Lockheed Martin (LMT) 10-K risk factor changes: FY2022 vs FY2021

You should carefully consider the following factors, in addition to the other information contained in this Annual Report on Form 10-K, before deciding to [removed: purchase] [added: trade in] our common stock or debt securities.

We derived [removed: 71%] [added: 73%] of our total consolidated net sales from the U.S. Government in [removed: 2021,] [added: 2022,] including [removed: 62%] [added: 64%] from the DoD.

[removed: Those] [added: Our] contracts [added: with the U.S. Government] are conditioned upon the continuing availability of Congressional appropriations.

[removed: If] [added: To the extent] we incur costs in excess of funds obligated on a contract or in advance of a contract [removed: award,] [added: award or contract definitization,] we [removed: may be] [added: are] at risk of not being reimbursed for those costs unless and until additional funds are obligated under the contract or the contract is [removed: awarded] [added: successfully awarded, definitized] and [removed: funded.][added: funded, which could adversely affect our results of operations, financial condition and cash flows.]

Budget uncertainty, the [removed: risk of future budget cuts, the] potential for U.S. Government shutdowns, the use of continuing resolutions, and the federal debt ceiling can adversely affect our industry and the funding for our programs.

If appropriations [removed: were] [added: are] 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.

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

[removed: Our] [added: In addition, our] business could [removed: also] be adversely impacted by reductions or delays in spending by non-U.S. government customers [removed: who] [added: that] are facing [removed: budget pressures.][added: budget, inflationary or other pressures, such as increases in the cost of borrowing from rising interest rates.]

However, termination of [removed: multiple or large] [added: significant] programs or contracts could adversely affect our business and future financial performance.

[removed: Changes] [added: DoD’s changes] in funding priorities [removed: could] also [added: could] reduce opportunities in existing programs and in future programs [added: or initiatives] where we intend to [removed: compete.][added: compete and where we have made investments.]

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

In addition, our ability to grow in key areas such as hypersonics programs, classified programs and next-generation franchise programs [removed: will] also [added: will] be affected by the overall budget [removed: environment,] [added: environment and] 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 [added: or delays] 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.

The F-35 program, which consists of multiple development, production and sustainment contracts, is our largest program and represented 27% of our total consolidated net sales in [removed: 2021.][added: 2022.]

A decision by the U.S. Government or [removed: other governments] [added: international partner and FMS customer countries] to cut spending on this program or reduce or delay planned orders would have an adverse impact on our business and results of operations.

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

Current program challenges include [removed: supplier, Lockheed Martin] [added: our] and [removed: partner] [added: our suppliers’] performance (including COVID-19 performance-related challenges), software development, [removed: the receipt of] [added: definitizing and receiving] 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 life cycle [removed: operations, sustainment] [added: operations] and [removed: potential contractual obligations,] [added: sustainment, inflation-related cost pressures] and the ability to continue to [removed: reduce the unit production costs and] improve affordability.

Our planned production rates and deliveries have been [added: adversely] affected and could continue to be [added: adversely] affected by COVID-19 or supplier [removed: delays] [added: performance challenges,] which affect our results of operations.

We also may not be successful in making hardware [removed: 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.

We are subject to [added: extensive] procurement laws and regulations, including those that enable the U.S. Government to terminate contracts for convenience.

Our business and reputation could be adversely affected if we or those we do business with fail to comply with [removed: these laws.][added: or adapt to existing or new procurement laws and regulations, which are regularly evolving.]

We [added: and others with which we do business] must comply with laws and regulations relating to the award, administration and performance of U.S. Government contracts.

In addition, costs to comply with new government regulations can increase our costs, reduce our margins and [added: adversely] affect our competitiveness.

[removed: For example,] [added: One of] the [added: significant differences is that the] U.S. Government may terminate any of our government [removed: contracts and subcontracts] [added: contracts,] not only for default based on our [removed: performance] [added: performance,] but also at its convenience.

[removed: In the case of termination] [added: If a contract is terminated] for default, the U.S. Government could make claims to reduce the contract value or recover its procurement costs and could assess other special [removed: penalties.][added: penalties, exposing us to liability and adversely affecting our ability to compete for future contracts and orders.]

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

[removed: This can affect our ability to negotiate mutually agreeable contract terms and, if] [added: 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.

[removed: The] [added: On the other hand, the] U.S. Government [removed: also] may decide to exercise [removed: option periods] [added: options] for contracts under which it is expected that our costs may exceed the contract price or ceiling, which could result in losses or unreimbursed costs.

[removed: The] [added: In addition to the unique risks associated with government contracts, the] U.S. Government [removed: could implement] [added: utilizes] procurement policies that [added: could] negatively impact our profitability or the ability to win new business.

[removed: Changes] [added: Other changes] in procurement policy [added: that could affect the predictability of our profit rates or make it more difficult to compete on certain types of programs include] favoring more incentive-based fee arrangements, [added: using] different award fee criteria [added: than historically used (such as the evaluation of environmental factors)] or [added: making] government contract negotiation offers based upon [removed: the customer’s] [added: their] view of what our costs should be (as compared to our actual [removed: costs) may affect the predictability of our profit rates or make it more difficult to compete on certain types of programs.][added: costs).]

In addition, changes in contract financing policy for fixed-price contracts, such as changes in performance and progress payments policies, [removed: 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.

In addition, [removed: an increased number of contract solicitations require the contractor to] [added: we have certain contracts where we] bid upfront on cost-reimbursable development work and the follow-on fixed-price production options in one submission.

This [removed: 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.

From time to time, the U.S. Government [removed: also] has proposed contract 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 [removed: which] [added: that] could adversely affect our business.

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

[removed: The conditions to award] OTAs [removed: include,] [added: are exempt from many traditional procurement laws, including the FAR, and an OTA award may be subject,] in certain [removed: instances,] [added: cases, to the condition] that a significant portion of the work under the OTA is performed by a non-traditional defense contractor or that a portion of the cost of the protype project is funded by non-governmental sources.

If we cannot successfully adapt to the DoD’s rapid acquisition [removed: processes or if the DoD significantly increases the use of OTAs with non-traditional defense contractors or increasingly mandates cost sharing,] [added: processes,] then we may lose strategic new business opportunities in high-growth areas and our future performance and results could be adversely affected.

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

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

[removed: If] [added: Due to the fixed-price nature of the contracts, if] our actual costs exceed our [removed: estimates] [added: estimates,] our [added: margins and] profits are reduced and we could incur a [added: reach-forward] loss.

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For example, during 2022, we experienced a temporary halt of F-35 deliveries due to non-compliant materials in a component provided by a supplier, which affected timing of deliveries.

Additionally, as described in the “Status of the F-35 Program” in Management Discussion and Analysis of Financial Condition and Results of Operations, we are experiencing a pause in aircraft deliveries due to the suspension of Government Furnished Equipment (GFE) engine deliveries and corresponding flight restrictions that were issued by the U.S. Government.

See also the Risk Factor below captioned “We are heavily dependent on suppliers and if our subcontractors or other suppliers or teaming agreement or joint venture partners fail to perform their obligations, our performance and ability to win future business could be adversely affected” for a discussion of the risk of non-compliant parts and the supply chain.

Generally, prime contractors have a similar right under subcontracts related to government contracts.

If a contract is terminated for convenience, we typically would be entitled to receive payments for our allowable costs incurred and the proportionate share of fees or earnings for the work performed.

However, to the extent insufficient funds have been appropriated by the U.S. Government to the program to cover our costs upon a termination for convenience, the U.S. Government may assert that it is not required to appropriate additional funding.

Similarly, the U.S. Government could indirectly terminate a program or contract by not appropriating funding.

The decision to terminate programs or contracts for convenience or default could adversely affect our business and future financial performance.

Another significant difference from commercial contracting is the existence in government contracting of the concept of an undefinitized contract action (UCA), which is when we begin performing our obligations before the terms, specifications or

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price are finally agreed to between the parties.

This can affect our ability to negotiate mutually agreeable contract terms.

For example, the U.S. Government has procurement policies that shift risk to contractors, such as using fixed-price contracts for development programs as described in the following risk factor.

Costs to complete a contract may increase for a variety of reasons, including technical and manufacturing challenges, schedule delays, workforce-related issues, or inaccurate initial contract cost estimates.

These could be caused by a variety of reasons, including labor shortages, the nature and complexity of the work performed, the timeliness and availability of materials from suppliers, internal and subcontractor performance or product quality issues, inability to meet cost reduction initiatives or achieve efficiencies from digital transformation, changing laws or regulations, inflation and natural disasters.

Certain contracts may impose other risks, such as forfeiting fees, paying penalties, or providing replacement systems in the event of performance failure.

Cost, schedule or technical performance issues with respect to cost-reimbursable contracts could result in reduced fees, lower profit rates, or program cancellation.

Fixed-price contracts are predominantly either firm fixed-price (FFP) contracts or fixed-price incentive (FPI) contracts.

Under FFP contracts, we receive a fixed price irrespective of the actual costs we incur and we therefore carry the burden of any cost overruns.

Under FPI contracts, we generally share with the U.S. Government savings for cost underruns less than target costs and expenses for cost overruns exceeding target costs up to a negotiated ceiling price.

We carry the entire burden of cost overruns exceeding the ceiling price amount under FPI contracts.

A reach-forward loss is when estimates of total costs to be incurred on a contract exceed total estimates of the transaction price.

When this occurs, a provision for the entire loss is determined at the contract level and is recorded in the period in which the loss is evident.

Contracts for development programs include complex design and technical requirements and are often contracted on a cost-reimbursable basis, however, some of our existing development programs are contracted on a fixed-price basis or include cost-type contracting for the development phase with fixed-price production options.

We expect we also will bid on similar

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programs in the future.

Fixed-price development work or fixed price production options, especially on competitively bid programs, is inherently riskier than cost-reimbursable work because the revenue is fixed, while the estimates of costs required to complete these contracts are subject to significant variability due to the complex and often experimental nature of development programs.

The technical complexity coupled with the fixed-price contract structure of certain of our ongoing development programs or new programs increases the risk that our costs will be greater than anticipated, resulting in reduced margins, operating profit, or reach-forward losses during the period of contract performance or upon contract award, all of which could be significant to our operating results, cash flows, or financial condition.

Many of our U.S. Government contracts include multiple option years and our expected sales or profits may be adversely affected if the U.S. Government decides not to exercise the options.

U.S. Government audits and investigations often take years to complete, and many result in no adverse action against us.

Like many U.S. Government contractors, we have received audit and investigative reports recommending the reduction of certain contract prices or that certain payments be repaid, delayed, or withheld, and may involve substantial amounts.

Similarly, like other U.S. Government contractors, audits and investigations also occur related to cost reimbursements that are based upon our final allowable incurred costs for each year.

Suspension or debarment could have a material adverse effect on us because of our dependence on contracts with the U.S. Government.

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Additionally, procurements that do not evaluate whether the cost assumptions in the bids are realistic can lead to bidders taking aggressive pricing positions, which could result in the winner realizing a loss upon contract award or an increased risk of lower margins or realizing a loss over the term of the contract.

