | [removed: 6,038] [added: 10,959] | | | | | | [removed: 3,171] [added: 6,038] | | | | | | [removed: 1,449] [added: 3,171] | | | | | | [removed: (776)] [added: 1,449] | | | | | | [removed: 1,477] [added: (776)] | | |

| Common shares in stockholders’ equity at year-end | | | | | | [removed: 279] [added: 271] | | | | | | [removed: 280] [added: 279] | | | | | | [removed: 281] [added: 280] | | | | | | [removed: 284] [added: 281] | | | | | | [removed: 289] [added: 284] | | |

| Net cash provided by operating activities [removed: (b)(c)] [added: (b)] | | | | | | $ | [removed: 8,183] [added: 9,221] | | | | | $ | [removed: 7,311] [added: 8,183] | | | | | $ | [removed: 3,138] [added: 7,311] | | | | | $ | [removed: 6,476] [added: 3,138] | | | | | $ | [removed: 5,189] [added: 6,476] | |

| Net cash used for investing activities | | | | | | [removed: (2,010)] [added: (1,161)] | | | | | | [removed: (1,241)] [added: (2,010)] | | | | | | [removed: (1,075)] [added: (1,241)] | | | | | | [removed: (1,147)] [added: (1,075)] | | | | | | [removed: (985)] [added: (1,147)] | | |

| Net cash [removed: (used for) provided by] [added: used for] financing activities | | | | | | [removed: (4,527)] [added: (7,616)] | | | | | | [removed: (5,328)] [added: (4,527)] | | | | | | [removed: (4,152)] [added: (5,328)] | | | | | | [removed: (4,305)] [added: (4,152)] | | | | | | [removed: (3,457)] [added: (4,305)] | | |

| Backlog | | | | | | $ | [removed: 147,131] [added: 135,355] | | | | | $ | [removed: 143,981] [added: 147,131] | | | | | $ | [removed: 130,468] [added: 143,981] | | | | | $ | [removed: 105,493] [added: 130,468] | | | | | $ | [removed: 103,458] [added: 105,493] | |

(a)Our operating profit and net earnings from continuing operations and earnings per share from continuing operations [added: in 2021] were affected by severance [added: and restructuring] charges of [removed: $27] [added: $36] million [removed: ($21] [added: ($28] million, or [removed: $0.08] [added: $0.10] per share, after-tax) [removed: in 2020 primarily related] [added: associated with plans] to [removed: corporate functions, severance] [added: close] and [removed: restructuring] [added: consolidate certain facilities and reduce total workforce within our RMS business segment; severance] charges of [removed: $96] [added: $27] million [removed: ($76] [added: ($21] million, or [removed: $0.26] [added: $0.08] per share, after-tax) in [removed: 2018] [added: 2020;] and severance [added: and restructuring] charges of [removed: $80] [added: $96] million [removed: ($52] [added: ($76] million, or [removed: $0.17] [added: $0.26] per share, after-tax) in [removed: 2016.][added: 2018.]

Accordingly, our net earnings were affected by a net FAS/CAS pension adjustment of [added: $668 million in 2021,] $2.1 billion in 2020, $1.5 billion in 2019, $1.0 billion in 2018, [removed: $876 million in 2017,] and [removed: $902] [added: $876] million in [removed: 2016.][added: 2017.]

[removed: We made pension contributions of $1.0 billion in 2020, $1.0 billion in 2019, $5.0 billion in 2018, $46 million in 2017, and $23 million in 2016, and these] [added: These] contributions caused fluctuations in our operating cash flows and cash balance between each of those years.

[removed: (d)In] [added: (f)In] 2019 and 2017, we recorded [removed: a] previously deferred [removed: non-cash gain] [added: noncash gains] of $51 million ($38 million, or $0.13 per share, after-tax) and $198 million ($122 million, or $0.42 per share, after-tax) related to properties sold in 2015 as a result of completing our remaining obligations.

[removed: (f)For] [added: (e)For] the [removed: year] [added: years] ended December 31, 2020 and 2018, operating profit includes [removed: a non-cash] [added: noncash] asset impairment [removed: charge] [added: charges] of $128 million ($96 million, or $0.34 per share, after-tax) and $110 million ($83 million, or $0.29 per share, after-tax) related to our equity method investee, [removed: Advanced Military Maintenance, Repair and Overhaul Center LLC (AMMROC).]

For the year ended December 31, 2017, operating profit includes a $64 million ($40 million, or $0.14 per share, after-tax) charge, which represents our portion of a [removed: non-cash] [added: noncash] asset impairment charge recorded by AMMROC.

See “Note 1 – [added: Organization and] Significant Accounting Policies” included in our Notes to Consolidated Financial Statements for more information.

[removed: (g)In] [added: (i)In] 2017, we recorded a net one-time tax charge of $2.0 billion ($6.77 per share), substantially all of which was [removed: non-cash,] [added: noncash,] primarily related to the estimated impact of the Tax Cuts and Jobs Act of 2017 (see “Note 10 – Income Taxes” included in our Notes to Consolidated Financial Statements).

[removed: (h)Net] [added: (g)Net] earnings for the year ended December 31, 2019 include benefits of $127 million ($0.45 per share) for additional tax deductions for the prior year, primarily attributable to foreign derived intangible income treatment based on proposed tax regulations released on March 4, 2019 and a change in our tax accounting method.

[removed: (j)Effective] [added: (h)Effective] January 1, 2019, we adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842).

[removed: As of December 31, 2019,] [added: Upon adoption, we recorded] right-of-use operating lease assets [removed: were] [added: of] $1.0 billion and operating lease liabilities [removed: were] [added: of] $1.1 [removed: billion.][added: billion, approximately $855 million of which were classified as noncurrent.]

We made no pension contributions in 2021, $1.0 billion in both 2020 and 2019, $5.0 billion in 2018, and $46 million in 2017.

(c)Net earnings from continuing operations in 2021 include a noncash, non-operating pension settlement charge of $1.7 billion ($1.3 billion, or $4.72 per share, after-tax) related to the purchase of group annuity contracts to transfer $4.9 billion of gross pension obligations and related plan assets to an insurance company, which represents the accelerated recognition of actuarial losses that were included in the accumulated other comprehensive loss account within stockholders' equity.

(d)Net earnings from continuing operations in 2021 include unrealized gains of $265 million ($199 million, or $0.72 per share, after-tax) due to changes in the fair value of investments held in the Lockheed Martin Ventures Fund.

Advanced Military Maintenance, Repair and Overhaul Center LLC (AMMROC).

(c)Cash generated from operations for the year ended December 31, 2020 reflects the receipt of approximately $1.2 billion of net accelerated progress payments due to the U.S. Government's increase in the progress payment rate from 80 percent to 90 percent and the deferral of $460 million for the employer portion of payroll taxes to 2021 and 2022 pursuant to the CARES Act.

We used the accelerated progress payments from the U.S. Government plus cash on hand to accelerate $2.1 billion of payments to our suppliers as of December 31, 2020 that are due by their terms in future periods.

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(e)For the year ended December 31, 2019, net earnings include a gain of $34 million (approximately $0 after-tax) for the sale of our Distributed Energy Solutions business.

(i)Discontinued operations for the year ended December 31, 2020 include a $55 million ($0.20 per share) non-cash charge resulting from the resolution of certain tax matters related to the former Information Systems & Global Solutions (IS&GS) business divested in 2016.

Discontinued operations for the year ended December 31, 2016 include a $1.2 billion net gain related to the divestiture of our IS&GS business in 2016.

Approximately $855 million of operating lease liabilities were classified as noncurrent.

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We have audited the accompanying consolidated balance sheets of Lockheed Martin Corporation (the Corporation) as of December 31, [removed: 2020] [added: 2021] and [removed: 2019,] [added: 2020,] the related consolidated statements of earnings, comprehensive income, [removed: equity and] cash flows [added: and equity] for each of the three years in the period ended December 31, [removed: 2020,] [added: 2021,] and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Corporation at December 31, [removed: 2020] [added: 2021] and [removed: 2019,] [added: 2020,] and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2020,] [added: 2021,] in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Corporation’s internal control over financial reporting as of December 31, [removed: 2020,] [added: 2021,] based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated January [removed: 28, 2021] [added: 25, 2022] expressed an unqualified opinion thereon.