Our efforts to protest or challenge any bids for contracts that were not awarded to us also may be unsuccessful, including, the December 2022 protest by Lockheed Martin Sikorsky, on behalf of Team DEFIANT, challenging the U.S. Army’s award under the Future Long Range Assault Aircraft competition.

The failure of our supply chain to comply with regulatory requirements that we flow down from our U.S. government prime contracts also could adversely affect our operating results, financial condition, or cash flows.

Furthermore, changes in the political or economic environment, may adversely affect the financial stability and viability of our contracting parties or lower-tier subcontractors or their ability to meet their performance obligations.

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

Upon termination for convenience of a cost-reimbursable contract, we normally are entitled to reimbursement of allowable costs plus a portion of the fee, and allowable costs include our cost to terminate agreements with our suppliers and subcontractors.

Programs occasionally do not have sufficient funds appropriated to cover the termination costs if the government were to terminate them for convenience.

Under such circumstances, the U.S. Government could assert that it is not required to appropriate additional funding.

A termination arising out of our default may expose us to liability and have a material adverse effect on our ability to compete for future contracts and orders.

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.

Certain of our U.S. Government contracts span one or more base years and include multiple option years.

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

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

Our customers also may seek to negotiate non-traditional contract provisions or contract types.

The U.S. Government’s preference for fixed-price contracting has resulted in what we believe to be the inappropriate application of fixed-priced contracting methods to development programs.

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.

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

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 opportunity or reduce operating margins.

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 the size of OTAs and we expect this trend to 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 follow-on production for a successful prototype.

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.

Our backlog includes a variety of contract types and represents the sales we expect to recognize for our products and services in the future.

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

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.

Under fixed-price contracts, we agree to perform specified work for a pre-determined price.

Some fixed-price contracts have a performance-based component under which we may earn incentive payments or incur financial penalties based on our performance.

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.

Contracts for development programs with complex design and technical challenges are often cost-reimbursable.

In these cases, the associated financial risks primarily relate to a reduction in fees and potential program cancellation if cost, schedule or technical performance issues

arise.

These contracts frequently are cost-reimbursable or fixed-price incentive-fee contracts.

Generally, if our costs exceed the contract target cost or are not allowable under the applicable regulations, we may not be able to obtain reimbursement for all costs and may have our fees reduced or eliminated.

There are also contracts for production, as well as operations and maintenance of the delivered products, that have the challenge of achieving a stable production and delivery rate, while maintaining operability of the product after delivery.

These contracts are primarily fixed-price.

In addition, certain contracts associated with our Space business segment contain provisions that require us to forfeit fees, pay penalties, or provide replacement systems in the event of performance failure, which could negatively affect our earnings and cash flows.

The U.S. Government has the ability to decrease or withhold certain payments when it deems systems subject to its review to be inadequate.

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 delays payments even if we are correct in our positions.

Additionally, competitive bids that do not contain cost-realism evaluation criteria can lead to competitors taking aggressive pricing positions.

Our efforts to protest or challenge any bids for contracts that were not awarded to us also may be unsuccessful and could result in our incurrence of significant expense.

The coronavirus disease 2019 (COVID-19) pandemic continues to present business challenges, and we continue to experience impacts related to COVID-19, primarily in increased coronavirus-related costs, delays in supplier deliveries, travel restrictions, site access and quarantine restrictions, employee absences, remote work and adjusted work schedules.

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.

The MD&A generally discusses [removed: 2021] [added: 2022] and [removed: 2020] [added: 2021] items and year-to-year comparisons between [removed: 2021] [added: 2022] and [removed: 2020.][added: 2021.]

Discussions of [removed: 2019] [added: 2020] items and year-to-year comparisons between [removed: 2020] [added: 2021] and [removed: 2019] [added: 2020] 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: 2020] [added: 2021] filed with the SEC on January [removed: 28, 2021.][added: 25, 2022.]

In [removed: 2021, 71%] [added: 2022, 73%] of our [removed: $67.0] [added: $66.0] billion in net sales were from the U.S. Government, either as a prime contractor or as a subcontractor (including [removed: 62%] [added: 64%] from the Department of Defense (DoD)), [removed: 28%] [added: 26%] 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.

We invest substantially in our people to ensure [removed: we have] [added: that our workforce has] the technical skills necessary to succeed, and we expect to continue to invest internally [removed: on] [added: in] innovative technologies that address rapidly evolving mission requirements for our customers.

We [added: also] will continue to [removed: invest in acquisitions,] [added: evaluate our portfolio and will make strategic acquisitions or divestitures,] as appropriate, while deepening our connection to commercial industry through cooperative partnerships, joint ventures, and equity investments.

Attendance for employees required to be onsite [removed: has] fluctuated [added: during 2022] based on [removed: pandemic] [added: COVID-19] developments.

We [removed: continued] [added: are actively engaging with our customers and are continuing] to take measures to protect the health and safety of our [removed: employees, including encouraging employees to be vaccinated.][added: employees.]

The [removed: 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 [removed: future pandemic-related developments,] [added: a number of factors,] including the [removed: duration] [added: impact] of [removed: the pandemic,] potential [removed: subsequent waves of] [added: new] COVID-19 [removed: infection] [added: variants] or [removed: potential new variants,] [added: subvariants,] the effectiveness and adoption of COVID-19 vaccines and therapeutics, [added: and] supplier impacts and related government actions to prevent and manage disease [removed: spread, including the implementation of any federal, state, local or foreign vaccine mandates, all of which are uncertain and cannot be predicted.][added: spread,.]

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: are] also [added: are] difficult to [removed: predict] [added: predict,] but could negatively affect our future results and performance.

The actual impact on [removed: 2022] [added: 2023] cash [removed: from operations] [added: tax liability] will depend on [removed: 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 [removed: 2022] [added: 2023] among other factors.

We selectively pursue the acquisition of [removed: businesses and] [added: businesses,] investments [added: and ventures] at attractive valuations that will expand or complement our current portfolio and allow access to new customers or technologies.

We also may explore the divestiture of [removed: businesses that]

[added: businesses, investments or ventures that] no longer meet our needs or strategy or that could perform better outside of our [removed: organization.][added: organization or with a different owner.]

[removed: 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,] [added: Therefore,] during 2021, AWE [added: only] 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.

On [removed: May] [added: March] 28, [removed: 2021,] [added: 2022] the Administration submitted to Congress the President’s [removed: fiscal year] [added: Fiscal Year] (FY) [removed: 2022] [added: 2023] budget request, which [removed: proposes $753] [added: proposed $813.4] billion [removed: for] [added: in] total national defense [removed: spending including $715] [added: spending, of which $773] billion [added: was] for the [removed: DoD, a 1.6% increase above the FY 2021 enacted amounts for both total national defense and] [added: base budget of] the [removed: DoD (a U.S. Government fiscal year starts on October 1 and ends on September 30).][added: Department of Defense (DoD).]

In [removed: 2021,] [added: 2022,] approximately [removed: 69%] [added: 74%] of our sales to international customers were FMS and about [removed: 31%] [added: 26%] were DCS.

In [removed: 2021,] [added: 2022,] international customers accounted for [removed: 35%] [added: 33%] of Aeronautics’ net sales.

There continues to be strong international interest in the F-35 program, which includes commitments from the U.S. Government and seven international partner countries and [removed: six international] [added: nine FMS] customers, as well as expressions of interest from other countries.

In [removed: 2021,] [added: 2022,] international customers accounted for [removed: 29%] [added: 31%] of MFC’s net sales.

In [removed: 2021,] [added: 2022,] international customers accounted for 28% of RMS’ net sales.

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

Additionally, in December 2021, the Israeli Ministry of Defense signed a Letter of Offer and Acceptance (LOA) to procure 12 CH-53K King Stallion heavy lift [removed: helicopters.][added: helicopters, of which the first four were awarded in 2022.]

[removed: As previously announced, on June 30, 2021 the UK Ministry of Defence renationalized AWE and, accordingly,] [added: Accordingly,] the AWE program’s ongoing [removed: operations] [added: operations, including the entity that manages the program,] are no longer included in our financial results [removed: beginning] as of that date.

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 [removed: six international] [added: nine Foreign Military Sales (FMS)] customers; as well as [removed: expressions of] interest from other countries.

Since program [removed: inception,] [added: inception] we have delivered [removed: 753] [added: 894] production F-35 aircraft to U.S. and international customers, including [removed: 549] [added: 648] F-35A variants, [removed: 150] [added: 178] F-35B variants, and [removed: 54] [added: 68] F-35C variants, demonstrating the F-35 program’s continued progress and longevity.

[removed: In 2023 and beyond, we] [added: We] anticipate [removed: delivering] [added: annual deliveries of] 156 aircraft [added: in 2025 and] for the foreseeable future.

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

Current program challenges include [removed: supplier, Lockheed Martin] [added: our] and [removed: partner] [added: our suppliers’] performance (including COVID-19 performance-related challenges), software development, [removed: the 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 life cycle operations, sustainment and potential contractual obligations, [added: inflation-related cost pressures,] and the ability to [removed: continue to reduce the unit production costs and] improve affordability.

At December 31, [removed: 2021,] [added: 2022,] our backlog was [removed: $135.4] [added: $150.0] billion compared with [removed: $147.1] [added: $135.4] billion at December 31, [removed: 2020.][added: 2021.]

[removed: We expect to recognize approximately 38%] of our backlog over the next 12 months and approximately [removed: 60%] [added: 61%] over the next 24 months as revenue, with the remainder recognized thereafter.

Funded backlog was [removed: $88.5] [added: $95.5] billion at December 31, [removed: 2021,] [added: 2022,] as compared to [removed: $102.3] [added: $88.5] billion at December 31, [removed: 2020.][added: 2021.]

For backlog related to each of our business segments, see [removed: “Business Segment Results of Operations” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.][added: below.]

| | | | | | | [removed: 2021] [added: 2022] | | | | | | [removed: 2020] [added: 2021] | | | | | | [removed: 2019] [added: 2020] | | |

| Net sales | | | | | | $ | [removed: 67,044] [added: 65,984] | | | | | $ | [removed: 65,398] [added: 67,044] | | | | | $ | [removed: 59,812] [added: 65,398] | |

| Cost of sales | | | | | | [removed: (57,983)] [added: (57,697)] | | | | | | [removed: (56,744)] [added: (57,983)] | | | | | | [removed: (51,445)] [added: (56,744)] | | |

| Gross profit | | | | | | [removed: 9,061] [added: 8,287] | | | | | | [removed: 8,654] [added: 9,061] | | | | | | [removed: 8,367] [added: 8,654] | | |

| Other income (expense), net | | | | | | [removed: 62] [added: 61] | | | | | | [removed: (10)] [added: 62] | | | | | | [removed: 178] [added: (10)] | | |

| Operating profit | | | | | | [removed: 9,123] [added: 8,348] | | | | | | [removed: 8,644] [added: 9,123] | | | | | | [removed: 8,545] [added: 8,644] | | |

| Interest expense | | | | | | [removed: (569)] [added: (623)] | | | | | | [removed: (591)] [added: (569)] | | | | | | [removed: (653)] [added: (591)] | | |

| Non-service FAS pension (expense) income | | | | | | [removed: (1,292)] [added: (971)] | | | | | | [removed: 219] [added: (1,292)] | | | | | | [removed: (577)] [added: 219] | | |

We operate in a complex and evolving global security environment.