| *Description of the Matter* | | | | | | For the year ended December 31, [removed: 2020,] [added: 2021,] the Corporation recorded net sales of [removed: $65.4] [added: $67.0] billion. As more fully described in Note 1 to the consolidated financial statements, the Corporation generates the majority of its net sales from long-term contracts with its customers whereby substantially all of the Corporation’s revenue is recognized over time using the percentage-of-completion cost-to-cost measure of progress. Under the percentage-of-completion cost-to-cost measure of progress, the Corporation measures progress towards completion based on the ratio of costs incurred to date to the estimated total costs to complete the performance obligation(s) (referred to as the estimate-at-completion analysis). The Corporation estimates profit on these contracts as the difference between total estimated revenues and total estimated cost at completion. The percentage-of-completion cost-to-cost method requires management to make significant estimates and assumptions to estimate contract sales and costs associated with its contracts with customers. At the outset of a long-term contract, the Corporation identifies risks to the achievement of the technical, schedule and cost aspects of the contract. Throughout the contract life cycle, the Corporation monitors and assesses the effects of those risks on its estimates of sales and total costs to complete the contract. Profit booking rates may increase during the performance of the contract if the Corporation successfully retires risks surrounding the technical, schedule and cost aspects of the contract, which would decrease the estimated total costs to complete the contract. Conversely, the profit booking rates may decrease if the estimated total costs to complete the contract increase. Changes to the profit booking rates resulting from changes in estimates could have a material effect on the Corporation’s results of operations. Auditing the Corporation’s estimate-at-completion analyses used in its revenue recognition process was complex due to the judgment involved in evaluating the significant estimates and assumptions made by management in the creation and subsequent updates to the Corporation’s estimate-at-completion analyses. The estimate-at-completion analyses of each contract consider risks surrounding the Corporation’s ability to achieve the technical, schedule, and cost aspects of the contract. | | |

| *Description of the Matter* | | | | | | At December 31, [removed: 2020,] [added: 2021,] the Corporation’s aggregate obligation for its qualified defined benefit pension plans was [removed: $51.3] [added: $43.5] billion and exceeded the gross fair value of the related plan assets of [removed: $38.4] [added: $35.2] billion, resulting in a net unfunded qualified defined benefit pension obligation of [removed: $12.9] [added: $8.3] billion. As explained in Note 12 of the consolidated financial statements, the Corporation remeasures the qualified defined benefit pension assets and obligations at the end of each year or more frequently upon the occurrence of certain events. The amounts are measured using actuarial valuations, which depend on key assumptions such as the discount [removed: rate, the expected long-term] rate [removed: of return on plan assets,] and participant longevity. Auditing the defined benefit pension obligation was complex and required the involvement of specialists as a result of the judgmental nature of the actuarial assumptions such as discount [removed: rate, expected long-term] rate [removed: of return on plan assets,] and participant longevity, used in the measurement process. These assumptions have a significant effect on the projected benefit obligation, with the discount rate being the most sensitive of those assumptions. | | |

| *How We Addressed the Matter in Our Audit* | | | | | | We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant internal controls over management’s measurement and valuation of the defined benefit pension obligation calculations. For example, we tested the internal controls over management’s review of the defined benefit pension obligation calculations, the significant actuarial assumptions and the data inputs provided to the actuaries. To test the defined benefit pension obligation, our audit procedures included, among others, evaluating the methodology used, the significant actuarial assumptions described above and the underlying data used by the Corporation. We compared the actuarial assumptions used by management to historical trends and evaluated the change in the defined benefit pension obligation from prior year due to the change in service cost, interest cost, benefit payments, [added: settlements,] actuarial gains and losses, [removed: contributions,] new longevity assumptions and plan amendments. In addition, we involved our actuarial specialists to assist in evaluating management’s methodology for determining the discount rate that reflects the maturity and duration of the benefit payments and is used to measure the defined benefit pension obligation. As part of this assessment, we compared the projected cash flows to [added: the] prior year and compared the current year benefits paid to the prior year projected cash flows. To evaluate [removed: the mortality rate and the] longevity, we evaluated management’s selection of mortality base tables and improvement scales, adjusted for entity-specific factors. [removed: We] [added: Lastly, we] also tested the completeness and accuracy of the underlying data, including the participant data provided to the Corporation’s actuarial specialists. [removed: Lastly, to evaluate the expected return on plan assets, we assessed whether management’s assumption was consistent with a range of returns for a portfolio of comparative investments.] | | |

| | | | | | | Years Ended December 31, | | | | | | | | | | | | | | | [added: | | | | | | | | | | | | | | |]

| | | | | | | [added: 2021 | | | | | |] 2020 | | | | | | 2019 | | | | | | [removed: 2018] | | | [added: | | | | | | | | |]

| Net sales | | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | | | | | | |]

| Products | | | | | | $ | [removed: 54,928] [added: 56,435] | | | | | $ | [removed: 50,053] [added: 54,928] | | | | | $ | [removed: 45,005] [added: 50,053] | | [added: | | | | | | | | | | | | | | |]

| Services | | | | | | [removed: 10,470] [added: 10,609] | | | | | | [added: 10,470 | | | | | |] 9,759 | | | | | | [removed: 8,757] | | | [added: | | | | | | | | |]

| Total net sales | | | | | | [removed: 65,398] [added: 67,044] | | | | | | [added: 65,398 | | | | | |] 59,812 | | | | | | [removed: 53,762] | | | [added: | | | | | | | | |]

| Cost of sales | | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | | | | | | |]

| Products | | | | | | [removed: (48,996)] [added: (50,273)] | | | | | | [added: (48,996) | | | | | |] (44,589) | | | | | | [removed: (40,293)] | | | [added: | | | | | | | | |]

| Services | | | | | | [removed: (9,371)] [added: (9,463)] | | | | | | [added: (9,371) | | | | | |] (8,731) | | | | | | [removed: (7,738)] | | | [added: | | | | | | | | |]

| Severance [added: and restructuring] charges | | | | | | [removed: (27)] [added: (36)] | | | | | | [added: (27) | | | | | |] — | | | | | | [removed: (96)] | | | [added: | | | | | | | | |]

| Other unallocated, net | | | | | | [removed: 1,650] [added: 1,789] | | | | | | [added: 1,650 | | | | | |] 1,875 | | | | | | [removed: 1,639] | | | [added: | | | | | | | | |]

| Total cost of sales | | | | | | [removed: (56,744)] [added: (57,983)] | | | | | | [added: (56,744) | | | | | |] (51,445) | | | | | | [removed: (46,488)] | | | [added: | | | | | | | | |]

| Gross profit | | | | | | [removed: 8,654] [added: 9,061] | | | | | | [added: 8,654 | | | | | |] 8,367 | | | | | | [removed: 7,274] | | | [added: | | | | | | | | |]

| Other [removed: (expense) income,] [added: income (expense),] net | | | | | | [removed: (10)] [added: 62] | | | | | | [added: (10) | | | | | |] 178 | | | | | | [removed: 60] | | | [added: | | | | | | | | |]

| Operating profit | | | | | | [removed: 8,644] [added: 9,123] | | | | | | [added: 8,644 | | | | | |] 8,545 | | | | | | [removed: 7,334] | | | [added: | | | | | | | | |]

| Interest expense | | | | | | [removed: (591)] [added: (569)] | | | | | | [added: (591) | | | | | |] (653) | | | | | | [removed: (668)] | | | [added: | | | | | | | | |]

| Other non-operating income (expense), net | | | | | | [removed: 182] [added: 288] | | | | | | [removed: (651)] [added: (37)] | | | | | | [removed: (828)] [added: (74)] | | | [added: | | | | | | | | | | | | | | |]

| Earnings from continuing operations before income taxes | | | | | | [removed: 8,235] [added: 7,550] | | | | | | [added: 8,235 | | | | | |] 7,241 | | | | | | [removed: 5,838] | | | [added: | | | | | | | | |]

| Income tax expense | | | | | | [removed: (1,347)] [added: (1,235)] | | | | | | [added: (1,347) | | | | | |] (1,011) | | | | | | [removed: (792)] | | | [added: | | | | | | | | |]