Our strategy consists of the design and development of platforms and systems that meet the future requirements of 21st Century Security.

Our vision for 21st Century Security is to accelerate the adoption of advanced networking and leading-edge technologies into our national defense enterprise, while enhancing the performance and value of our platforms and products for our customers.

The aim of 21st Century Security is to integrate new and existing systems across all domains with advanced, open-architecture networking and operational technologies to make forces more agile, adaptive and unpredictable.

21st Century Security is an overarching vision that will guide our investment and strategy and we are also focused on four elements for potential growth in the near to mid-term: current programs of record, classified programs, hypersonics and new awards.

We have multiple programs of record from each business segment that are entering growth stages, including the F-35 sustainment activity (Aeronautics), increased PAC-3 production rates (Missiles and Fire Control), CH-53K heavy lift helicopter (Rotary and Mission Systems), and the modernization and enhancements to the Trident II D5 Fleet Ballistic Missile (Space).

We are engaged in significant classified development programs and pending successful achievement of the objectives within those programs, we expect to begin the transition from development to production over the next few years.

We are currently performing on multiple hypersonic programs and following the successful completion of ongoing testing and evaluation activity, multiple programs are expected to enter early production phases between 2023 and 2026.

Finally, we are always in pursuit of new program awards to develop future platforms that enable us to continue to place security capability into the market and expand our global reach.

Key to enabling success of our strategy is developing differentiating technologies, forging strategic partnerships, including with commercial companies, executing on our multi-year business transformation initiative to enhance our digital infrastructure and increase efficiencies and collaboration throughout our business and maintaining fiscal discipline.

Underpinning our ability to execute our strategy is our talent and culture.

COVID-19 continued to cause business impacts in 2022.

The emergence of the Omicron variant in late 2021 and resulting increase in COVID-19 cases in early 2022 adversely impacted our operations and our supply chain.

Our performance was affected during 2022 by supply chain disruptions and delays, as well as labor challenges associated with employee absences, travel restrictions, site access, quarantine restrictions, remote work, and adjusted work schedules.

The recovery from

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that disruption has been slower than originally anticipated, in particular within our supply chain, and some of those supply chain impacts are expected to continue into 2023.

In our on-going effort to mitigate supply chain risks, we accelerated payments of $1.5 billion to our suppliers as of December 31, 2022, that are due according to contractual terms in future periods, while consistently prioritizing small businesses, which make up over half of our active supply base, as well as at-risk businesses.

Additionally, we have deployed resources at supplier sites to improve oversight and performance.

We will continue to monitor supply chain risks, especially at small and at-risk related suppliers, and may continue to utilize accelerated payments in 2023 on an as needed basis.

Inflation

Heightened levels of inflation and the potential worsening of macro-economic conditions present risks for Lockheed Martin, our suppliers and the stability of the broader defense industrial base.

During 2022, we have experienced impacts to our labor rates and suppliers have signaled inflation related cost pressures, which will flow through to our costs and pricing.

Although inflation did not significantly impact our financial results in 2022, if inflation remains at current levels for an extended period, or increases, and we are unable to successfully mitigate the impact, our costs are likely to increase, resulting in pressure on our profits, margins and cash flows, particularly for existing fixed-price contracts.

For new contract proposals, we are factoring into our pricing heightened levels of inflation based on accepted DoD escalation indices and other assumptions, and in some cases seeking the inclusion of economic price adjustment (EPA) clauses, which would permit, subject to the particular contractual terms, cost adjustments in fixed-price contracts for unexpected inflation.

In addition, inflation and the increases in the cost of borrowing from rising interest rates could constrain the overall purchasing power of our customers for our products and services, in particular in the near term to the extent inflation assumptions are less than current inflationary pressures.

Rising interest rates will also increase our borrowing costs on new debt and could affect the fair value of our investments.

While rising interest rates reduce the measure of our gross pension obligations, they can also lead to decline in pension plan assets with offsetting impacts on our net pension liability.

We remain committed to our ongoing efforts to increase the efficiency of our operations and improve the cost competitiveness and affordability of our products and services, which may, in part, offset cost increases from inflation.

Conflict in Ukraine

Russia’s invasion of Ukraine has significantly elevated global geopolitical tensions and security concerns.

As a result, we have received increased interest for some of our products and services as countries seek to improve their security posture, particularly in Europe.

In addition, security assistance provided by the U.S. government to Ukraine has created U.S. government demand to replenish U.S. stockpiles, resulting in additional and potential future orders for our products.

We are beginning to see this interest result in initiation of new contract discussions, however, given the long-cycle nature of our business and current industry capacity, we do not expect a significant increase in near term sales from new contracts in response to the conflict.

We are evaluating capacity at our operations and the supply chain to anticipate potential demand and enable us to deliver critical capabilities.

In addition, the U.S. Government and other nations have implemented broad economic sanctions and export controls targeting Russia, which combined with the conflict have the potential to indirectly disrupt our supply chain and access to certain resources.

We have not, however, experienced significant adverse impacts to date and we will continue to monitor for any impacts and seek to mitigate disruption that may arise.

The conflict also has increased the threat of malicious cyber activity from nation states and other actors.

We have taken steps designed to enhance our defensive posture against tactics and techniques associated with this increased threat.

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

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

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

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

We experienced impacts in each of our business areas related to COVID-19, primarily in continued increased coronavirus-related costs, delays in supplier deliveries, travel restrictions, site access and quarantine restrictions, employee absences, remote work and adjusted work schedules.

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.

We also continued to work with our customers and suppliers to minimize disruptions, including using accelerated progress payments from the U.S. Government and cash on hand to accelerate $2.2 billion of payments to our suppliers as of December 31, 2021 that are due by their terms in future periods.

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.

2022 Financial Trends

We expect 2022 net sales to decrease by approximately 2% from 2021 levels.

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.

Total business segment operating margin in 2022 is expected to be approximately 10.9% and cash from operations in 2022 is expected to be greater than or equal to $7.9 billion.

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.

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.

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

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.

Additionally, 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.

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 2022 net sales, business segment operating margin, and cash flows.

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

We do not expect to make required contributions to our qualified defined benefit pension plans in 2022.

Pending Acquisition of Aerojet Rocketdyne Holdings, Inc.

On December 20, 2020, we entered into an agreement to acquire Aerojet Rocketdyne Holdings, Inc. (Aerojet 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.

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.

If the transaction is completed, we expect to finance the acquisition primarily through new debt issuances.

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

We [removed: continue to] closely monitor the financial market environment and actively manage counterparty exposure to minimize the potential impact from adverse developments with any single credit provider while ensuring availability of, and access to, sufficient credit resources.

The estimated fair value of our outstanding debt was [removed: $15.4] [added: $16.0] billion at December 31, [removed: 2021] [added: 2022] and the outstanding principal amount was [removed: $12.8] [added: $16.8] billion, excluding unamortized discounts and issuance costs of [removed: $1.1] [added: $1.3] 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: 2021.][added: 2022.]

These contracts hedge forecasted foreign currency transactions in order to [removed: mitigate] [added: minimize] fluctuations in our earnings and cash flows associated with changes in foreign currency exchange rates.

For variable rate borrowings, we may use fixed interest rate swaps, effectively converting variable rate borrowings to fixed rate borrowings in order to [removed: mitigate] [added: minimize] the impact of interest rate changes on earnings.

We also may enter into derivative instruments that are not designated as hedges and do not qualify for hedge accounting, which are intended to [removed: mitigate] [added: minimize] certain economic exposures.

The aggregate notional amount of our outstanding interest rate swaps at December 31, [removed: 2021] [added: 2022] and [removed: 2020] [added: 2021] was [removed: $500 million] [added: $1.3 billion] and [removed: $572] [added: $500] million.

The aggregate notional amount of our outstanding foreign currency hedges at December 31, [removed: 2021] [added: 2022] and [removed: 2020] [added: 2021] was [removed: $4.0] [added: $7.3] billion and [removed: $3.4] [added: $4.0] billion.

At December 31, [removed: 2021] [added: 2022] and [removed: 2020,] [added: 2021,] the net fair value of our derivative instruments was not material (see “Note [removed: 16] [added: 15] – Fair Value Measurements” included in our Notes to Consolidated Financial Statements).

Our foreign currency exchange hedge portfolio is diversified across [removed: several] [added: many] banks.

We [removed: periodically] [added: regularly] monitor changes to counterparty credit quality as well as our concentration of credit exposure to individual counterparties.

As of December 31, [removed: 2021,] [added: 2022,] investments in the trust totaled [removed: $2.1] [added: $1.6] 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: 2021.][added: 2022.]

We are exposed to equity market risk through certain marketable [removed: securities held by our Lockheed Martin Ventures fund.][added: securities.]

The fair value of [removed: our] [added: these] marketable securities [removed: held by the fund] was [removed: $132] [added: $24] million as of December 31, [removed: 2021.][added: 2022.]

A 10% decrease in the market price of our marketable equity securities as of December 31, [removed: 2021] [added: 2022] would not have a material impact on the carrying amounts of these securities or our consolidated financial statements.

The increase in 2022 was designated on the additional debt we issued during the fourth quarter.

The increase in 2022 is due to the timing of foreign denominated international contract awards.

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We invest substantially in our people to ensure [removed: we have] [added: that our workforce has] the technical skills necessary to succeed, and we expect to continue to invest internally [removed: on] [added: in] innovative technologies that address rapidly evolving mission requirements for our customers.

We [added: also] will continue to [removed: invest in acquisitions,] [added: evaluate our portfolio and will make strategic acquisitions or divestitures,] as appropriate, while deepening our connection to commercial industry through cooperative partnerships, joint ventures, and equity investments.

Aeronautics also has contracts with the U.S. Government for [added: various] classified programs.

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

- F-16 Fighting Falcon - [removed: low-cost,] combat-proven, international multi-role fighter; and

The F-35 program is our largest program, generating 27% of our total consolidated net sales, as well as [removed: 68%] [added: 66%] of Aeronautics’ net sales in [removed: 2021.][added: 2022.]

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

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

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

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 [added: unmanned ground vehicles; and energy management solutions.]

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

MLRS is a highly mobile, automatic system that fires surface-to-surface rockets and missiles from the M270 and High Mobility Artillery Rocket System [added: (HIMARS®)] platforms produced for the U.S. Army and international customers.

The Apache fire control system provides [removed: weapons targeting] [added: weapons-targeting] capability for the Apache helicopter for the U.S. Army and international customers.

RMS also has contracts with the U.S. Government for [added: various] classified programs.

- Sikorsky [added: helicopter] programs such as those related to the [removed: Black Hawk® and] [added: BLACK HAWK®,] Seahawk® [added: and CH-53K King Stallion heavy lift] helicopters which are in service with U.S. and foreign governments, the [removed: CH-53K King Stallion heavy lift helicopter serving the U.S. Marine Corps, the] Combat Rescue Helicopter (CRH) utilized by the U.S. Air Force, and the VH-92A helicopter for the U.S. Marine One transport mission.

- Command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance (C6ISR) programs such as the Command, Control, Battle Management and Communications (C2BMC) program to provide [removed: an air operations center for the Ballistic Missile Defense System for the U.S. Government, and undersea combat systems programs largely serving the U.S. Navy.]

As previously announced, on June 30, [removed: 2021] [added: 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)).

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

- The Space Based Infrared System (SBIRS) and Next Generation Overhead Persistent Infrared (Next Gen OPIR) system programs, which provide the U.S. [removed: Air] [added: Space] Force with enhanced worldwide missile warning capabilities.

- Global Positioning System (GPS) III, a program to modernize the GPS satellite system for the U.S. [removed: Air] [added: Space] Force.

- Next Generation Interceptor (NGI), a program with the [removed: MDA] [added: Missile Defense Agency (MDA)] utilizing next generation propulsion and sensors to provide homeland missile defense.

[removed: In addition to owning a large portfolio of patents and trademarks, we] [added: We also] develop and own other intellectual property, including copyrights, trade secrets and research, development and engineering know-how, [removed: which contribute] [added: that contributes] significantly to our business.

[removed: We also] [added: In addition, we] license intellectual property to and from third parties.

The Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS) provide [removed: that] the U.S. Government [removed: obtains] certain rights in intellectual property, including patents, developed by us and our subcontractors and suppliers in performance of government contracts or with government funding.

See the discussion of matters related to our intellectual property [removed: within] [added: in] Item 1A - Risk Factors.

Non-U.S. governments [removed: may] also [added: may] have certain rights in patents and other intellectual property developed in performance of our contracts for them.

[removed: Aluminum] [added: For example, aluminum] and titanium are important raw materials used in certain of our Aeronautics and Space programs.

Long-term agreements have helped enable a continued supply of [removed: aluminum and titanium.][added: these materials.]

[removed: Carbon] [added: In addition, carbon] fiber is an important ingredient in composite materials used in our Aeronautics programs, [removed: such as the F-35 aircraft.]

We rely on other companies to provide materials, [removed: major] components and products, 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.

Various [removed: factors] [added: factors, however,] can affect the distribution of our sales between accounting periods, including the timing of government awards, the availability of government funding, product deliveries and customer acceptance.

During [removed: 2021,] [added: 2022,] our human capital efforts were focused on 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, all while maintaining a respectful, challenging, supportive and inclusive working environment.

As of December 31, [removed: 2021,] [added: 2022,] we had a highly skilled workforce made up of approximately [removed: 114,000] [added: 116,000] employees, including approximately [removed: 59,000] [added: 60,000] engineers, scientists and information technology professionals.

As of December 31, [removed: 2021,] [added: 2022,] approximately 93% of our workforce was located in the U.S. and approximately [removed: 20%] [added: 19%] of our employees were covered by collective bargaining agreements with various unions.

Employee Profile (as of December 31, [removed: 2021):][added: 2022):]

| Overall | | | | | | 23% | | | | | | [removed: 29%] [added: 30%] | | | | | | 21% | | | | | | [removed: 10%] [added: 11%] | | |

During [removed: 2021,] [added: 2022,] we hired more than [removed: 10,000] [added: 14,000] employees, despite the continuing challenges presented by the COVID-19 pandemic.

We attract and reward our employees by providing market competitive compensation and [removed: benefit practices,] [added: benefits,] including incentives and recognition plans that extend to nonrepresented employees of all levels in our organization and encourage excellence through our pay-for-performance philosophy.

During [removed: 2021,] [added: 2022,] these metrics continued to be negatively impacted by the absence from work and delays in the return to work related to COVID-19.

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

We operate in a complex and evolving global security environment.

Our strategy consists of the design and development of platforms and systems that meet the future requirements of 21st Century Security.

Our vision for 21st Century Security is to accelerate the adoption of advanced networking and leading-edge technologies into our national defense enterprise, while enhancing the performance and value of our platforms and products for our customers.

The aim of 21st Century Security is to integrate new and existing systems across all domains with advanced, open-architecture networking and operational technologies to make forces more agile, adaptive and unpredictable.

21st Century Security is an overarching vision that will guide our investment and strategy and we are also focused on four elements for potential growth in the near to mid-term: current programs of record, classified programs, hypersonics and new awards.

We have multiple programs of record from each business segment that are entering growth stages, including the F-35 sustainment activity (Aeronautics), increased PAC-3 production rates (Missiles and Fire Control), CH-53K heavy lift helicopter (Rotary and Mission Systems), and the modernization and enhancements to the Trident II D5 Fleet Ballistic Missile (Space).

We are engaged in significant classified development programs and pending successful achievement of the objectives within those programs, we expect to begin the transition from development to production over the next few years.

We are currently performing on multiple hypersonic programs and following the successful completion of ongoing testing and evaluation activity, multiple programs are expected to enter early production phases between 2023 and 2026.

Finally, we are always in pursuit of new program awards to develop future platforms that enable us to continue to place security capability into the market and expand our global reach.

Key to enabling success of our strategy is developing differentiating technologies, forging strategic partnerships, including with commercial companies, executing on our multi-year business transformation initiative to enhance our digital infrastructure and increase efficiencies and collaboration throughout our business and maintaining fiscal discipline.

Underpinning our ability to execute our strategy is our talent and culture.

For additional information on the F-35 program, see “Status of

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- The Javelin program, which is a one-man portable and platform-employable anti-tank and multi-target precision weapon system.

Javelin was developed and is currently produced for the U.S. Army and U.S. Marine Corps by a joint venture between Lockheed Martin and Raytheon Technologies.

[Table](#i692d08b87629410bb3c9a1eb5b8d3191_7) [o](#i692d08b87629410bb3c9a1eb5b8d3191_7)[f C](#i692d08b87629410bb3c9a1eb5b8d3191_7)[ontents](#i692d08b87629410bb3c9a1eb5b8d3191_7)

an air operations center for the Ballistic Missile Defense System for the U.S. Government, and undersea combat systems programs largely serving the U.S. Navy.

[Table](#i692d08b87629410bb3c9a1eb5b8d3191_7) [o](#i692d08b87629410bb3c9a1eb5b8d3191_7)[f C](#i692d08b87629410bb3c9a1eb5b8d3191_7)[ontents](#i692d08b87629410bb3c9a1eb5b8d3191_7)

such as the F-35 aircraft.

During 2022, the COVID-19 pandemic, supply chain challenges, and increased demand caused global semiconductor chip shortages, extended lead times and pricing escalations and these are expected to continue in 2023.

These supplier disruptions have resulted in delays and increased costs and have adversely affected our program performance and operating results.

| Executives(b) | | | | | | 25% | | | | | | 16% | | | | | | 21% | | | | | | 11% | | |

[Table](#i692d08b87629410bb3c9a1eb5b8d3191_7) [o](#i692d08b87629410bb3c9a1eb5b8d3191_7)[f C](#i692d08b87629410bb3c9a1eb5b8d3191_7)[ontents](#i692d08b87629410bb3c9a1eb5b8d3191_7)

We compete with many different companies in the defense and aerospace industry.

The Boeing Company, General Dynamics, L3Harris Technologies, Northrop Grumman, and Raytheon Technologies are some of our primary competitors.

Key characteristics of our industry include long operating cycles and intense competition, which is evident through the number of competitors bidding on program opportunities and the number of bid protests (competitor protests of U.S. Government procurement awards).

Additionally, a company competing to be a prime contractor may, upon ultimate award of the contract to another competitor, serve as a subcontractor to the ultimate prime contracting company.

It is not unusual to compete for a contract award with a peer company and, simultaneously, perform as a supplier to or a customer of that same competitor on other contracts.

Principal factors of competition include: the technical excellence, reliability, safety and cost competitiveness of our products and services to the customer; technical and management capability; the ability to innovate and develop new products and technologies that improve mission performance and adapt to dynamic threats; successful program execution and on-time delivery of complex, integrated systems; the reputation and customer confidence derived from past performance; our demonstrated ability to execute and perform against contract requirements and successfully manage customer relationships; and our global footprint and accessibility to customers.

[Table](#i692d08b87629410bb3c9a1eb5b8d3191_7) [o](#i692d08b87629410bb3c9a1eb5b8d3191_7)[f C](#i692d08b87629410bb3c9a1eb5b8d3191_7)[ontents](#i692d08b87629410bb3c9a1eb5b8d3191_7)

for the procurement.

For more information concerning our international business, see Item 1A - Risk Factors.

- require specific security controls to protect U.S. Government controlled unclassified information and that our suppliers that have access to this type of information comply with cyber security regulations;

- Prohibit the acquisition from or use by contractors of materials, products or services procured from certain countries or entities located outside the United States (e.g., the prohibition on the acquisition of sensitive materials from non-allied foreign nations and prohibition on the acquisition and use of certain telecommunications and video surveillance services or equipment); and

The U.S. Government’s power to unilaterally definitize a contract can affect our ability to negotiate mutually

[Table](#i692d08b87629410bb3c9a1eb5b8d3191_7) [o](#i692d08b87629410bb3c9a1eb5b8d3191_7)[f C](#i692d08b87629410bb3c9a1eb5b8d3191_7)[ontents](#i692d08b87629410bb3c9a1eb5b8d3191_7)

However, under certain classified fixed price development and production contracts, we are unable to insure risk of loss to government property because of the classified nature of the contracts and the inability to disclose classified information necessary for underwriting and claims to commercial insurers.

[Table](#i692d08b87629410bb3c9a1eb5b8d3191_7) [o](#i692d08b87629410bb3c9a1eb5b8d3191_7)[f C](#i692d08b87629410bb3c9a1eb5b8d3191_7)[ontents](#i692d08b87629410bb3c9a1eb5b8d3191_7)

expressions are intended to identify forward-looking statements.

In 2021, 71% of our $67.0 billion in net sales were from the U.S. Government, either as a prime contractor or as a subcontractor (including 62% from the Department of Defense (DoD)), 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.

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

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

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

Pending Acquisition of Aerojet Rocketdyne Holdings, Inc.

On December 20, 2020, we entered into an agreement to acquire Aerojet Rocketdyne Holdings, Inc. (Aerojet 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.

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.

In 2021, our Aeronautics business segment generated net sales of $26.7 billion, which represented 40% of our total consolidated net sales.

Aeronautics’ customers include the military services, principally the U.S. Air Force and U.S. Navy, and various other government agencies of the U.S. and other countries, as well as commercial and other customers.

In 2021, U.S. Government customers accounted for 65% and international customers accounted for 35% of Aeronautics’ net sales.

Net sales from Aeronautics’ combat aircraft products and services represented 32% of our total consolidated net sales in 2021 and 2019, and 33% in 2020.

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; and expressions of interest from other countries.

In 2021, we delivered 142 aircraft, including 68 to international customers, resulting in total deliveries of 753 production aircraft since program inception.

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.

We have 230 aircraft in backlog as of December 31, 2021 extending into 2023, including orders from our international partner countries.

Aeronautics produces and provides support and sustainment services for the C-130J Super Hercules, as well as upgrades and support services for the legacy C-130 Hercules worldwide fleet.

We delivered 22 C-130J aircraft in 2021.

We have 79 aircraft in our backlog as of December 31, 2021, extending into 2025.

Aeronautics produces F-16 aircraft for international customers and continues to provide service-life extension, modernization and other upgrade programs for our customers’ F‑16 aircraft, with existing contracts continuing for several years.

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

We continue to seek international opportunities to deliver additional aircraft.

Aeronautics continues to provide modernization and sustainment activities for the U.S. Air Force’s F-22 aircraft fleet.

The modernization program comprises upgrading existing systems requirements, developing new systems requirements, adding capabilities and enhancing the performance of the weapon systems.

The sustainment program consists of sustaining the weapon systems of the F-22 fleet, providing training systems, customer support, integrated support planning, supply chain management, aircraft modifications and heavy maintenance, systems engineering and support products.

In 2021, our MFC business segment generated net sales of $11.7 billion, which represented 17% of our total consolidated net sales.

MFC’s customers include the military services, principally the U.S. Army, and various government agencies of the U.S. and other countries, as well as commercial and other customers.

In 2021, U.S. Government customers accounted for 71% and international customers accounted for 29% of MFC’s net sales.

unmanned ground vehicles; and energy management solutions.

In 2021, our RMS business segment generated net sales of $16.8 billion, which represented 25% of our total consolidated net sales.

For information regarding the matters discussed above, including current estimates of the amounts that we believe are required for remediation or clean-up to the extent estimable, see “Critical Accounting Policies - Environmental Matters” in [removed: Management’s] [added: “Management’s] Discussion and Analysis of Financial Condition and Results of [removed: Operations] [added: Operations”] and “Note [removed: 15] [added: 14] – Legal Proceedings, Commitments and Contingencies” included in our Notes to Consolidated Financial Statements.

As a U.S. Government contractor, we are subject to various audits and investigations by the U.S. Government to determine whether our operations are being conducted in accordance with applicable regulatory requirements.

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

Suspension or debarment could have a material adverse effect on us because of our dependence on contracts with the U.S. Government.

U.S. Government investigations often take years to complete and many result in no adverse action against us.

We also provide products and services to customers outside of the U.S., which are subject to U.S. and foreign laws and regulations and foreign procurement policies and practices.

Our compliance with local regulations or applicable U.S. Government regulations also may be audited or investigated.

For the fiscal year ended December 31, [removed: 2021][added: 2022]

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: 25, 2021,] [added: 24, 2022,] was approximately [removed: $105.3] [added: $110.7] billion.

There were [removed: 272,326,925] [added: 255,297,298] shares of our common stock, $1 par value per share, outstanding as of January [removed: 19, 2022.][added: 20, 2023.]

Portions of Lockheed Martin Corporation’s [removed: 2022] [added: 2023] Definitive Proxy Statement are incorporated by reference into Part III of this Form 10‑K.

The [removed: 2022] [added: 2023] 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: 2021][added: 2022]

| ITEM 1. | | | [removed: [Business](#i2095368da61d4a139df8d11ec3dcb825_13)] [added: [Business](#i692d08b87629410bb3c9a1eb5b8d3191_13)] | | | [removed: [3](#i2095368da61d4a139df8d11ec3dcb825_13)] [added: [3](#i692d08b87629410bb3c9a1eb5b8d3191_13)] | | |

| ITEM 1A. | | | [Risk [removed: Factors](#i2095368da61d4a139df8d11ec3dcb825_16)] [added: Factors](#i692d08b87629410bb3c9a1eb5b8d3191_16)] | | | [removed: [11](#i2095368da61d4a139df8d11ec3dcb825_16)] [added: [10](#i692d08b87629410bb3c9a1eb5b8d3191_16)] | | |

| ITEM 1B. | | | [Unresolved Staff [removed: Comments](#i2095368da61d4a139df8d11ec3dcb825_19)] [added: Comments](#i692d08b87629410bb3c9a1eb5b8d3191_19)] | | | [removed: [25](#i2095368da61d4a139df8d11ec3dcb825_19)] [added: [23](#i692d08b87629410bb3c9a1eb5b8d3191_19)] | | |

| ITEM 2. | | | [removed: [Properties](#i2095368da61d4a139df8d11ec3dcb825_22)] [added: [Properties](#i692d08b87629410bb3c9a1eb5b8d3191_22)] | | | [removed: [25](#i2095368da61d4a139df8d11ec3dcb825_22)] [added: [23](#i692d08b87629410bb3c9a1eb5b8d3191_22)] | | |

| ITEM 3. | | | [Legal [removed: Proceedings](#i2095368da61d4a139df8d11ec3dcb825_25)] [added: Proceedings](#i692d08b87629410bb3c9a1eb5b8d3191_25)] | | | [removed: [26](#i2095368da61d4a139df8d11ec3dcb825_25)] [added: [24](#i692d08b87629410bb3c9a1eb5b8d3191_25)] | | |

| ITEM 4. | | | [Mine Safety [removed: Disclosures](#i2095368da61d4a139df8d11ec3dcb825_28)] [added: Disclosures](#i692d08b87629410bb3c9a1eb5b8d3191_28)] | | | [removed: [26](#i2095368da61d4a139df8d11ec3dcb825_28)] [added: [24](#i692d08b87629410bb3c9a1eb5b8d3191_28)] | | |

| ITEM 4(a). | | | [Information about our Executive [removed: Officers](#i2095368da61d4a139df8d11ec3dcb825_31)] [added: Officers](#i692d08b87629410bb3c9a1eb5b8d3191_31)] | | | [removed: [27](#i2095368da61d4a139df8d11ec3dcb825_31)] [added: [24](#i692d08b87629410bb3c9a1eb5b8d3191_31)] | | |

| ITEM 5. | | | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#i2095368da61d4a139df8d11ec3dcb825_37)] [added: Securities](#i692d08b87629410bb3c9a1eb5b8d3191_37)] | | | [removed: [28](#i2095368da61d4a139df8d11ec3dcb825_37)] [added: [26](#i692d08b87629410bb3c9a1eb5b8d3191_37)] | | |

| ITEM 6. | | | [Selected Financial [removed: Data](#i2095368da61d4a139df8d11ec3dcb825_40)] [added: Data](#i692d08b87629410bb3c9a1eb5b8d3191_40)] | | | [removed: [30](#i2095368da61d4a139df8d11ec3dcb825_40)] [added: [28](#i692d08b87629410bb3c9a1eb5b8d3191_40)] | | |

| ITEM 7. | | | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#i2095368da61d4a139df8d11ec3dcb825_43)] [added: Operations](#i692d08b87629410bb3c9a1eb5b8d3191_43)] | | | [removed: [32](#i2095368da61d4a139df8d11ec3dcb825_43)] [added: [30](#i692d08b87629410bb3c9a1eb5b8d3191_43)] | | |

| ITEM 7A. | | | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#i2095368da61d4a139df8d11ec3dcb825_70)] [added: Risk](#i692d08b87629410bb3c9a1eb5b8d3191_67)] | | | [removed: [61](#i2095368da61d4a139df8d11ec3dcb825_70)] [added: [58](#i692d08b87629410bb3c9a1eb5b8d3191_67)] | | |

| ITEM 8. | | | [Financial Statements and Supplementary [removed: Data](#i2095368da61d4a139df8d11ec3dcb825_73)] [added: Data](#i692d08b87629410bb3c9a1eb5b8d3191_70)] | | | [removed: [63](#i2095368da61d4a139df8d11ec3dcb825_73)] [added: [60](#i692d08b87629410bb3c9a1eb5b8d3191_70)] | | |

| ITEM 9. | | | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#i2095368da61d4a139df8d11ec3dcb825_154)] [added: Disclosure](#i692d08b87629410bb3c9a1eb5b8d3191_151)] | | | [removed: [107](#i2095368da61d4a139df8d11ec3dcb825_154)] [added: [103](#i692d08b87629410bb3c9a1eb5b8d3191_151)] | | |

| ITEM 9A. | | | [Controls and [removed: Procedures](#i2095368da61d4a139df8d11ec3dcb825_157)] [added: Procedures](#i692d08b87629410bb3c9a1eb5b8d3191_154)] | | | [removed: [107](#i2095368da61d4a139df8d11ec3dcb825_157)] [added: [103](#i692d08b87629410bb3c9a1eb5b8d3191_154)] | | |

| ITEM 9B. | | | [Other [removed: Information](#i2095368da61d4a139df8d11ec3dcb825_163)] [added: Information](#i692d08b87629410bb3c9a1eb5b8d3191_160)] | | | [removed: [109](#i2095368da61d4a139df8d11ec3dcb825_163)] [added: [105](#i692d08b87629410bb3c9a1eb5b8d3191_160)] | | |

| ITEM 9C. | | | [Disclosure Regarding Foreign Jurisdictions that Prevent [removed: Inspections](#i2095368da61d4a139df8d11ec3dcb825_1569)] [added: Inspections](#i692d08b87629410bb3c9a1eb5b8d3191_163)] | | | [removed: [109](#i2095368da61d4a139df8d11ec3dcb825_1569)] [added: [105](#i692d08b87629410bb3c9a1eb5b8d3191_163)] | | |

| ITEM 10. | | | [Directors, Executive Officers and Corporate [removed: Governance](#i2095368da61d4a139df8d11ec3dcb825_169)] [added: Governance](#i692d08b87629410bb3c9a1eb5b8d3191_169)] | | | [removed: [109](#i2095368da61d4a139df8d11ec3dcb825_169)] [added: [105](#i692d08b87629410bb3c9a1eb5b8d3191_169)] | | |

| ITEM 11. | | | [Executive [removed: Compensation](#i2095368da61d4a139df8d11ec3dcb825_172)] [added: Compensation](#i692d08b87629410bb3c9a1eb5b8d3191_172)] | | | [removed: [109](#i2095368da61d4a139df8d11ec3dcb825_172)] [added: [105](#i692d08b87629410bb3c9a1eb5b8d3191_172)] | | |

| ITEM 12. | | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#i2095368da61d4a139df8d11ec3dcb825_175)] [added: Matters](#i692d08b87629410bb3c9a1eb5b8d3191_175)] | | | [removed: [110](#i2095368da61d4a139df8d11ec3dcb825_175)] [added: [106](#i692d08b87629410bb3c9a1eb5b8d3191_175)] | | |

| ITEM 13. | | | [Certain Relationships and Related Transactions, and Director [removed: Independence](#i2095368da61d4a139df8d11ec3dcb825_178)] [added: Independence](#i692d08b87629410bb3c9a1eb5b8d3191_178)] | | | [removed: [110](#i2095368da61d4a139df8d11ec3dcb825_178)] [added: [106](#i692d08b87629410bb3c9a1eb5b8d3191_178)] | | |

| ITEM 14. | | | [Principal Accounting Fees and [removed: Services](#i2095368da61d4a139df8d11ec3dcb825_181)] [added: Services](#i692d08b87629410bb3c9a1eb5b8d3191_181)] | | | [removed: [110](#i2095368da61d4a139df8d11ec3dcb825_181)] [added: [106](#i692d08b87629410bb3c9a1eb5b8d3191_181)] | | |

| ITEM 15. | | | [Exhibits and Financial Statement [removed: Schedules](#i2095368da61d4a139df8d11ec3dcb825_187)] [added: Schedules](#i692d08b87629410bb3c9a1eb5b8d3191_187)] | | | [removed: [111](#i2095368da61d4a139df8d11ec3dcb825_187)] [added: [107](#i692d08b87629410bb3c9a1eb5b8d3191_187)] | | |

| ITEM 16. | | | [Form 10-K [removed: Summary](#i2095368da61d4a139df8d11ec3dcb825_190)] [added: Summary](#i692d08b87629410bb3c9a1eb5b8d3191_190)] | | | [removed: [114](#i2095368da61d4a139df8d11ec3dcb825_190)] [added: [110](#i692d08b87629410bb3c9a1eb5b8d3191_190)] | | |

[Table](#i692d08b87629410bb3c9a1eb5b8d3191_7) [o](#i692d08b87629410bb3c9a1eb5b8d3191_7)[f C](#i692d08b87629410bb3c9a1eb5b8d3191_7)[ontents](#i692d08b87629410bb3c9a1eb5b8d3191_7)

[Table](#i692d08b87629410bb3c9a1eb5b8d3191_7) [o](#i692d08b87629410bb3c9a1eb5b8d3191_7)[f C](#i692d08b87629410bb3c9a1eb5b8d3191_7)[ontents](#i692d08b87629410bb3c9a1eb5b8d3191_7)

| [SIGNATURES](#i692d08b87629410bb3c9a1eb5b8d3191_193) | | | | | | [111](#i692d08b87629410bb3c9a1eb5b8d3191_193) | | |

[Table](#i692d08b87629410bb3c9a1eb5b8d3191_7) [o](#i692d08b87629410bb3c9a1eb5b8d3191_7)[f C](#i692d08b87629410bb3c9a1eb5b8d3191_7)[ontents](#i692d08b87629410bb3c9a1eb5b8d3191_7)

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

At December 31, [removed: 2021,] [added: 2022,] we owned or leased building space (including offices, manufacturing plants, warehouses, service centers, laboratories and other facilities) at [removed: approximately 362] [added: 339] locations primarily in the U.S. Additionally, we manage or occupy [removed: approximately] 10 government-owned facilities under lease and other arrangements.

At December 31, [removed: 2021,] [added: 2022,] we had significant operations in the following locations:

- Rotary and Mission Systems \- [removed: Shelton and] Stratford, Connecticut; Orlando, Florida; Moorestown/Mt.

The following is a summary of our square feet of floor space owned, leased, or utilized by business segment at December 31, [removed: 2021] [added: 2022] (in millions):

| Missiles and Fire Control | | | | | | [removed: 7.7] [added: 7.8] | | | | | | | | | [removed: 2.8] [added: 2.6] | | | | | | | | | 2.2 | | | | | | | | | [removed: 12.7] [added: 12.6] | | | | | |

| Rotary and Mission Systems | | | | | | [removed: 11.3] [added: 11.2] | | | | | | | | | [removed: 5.4] [added: 4.7] | | | | | | | | | 0.2 | | | | | | | | | [removed: 16.9] [added: 16.1] | | | | | |

| Space | | | | | | [removed: 9.2] [added: 9.3] | | | | | | | | | 2.9 | | | | | | | | | 0.9 | | | | | | | | | [removed: 13.0] [added: 13.1] | | | | | |

| Corporate activities | | | | | | 2.4 | | | | | | | | | [removed: 1.0] [added: 0.9] | | | | | | | | | — | | | | | | | | | [removed: 3.4] [added: 3.3] | | | | | |

[Table](#i692d08b87629410bb3c9a1eb5b8d3191_7) [o](#i692d08b87629410bb3c9a1eb5b8d3191_7)[f C](#i692d08b87629410bb3c9a1eb5b8d3191_7)[ontents](#i692d08b87629410bb3c9a1eb5b8d3191_7)

| Total | | | | | | 36.2 | | | | | | | | | 14.1 | | | | | | | | | 18.0 | | | | | | | | | 68.3 | | | | | |

| 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.

Our executive officers as of January [removed: 25, 2022] [added: 26, 2023] 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.

There [removed: were] [added: are] no family relationships among any of our executive officers and directors.

All [added: executive] officers serve at the discretion of the Board of Directors.

[removed: Colan] [added: Edward Paul, III] (age [removed: 61),] [added: 47),] Vice [removed: President, Controller,] [added: President] and [removed: Chief Accounting Officer][added: Controller]

Mr. [removed: Colan] [added: Paul] has served as Vice [removed: President, Controller,] [added: President] and [removed: Chief Accounting Officer] [added: Controller] since [removed: August 2014.][added: June 2022.]

[removed: Greene] [added: Cahill] (age [removed: 63),] [added: 57),] Executive Vice President [removed: -] [added: –] Missiles and Fire Control

Mr. [removed: Greene] [added: Cahill] has served as Executive Vice President [removed: of] [added: for the] Missiles and Fire Control (MFC) [added: business segment,] since [removed: August 2019.][added: November 2022.]

Hill (age [removed: 57),] [added: 58),] Executive Vice President [removed: -] [added: –] Rotary and Mission Systems

Prior to that, she was Deputy Executive Vice President of RMS from October 2018 to June 2019; [added: and] Senior Vice President for Corporate Strategy and Business Development from September 2017 to October [removed: 2018; and Vice President and General Manager of the former Cyber, Ships and Advanced Technologies line of business for RMS from June 2015 to September 2017.][added: 2018.]

Lavan (age [removed: 62),] [added: 63),] Senior Vice President, General Counsel and Corporate Secretary

Lightfoot, Jr. (age [removed: 58),] [added: 59),] Executive Vice President [removed: -] [added: –] Space

He previously served as Vice President, Operations [removed: at our] [added: of the] Space [added: business] segment [removed: since] [added: from] June [added: 2021 to December] 2021.

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

[removed: Mollard] [added: Scott] (age [removed: 64), Acting Chief Financial Officer,] [added: 45),] Vice President and Treasurer

Mr. [removed: Mollard] [added: Scott] has served as [removed: Acting Chief Financial Officer since August 2021 and] Vice President and Treasurer since [removed: April 2016.][added: June 2022.]

St. John (age [removed: 55),] [added: 56),] Chief Operating Officer

Prior to that, he served as Executive Vice President of [removed: MFC] [added: the Missiles and Fire Control (MFC) business segment] from January 2018 to August 2019; [added: and as] Executive Vice President and [removed: Deputy,] [added: Deputy] Programs [removed: in our] [added: for] MFC [removed: segment] from June 2017 to January [removed: 2018; and Vice President, Orlando Operations and Tactical Missiles/Combat Maneuver Systems business in our MFC segment from 2011 to May 2017.][added: 2018.]

Taiclet (age [removed: 61),] [added: 62),] Chairman, President and Chief Executive Officer

Mr. Taiclet has served as Chairman since March 2021 and [added: as] President and Chief Executive Officer [added: (CEO)] of Lockheed Martin since June 2020.

[removed: He previously] [added: Previously, he] was [removed: chairman, president] [added: Chairman, President] and [removed: chief executive officer] [added: CEO] of American Tower Corporation from February 2004 [removed: until] [added: to] March [removed: 2020] [added: 2020;] and [removed: executive chairman] [added: Executive Chairman] from March 2020 to May 2020.

Ulmer (age [removed: 57),] [added: 58),] Executive Vice President [removed: -] [added: –] Aeronautics

Prior to [removed: that] [added: that,] he served as Vice President, F-35 Aircraft Production business unit from March 2016 to March 2018.

Timothy S.

Mr. Cahill previously served as Senior Vice President of Global Business Development & Strategy (GBD&S) from March 2021 to October 2022.

Prior to that, Mr. Cahill served as Senior Vice President Lockheed Martin International from October 2019 to March 2021; and as Vice President, Integrated Air and Missile Defense (IAMD) Systems for MFC from January 2016 to October 2019.

[Table](#i692d08b87629410bb3c9a1eb5b8d3191_7) [o](#i692d08b87629410bb3c9a1eb5b8d3191_7)[f C](#i692d08b87629410bb3c9a1eb5b8d3191_7)[ontents](#i692d08b87629410bb3c9a1eb5b8d3191_7)

Jesus Malave (age 54), Chief Financial Officer

Mr. Malave has served as Chief Financial Officer since January 31, 2022.

Prior to joining Lockheed Martin in 2022, Mr. Malave served as Senior Vice President and Chief Financial Officer of L3Harris Technologies, Inc. (L3Harris) from June 2019 to January 2022.

Before joining L3Harris, Mr. Malave worked at United Technologies Corporation (UTC) as Vice President and Chief Financial Officer of UTC’s Carrier Corporation from April 2018 to June 2019; and as Chief Financial Officer of UTC’s Aerospace Systems from January 2015 to April 2018.

H.

Previously, he served as Vice President Accounting from March 2015 to June 2022.

Evan T.

Previously, Mr. Scott served as Vice President and Assistant Treasurer from August 2021 to June 2022.

Prior to that, Mr. Scott was Vice President, Finance and Business Operations of the Space business segment from March 2019 to August 2021; and Vice President and Controller of the Missiles and Fire Control business segment from March 2015 to March 2019.

He has served on the Lockheed Martin Board of Directors since January 2018.

[Table](#i692d08b87629410bb3c9a1eb5b8d3191_7) [o](#i692d08b87629410bb3c9a1eb5b8d3191_7)[f C](#i692d08b87629410bb3c9a1eb5b8d3191_7)[ontents](#i692d08b87629410bb3c9a1eb5b8d3191_7)

Brian P.

Scott T.

He previously served as Vice President, Tactical and Strike Missiles in our MFC segment from August 2017 to August 2019; and Vice President, Precision Fires and Combat Maneuver Systems in our MFC segment from January 2016 to August 2017.

John W.

At January [removed: 19, 2022,] [added: 20, 2023,] we had [removed: 24,045] [added: 23,358] 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: 2021] [added: 2022, assuming reinvestment] of [added: dividends, of] $100 invested in Lockheed Martin common stock [added: as of market close] on December [removed: 31, 2016] [added: 29, 2017] 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 [added: The Boeing Company,] General Dynamics Corporation, Howmet Aerospace Inc., Huntington Ingalls Industries, L3Harris Technologies, Inc., Lockheed Martin Corporation, Northrop Grumman Corporation, Raytheon Technologies Corporation, Textron [removed: Inc., The Boeing Company,] [added: Inc.] 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: 2021.][added: 2022.]

The following table provides information about our repurchases of our common stock that is registered pursuant to Section 12 of the Securities Exchange Act of 1934 during the quarter ended December 31, [removed: 2021.][added: 2022.]

For example, November [removed: 29, 2021] [added: 28, 2022] was the first day of our December [removed: 2021] [added: 2022] fiscal month.

(b)In [removed: October] 2010, our Board of Directors approved a share repurchase program pursuant to which we are authorized to repurchase our common stock in privately negotiated transactions or in the open market at prices per share not exceeding the then-current market prices.

The total remaining authorization for future common share repurchases under our share repurchase program was [removed: $3.9] [added: $10.0] billion as of December 31, [removed: 2021.][added: 2022.]

(c)During the fourth quarter of [removed: 2021,] [added: 2022,] we entered into an accelerated share repurchase (ASR) agreement to repurchase [removed: $2.0] [added: $4.0] billion of our common stock.

Under the terms of the ASR [removed: agreement we entered into in October 2021,] [added: agreement,] we paid [removed: $2.0] [added: $4.0] billion and received an initial delivery of [removed: 3,621,111] [added: 6,995,147] shares of our common stock.

(d)During the [added: fourth] quarter [removed: ended December 31, 2021,] [added: of 2022,] the total number of shares purchased included [removed: 11,143] [added: 6,215] shares that were transferred to us by employees in satisfaction of tax withholding obligations associated with the vesting of restricted stock units.

These purchases were made pursuant to a separate authorization by our Board of Directors and are not included within the [removed: program.][added: share repurchase program described above.]

[Table](#i692d08b87629410bb3c9a1eb5b8d3191_7) [o](#i692d08b87629410bb3c9a1eb5b8d3191_7)[f C](#i692d08b87629410bb3c9a1eb5b8d3191_7)[ontents](#i692d08b87629410bb3c9a1eb5b8d3191_7)

| September 26, 2022 – October 30, 2022 (c) | | | | | | 7,225,959 | | | | | | $ | 408.50 | | | | | 7,224,954 | | | | | | $ | 10,023 | |

| October 31, 2022 – November 27, 2022 | | | | | | 961 | | | | | | $ | 474.20 | | | | | — | | | | | | $ | 10,023 | |

| November 28, 2022 – December 31, 2022 | | | | | | 4,249 | | | | | | $ | 482.93 | | | | | — | | | | | | $ | 10,023 | |

| Total (c)(d) | | | | | | 7,231,169 | | | | | | $ | 410.10 | | | | | 7,224,954 | | | | | | | | |

On October 17, 2022, the Board of Directors authorized an increase to the program by $14.0 billion.

We expect to receive additional shares upon final settlement, which is expected in March or April 2023.

The total number of shares of common stock to be received under the ASR agreement will be based on an average volume-weighted average price (VWAP) of our common stock during the term of the ASR agreement, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR agreement.

[Table](#i692d08b87629410bb3c9a1eb5b8d3191_7) [o](#i692d08b87629410bb3c9a1eb5b8d3191_7)[f C](#i692d08b87629410bb3c9a1eb5b8d3191_7)[ontents](#i692d08b87629410bb3c9a1eb5b8d3191_7)

| 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 | | | | | | | | |

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.

| *(In millions, except per share data)* | | | | | | [removed: 2021] [added: 2022] | | | | | | [removed: 2020] [added: 2021] | | | | | | [removed: 2019] [added: 2020] | | | | | | [removed: 2018] [added: 2019] | | | | | | [removed: 2017] [added: 2018] | | |

| Net sales | | | | | | $ | [removed: 67,044] [added: 65,984] | | | | | $ | [removed: 65,398] [added: 67,044] | | | | | $ | [removed: 59,812] [added: 65,398] | | | | | $ | [removed: 53,762] [added: 59,812] | | | | | $ | [removed: 49,960] [added: 53,762] | |

| Operating profit (a)(b) | | | | | | [removed: 9,123] [added: 8,348] | | | | | | [removed: 8,644] [added: 9,123] | | | | | | [removed: 8,545] [added: 8,644] | | | | | | [removed: 7,334] [added: 8,545] | | | | | | [removed: 6,744] [added: 7,334] | | |

| Net earnings from continuing operations [removed: (a)(b)(c)(d)(e)(f)(g)(i)] [added: (a)(b)(c)(d)(e)(f)(g)(h)] | | | | | | [removed: 6,315] [added: 5,732] | | | | | | [removed: 6,888] [added: 6,315] | | | | | | [removed: 6,230] [added: 6,888] | | | | | | [removed: 5,046] [added: 6,230] | | | | | | [removed: 1,890] [added: 5,046] | | |

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

| Net earnings [removed: (a)(b)(c)(d)(e)(f)(g)(i)] [added: (a)(b)(c)(d)(e)(f)(g)(h)] | | | | | | [removed: 6,315] [added: 5,732] | | | | | | [removed: 6,833] [added: 6,315] | | | | | | [removed: 6,230] [added: 6,833] | | | | | | [removed: 5,046] [added: 6,230] | | | | | | [removed: 1,963] [added: 5,046] | | |

| Basic [removed: (a)(b)(c)(d)(e)(f)(g)(i)] [added: (a)(b)(c)(d)(e)(f)(g)(h)] | | | | | | [removed: 22.85] [added: 21.74] | | | | | | [removed: 24.60] [added: 22.85] | | | | | | [removed: 22.09] [added: 24.60] | | | | | | [removed: 17.74] [added: 22.09] | | | | | | [removed: 6.56] [added: 17.74] | | |

| Diluted [removed: (a)(b)(c)(d)(e)(f)(g)(i)] [added: (a)(b)(c)(d)(e)(f)(g)(h)] | | | | | | [removed: 22.76] [added: 21.66] | | | | | | [removed: 24.50] [added: 22.76] | | | | | | [removed: 21.95] [added: 24.50] | | | | | | [removed: 17.59] [added: 21.95] | | | | | | [removed: 6.50] [added: 17.59] | | |

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

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

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

| Basic [removed: (a)(b)(c)(d)(e)(f)(g)(i)] [added: (a)(b)(c)(d)(e)(f)(g)(h)] | | | | | | [removed: 22.85] [added: 21.74] | | | | | | [removed: 24.40] [added: 22.85] | | | | | | [removed: 22.09] [added: 24.40] | | | | | | [removed: 17.74] [added: 22.09] | | | | | | [removed: 6.82] [added: 17.74] | | |

| Diluted [removed: (a)(b)(c)(d)(e)(f)(g)(i)] [added: (a)(b)(c)(d)(e)(f)(g)(h)] | | | | | | [removed: 22.76] [added: 21.66] | | | | | | [removed: 24.30] [added: 22.76] | | | | | | [removed: 21.95] [added: 24.30] | | | | | | [removed: 17.59] [added: 21.95] | | | | | | [removed: 6.75] [added: 17.59] | | |

| Cash dividends declared per common share | | | | | | $ | [removed: 10.60] [added: 11.40] | | | | | $ | [removed: 9.80] [added: 10.60] | | | | | $ | [removed: 9.00] [added: 9.80] | | | | | $ | [removed: 8.20] [added: 9.00] | | | | | $ | [removed: 7.46] [added: 8.20] | |

| Cash, cash equivalents and short-term investments | | | | | | $ | [removed: 3,604] [added: 2,547] | | | | | $ | [removed: 3,160] [added: 3,604] | | | | | $ | [removed: 1,514] [added: 3,160] | | | | | $ | [removed: 772] [added: 1,514] | | | | | $ | [removed: 2,861] [added: 772] | |

| Total current assets | | | | | | [removed: 19,815] [added: 20,991] | | | | | | [removed: 19,378] [added: 19,815] | | | | | | [removed: 17,095] [added: 19,378] | | | | | | [removed: 16,103] [added: 17,095] | | | | | | [removed: 17,505] [added: 16,103] | | |

| Goodwill | | | | | | [removed: 10,813] [added: 10,780] | | | | | | [removed: 10,806] [added: 10,813] | | | | | | [removed: 10,604] [added: 10,806] | | | | | | [removed: 10,769] [added: 10,604] | | | | | | [removed: 10,807] [added: 10,769] | | |

| Total assets [removed: (h)] [added: (i)] | | | | | | [removed: 50,873] [added: 52,880] | | | | | | [removed: 50,710] [added: 50,873] | | | | | | [removed: 47,528] [added: 50,710] | | | | | | [removed: 44,876] [added: 47,528] | | | | | | [removed: 46,620] [added: 44,876] | | |

| Total current liabilities | | | | | | [removed: 13,997] [added: 15,887] | | | | | | [removed: 13,933] [added: 13,997] | | | | | | [removed: 13,972] [added: 13,933] | | | | | | [removed: 14,398] [added: 13,972] | | | | | | [removed: 12,913] [added: 14,398] | | |

| Total debt, net | | | | | | [removed: 11,676] [added: 15,547] | | | | | | [removed: 12,169] [added: 11,676] | | | | | | [removed: 12,654] [added: 12,169] | | | | | | [removed: 14,104] [added: 12,654] | | | | | | [removed: 14,263] [added: 14,104] | | |

| Total liabilities [removed: (c)(h)] [added: (c)(i)] | | | | | | [removed: 39,914] [added: 43,614] | | | | | | [removed: 44,672] [added: 39,914] | | | | | | [removed: 44,357] [added: 44,672] | | | | | | [removed: 43,427] [added: 44,357] | | | | | | [removed: 47,396] [added: 43,427] | | |

| Total equity [removed: (deficit) (c)(i)] | | | | | | [removed: 10,959] [added: 9,266] | | | | | | [removed: 6,038] [added: 10,959] | | | | | | [removed: 3,171] [added: 6,038] | | | | | | [removed: 1,449] [added: 3,171] | | | | | | [removed: (776)] [added: 1,449] | | |

| Common shares in stockholders’ equity at year-end | | | | | | [removed: 271] [added: 254] | | | | | | [removed: 279] [added: 271] | | | | | | [removed: 280] [added: 279] | | | | | | [removed: 281] [added: 280] | | | | | | [removed: 284] [added: 281] | | |

| Net cash provided by operating activities (b) | | | | | | $ | [removed: 9,221] [added: 7,802] | | | | | $ | [removed: 8,183] [added: 9,221] | | | | | $ | [removed: 7,311] [added: 8,183] | | | | | $ | [removed: 3,138] [added: 7,311] | | | | | $ | [removed: 6,476] [added: 3,138] | |

| Net cash used for investing activities | | | | | | [removed: (1,161)] [added: (1,789)] | | | | | | [removed: (2,010)] [added: (1,161)] | | | | | | [removed: (1,241)] [added: (2,010)] | | | | | | [removed: (1,075)] [added: (1,241)] | | | | | | [removed: (1,147)] [added: (1,075)] | | |

| Net cash used for financing activities | | | | | | [removed: (7,616)] [added: (7,070)] | | | | | | [removed: (4,527)] [added: (7,616)] | | | | | | [removed: (5,328)] [added: (4,527)] | | | | | | [removed: (4,152)] [added: (5,328)] | | | | | | [removed: (4,305)] [added: (4,152)] | | |

| Backlog | | | | | | $ | [removed: 135,355] [added: 149,998] | | | | | $ | [removed: 147,131] [added: 135,355] | | | | | $ | [removed: 143,981] [added: 147,131] | | | | | $ | [removed: 130,468] [added: 143,981] | | | | | $ | [removed: 105,493] [added: 130,468] | |

(a)Our operating profit and net earnings from continuing operations and earnings per share from continuing operations in [removed: 2021] [added: 2022] were affected by [added: $100 million ($79 million, or $0.31 per share, after-tax) of certain] severance and [added: other charges that relate to actions at our RMS business segment, which include severance costs for reduction of positions and asset impairment charges; severance and] restructuring charges of $36 million ($28 million, or $0.10 per share, after-tax) [removed: associated with plans to close and consolidate certain facilities and reduce total workforce within our RMS business segment;] [added: in 2021;] severance charges of $27 million ($21 million, or $0.08 per share, after-tax) in 2020; and severance and restructuring charges of $96 million ($76 million, or $0.26 per share, after-tax) in 2018.

Accordingly, our net earnings were affected by a [removed: net] FAS/CAS pension adjustment of [added: $738 million in 2022,] $668 million in 2021, $2.1 billion in 2020, $1.5 billion in 2019, [added: and] $1.0 billion in [removed: 2018, and $876 million in 2017.][added: 2018.]

We made no pension contributions in [added: both 2022 and] 2021, $1.0 billion in both 2020 and 2019, [added: and] $5.0 billion in [removed: 2018, and $46 million in 2017.][added: 2018.]

(c)Net earnings [removed: from continuing operations in 2021] include a noncash, non-operating pension settlement charge of [added: $1.5 billion ($1.2 billion, or $4.33 per share, after-tax) in 2022, and] $1.7 billion ($1.3 billion, or $4.72 per share, after-tax) [added: in 2021,] related to the purchase of group annuity contracts to transfer [added: $4.3 billion and] $4.9 billion of gross pension obligations and related plan assets to an insurance [removed: company, which represents the accelerated recognition of actuarial losses that were included in the accumulated other comprehensive loss account within stockholders' equity.][added: company.]

(d)Net earnings [removed: from continuing operations] in [added: 2022 and] 2021 include [removed: unrealized] [added: net losses of $114 million ($86 million, or 0.33 per share, after-tax) and net] gains of $265 million ($199 million, or $0.72 per share, after-tax) due to changes in the fair value of [removed: investments held in the Lockheed Martin Ventures Fund.][added: certain mark-to-market investments.]

[removed: (e)For] [added: (f)For] the years ended December 31, 2020 and 2018, operating profit includes noncash asset impairment 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, [added: Advanced Military Maintenance, Repair and Overhaul Center LLC (AMMROC).]

[removed: (f)In 2019 and 2017,] [added: (g)In 2019,] we recorded previously deferred noncash gains of $51 million ($38 million, or $0.13 per share, after-tax) [removed: 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: (g)Net] [added: (h)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.

Net earnings for the year ended December 31, 2018 include benefits of $146 million ($0.51 per share) for additional tax deductions for the prior year, primarily attributable to true-ups to the net one-time charges related to the Tax Cuts and Jobs Act enacted on December 22, 2017 and our change in tax accounting [removed: method (see “Note 10 – Income Taxes” included in our Notes to Consolidated Financial Statements).][added: method.]

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

See “Note [removed: 9] [added: 16] – [removed: Leases”] [added: Severance and Other Charges”] included in our Notes to Consolidated Financial [removed: Statements.][added: Statements for more information.]

[Table](#i692d08b87629410bb3c9a1eb5b8d3191_7) [o](#i692d08b87629410bb3c9a1eb5b8d3191_7)[f C](#i692d08b87629410bb3c9a1eb5b8d3191_7)[ontents](#i692d08b87629410bb3c9a1eb5b8d3191_7)

(e)We recognized net losses of $176 million ($132 million, or $0.50 per share, after-tax) in 2022 and net gains of $42 million ($32 million, or $0.11 per share, after-tax) in 2021, $98 million ($74 million, or $0.26 per share, after-tax) in 2020, and $20 million ($15 million, or $0.05 per share, after-tax) in 2019, and net losses of $11 million ($8 million, or $0.03 per share, after-tax) in 2018 due to changes in the fair value of investments and liabilities for deferred compensation plans.

[Table](#i692d08b87629410bb3c9a1eb5b8d3191_7) [o](#i692d08b87629410bb3c9a1eb5b8d3191_7)[f C](#i692d08b87629410bb3c9a1eb5b8d3191_7)[ontents](#i692d08b87629410bb3c9a1eb5b8d3191_7)

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 noncash asset impairment charge recorded by AMMROC.

(i)In 2017, we recorded a net one-time tax charge of $2.0 billion ($6.77 per share), substantially all of which was 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).

This charge along with our annual re-measurement adjustment related to our postretirement benefit plans of $1.4 billion resulted in a deficit in our total equity as of December 31, 2017.

We have audited the accompanying consolidated balance sheets of Lockheed Martin Corporation (the Corporation) as of December 31, [removed: 2021] [added: 2022] and [removed: 2020,] [added: 2021,] the related consolidated statements of earnings, comprehensive income, cash flows and equity for each of the three years in the period ended December 31, [removed: 2021,] [added: 2022,] 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 [removed: consolidated] financial position of the Corporation at December 31, [removed: 2021] [added: 2022] and [removed: 2020,] [added: 2021,] and the [removed: consolidated] results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2021,] [added: 2022,] 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: 2021,] [added: 2022,] 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: 25, 2022] [added: 26, 2023] expressed an unqualified opinion thereon.

| *Description of the Matter* | | | | | | For the year ended December 31, [removed: 2021,] [added: 2022,] the Corporation recorded net sales of [removed: $67.0] [added: $66.0] 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. | | |

| *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 the Corporation’s revenue recognition process. For example, we tested internal controls over management’s review of the estimate-at-completion analyses and the significant assumptions underlying the estimated contract value and estimated total costs to complete. We also tested internal controls that management executes [added: which are designed] to validate the data used in the estimate-at-completion analyses was complete and accurate. To test the accuracy of the Corporation’s estimate-at-completion analyses, our audit procedures included, among others, comparing estimates of labor costs, subcontractor costs, and materials to historical results of similar contracts, and agreeing the key terms to contract documentation and management’s estimates. We also performed sensitivity analyses over the significant assumptions to evaluate the change in the profit booking rates resulting from changes in the assumptions. | | |

| *Description of the Matter* | | | | | | At December 31, [removed: 2021,] [added: 2022,] the Corporation’s aggregate obligation for its qualified defined benefit pension plans was [removed: $43.5] [added: $28.7] billion and exceeded the gross fair value of the related plan assets of [removed: $35.2] [added: $23.2] billion, resulting in a net unfunded qualified defined benefit pension obligation of [removed: $8.3] [added: $5.5] billion. As explained in Note [removed: 12] [added: 11] 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 and participant longevity.] [added: rate.] 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 [added: the] discount rate [removed: and participant longevity,] used in the measurement process. [removed: These assumptions have] [added: The discount rate assumption has] a significant effect on the [added: measurement of the] projected benefit [removed: obligation, with the discount rate being the most sensitive of those assumptions.] [added: obligation.] | | |

| *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, settlements, actuarial gains and losses, [removed: 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 [removed: reflects] [added: considers] 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 the prior year and compared the current year benefits paid to the prior year projected cash flows. [removed: To evaluate longevity, we evaluated management’s selection of mortality base tables and improvement scales, adjusted for entity-specific factors.] Lastly, we also tested the completeness and accuracy of the underlying data, including the participant data provided to the Corporation’s actuarial specialists. | | |

[removed: January 25, 2022][added: | | | | | | | 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| | | | | | | [removed: 2021] [added: 2022] | | | | | | [removed: 2020] [added: 2021] | | | | | | [removed: 2019] [added: 2020] | | | | | | | | | | | | | | | | | |

| Products | | | | | | $ | [removed: 56,435] [added: 55,466] | | | | | $ | [removed: 54,928] [added: 56,435] | | | | | $ | [removed: 50,053] [added: 54,928] | | | | | | | | | | | | | | | | |

| Services | | | | | | [removed: 10,609] [added: 10,518] | | | | | | [removed: 10,470] [added: 10,609] | | | | | | [removed: 9,759] [added: 10,470] | | | | | | | | | | | | | | | | | |

| Total net sales | | | | | | [removed: 67,044] [added: 65,984] | | | | | | [removed: 65,398] [added: 67,044] | | | | | | [removed: 59,812] [added: 65,398] | | | | | | | | | | | | | | | | | |

| Products | | | | | | [removed: (50,273)] [added: (49,577)] | | | | | | [removed: (48,996)] [added: (50,273)] | | | | | | [removed: (44,589)] [added: (48,996)] | | | | | | | | | | | | | | | | | |

| Services | | | | | | [removed: (9,463)] [added: (9,280)] | | | | | | [removed: (9,371)] [added: (9,463)] | | | | | | [removed: (8,731)] [added: (9,371)] | | | | | | | | | | | | | | | | | |

| Severance and [removed: restructuring] [added: other] charges | | | | | | [removed: (36)] [added: (100)] | | | | | | [removed: (27)] [added: (36)] | | | | | | [removed: —] [added: (27)] | | | | | | | | | | | | | | | | | |

| Other unallocated, net | | | | | | [removed: 1,789] [added: 1,260] | | | | | | [removed: 1,650] [added: 1,789] | | | | | | [removed: 1,875] [added: 1,650] | | | | | | | | | | | | | | | | | |

| Total cost of sales | | | | | | [removed: (57,983)] [added: (57,697)] | | | | | | [removed: (56,744)] [added: (57,983)] | | | | | | [removed: (51,445)] [added: (56,744)] | | | | | | | | | | | | | | | | | |

| Gross profit | | | | | | [removed: 9,061] [added: 8,287] | | | | | | [removed: 8,654] [added: 9,061] | | | | | | [removed: 8,367] [added: 8,654] | | | | | | | | | | | | | | | | | |

| Other income (expense), net | | | | | | [removed: 62] [added: 61] | | | | | | [removed: (10)] [added: 62] | | | | | | [removed: 178] [added: (10)] | | | | | | | | | | | | | | | | | |

| Operating profit | | | | | | [removed: 9,123] [added: 8,348] | | | | | | [removed: 8,644] [added: 9,123] | | | | | | [removed: 8,545] [added: 8,644] | | | | | | | | | | | | | | | | | |

| Interest expense | | | | | | [removed: (569)] [added: (623)] | | | | | | [removed: (591)] [added: (569)] | | | | | | [removed: (653)] [added: (591)] | | | | | | | | | | | | | | | | | |

| Non-service FAS pension (expense) income | | | | | | [removed: (1,292)] [added: (971)] | | | | | | [removed: 219] [added: (1,292)] | | | | | | [removed: (577)] [added: 219] | | | | | | | | | | | | | | | | | |