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Item 1. Financial Statements

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Item 1. Financial Statements

Lockheed Martin Corporation

Consolidated Statements of Earnings

(unaudited; in millions, except per share data)

Quarters EndedSix Months Ended
June 26, 2022June 27, 2021June 26, 2022June 27, 2021
Net sales
Products$12,761$14,258$25,255$28,011
Services2,6852,7715,1555,276
Total net sales15,44617,02930,41033,287
Cost of sales
Products(11,395)(12,866)(22,556)(25,147)
Services(2,362)(2,438)(4,537)(4,668)
Severance and restructuring charges———(36)
Other unallocated, net267426548901
Total cost of sales(13,490)(14,878)(26,545)(28,950)
Gross profit1,9562,1513,8654,337
Other income, net7413137
Operating profit1,9632,1923,8964,374
Interest expense(141)(142)(276)(282)
Non-service FAS pension (expense) income(1,331)94(1,191)187
Other non-operating (expense) income, net(161)26(38)102
Earnings before income taxes3302,1702,3914,381
Income tax expense(21)(355)(349)(729)
Net earnings$309$1,815$2,042$3,652
Earnings per common share
Basic$1.16$6.54$7.65$13.13
Diluted$1.16$6.52$7.62$13.08
Cash dividends paid per common share$2.80$2.60$5.60$5.20

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Lockheed Martin Corporation

Consolidated Statements of Comprehensive Income

(unaudited; in millions)

Quarters EndedSix Months Ended
June 26, 2022June 27, 2021June 26, 2022June 27, 2021
Net earnings$309$1,815$2,042$3,652
Other comprehensive income, net of tax
Postretirement benefit plans
Net other comprehensive income recognized during the period, net of tax of $461 million1,698—1,698—
Amounts reclassified from accumulated other comprehensive loss4714095280
Pension settlement charge, net of tax of $314 million1,156—1,156—
Other, net(90)31(111)4
Other comprehensive income, net of tax2,8111712,838284
Comprehensive income$3,120$1,986$4,880$3,936

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Lockheed Martin Corporation

Consolidated Balance Sheets

(in millions, except par value)

June 26, 2022December 31, 2021
(unaudited)
Assets
Current assets
Cash and cash equivalents$1,775$3,604
Receivables, net3,4011,963
Contract assets11,75310,579
Inventories3,4312,981
Other current assets613688
Total current assets20,97319,815
Property, plant and equipment, net7,5697,597
Goodwill10,79410,813
Intangible assets, net2,5842,706
Deferred income taxes2,6802,290
Other noncurrent assets7,1587,652
Total assets$51,758$50,873
Liabilities and equity
Current liabilities
Accounts payable$2,309$780
Salaries, benefits and payroll taxes2,9353,108
Contract liabilities8,0778,107
Other current liabilities3,1582,002
Total current liabilities16,47913,997
Long-term debt, net11,64411,670
Accrued pension liabilities5,8088,319
Other noncurrent liabilities6,3955,928
Total liabilities40,32639,914
Stockholders’ equity
Common stock, $1 par value per share264271
Additional paid-in capital—94
Retained earnings19,33621,600
Accumulated other comprehensive loss(8,168)(11,006)
Total stockholders’ equity11,43210,959
Total liabilities and equity$51,758$50,873

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Lockheed Martin Corporation

Consolidated Statements of Cash Flows

(unaudited; in millions)

Six Months Ended
June 26, 2022June 27, 2021
Operating activities
Net earnings$2,042$3,652
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization672670
Stock-based compensation134127
Deferred income taxes(1,172)24
Pension settlement charge1,470—
Severance and restructuring charges—36
Changes in assets and liabilities
Receivables, net(1,438)(633)
Contract assets(1,174)(1,880)
Inventories(450)426
Accounts payable1,522743
Contract liabilities(30)(166)
Income taxes1,06533
Qualified defined benefit pension plans(231)(133)
Other, net331117
Net cash provided by operating activities2,7413,016
Investing activities
Capital expenditures(572)(599)
Other, net(11)210
Net cash used for investing activities(583)(389)
Financing activities
Issuance of long-term debt, net of related costs2,267—
Repayments of long-term debt(2,250)—
Repurchases of common stock(2,356)(1,500)
Dividends paid(1,511)(1,460)
Other, net(137)(82)
Net cash used for financing activities(3,987)(3,042)
Net change in cash and cash equivalents(1,829)(415)
Cash and cash equivalents at beginning of period3,6043,160
Cash and cash equivalents at end of period$1,775$2,745

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Lockheed Martin Corporation

Consolidated Statements of Equity

For the Quarters Ended June 26, 2022 and June 27, 2021

(unaudited; in millions)

Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Stockholders’ EquityNoncontrolling Interests in SubsidiaryTotal Equity
Balance at March 27, 2022$265$—$20,716$(10,979)$10,002$—$10,002
Net earnings——309—309—309
Other comprehensive income, net of tax———2,8112,811—2,811
Dividends declared——(1,497)—(1,497)—(1,497)
Repurchases of common stock(2)(179)(192)—(373)—(373)
Stock-based awards, ESOP activity and other1179——180—180
Balance at June 26, 2022$264$—$19,336$(8,168)$11,432$—$11,432
Balance at March 28, 2021$278$65$21,977$(16,008)$6,312$21$6,333
Net earnings——1,815—1,815—1,815
Other comprehensive income, net of tax———171171—171
Dividends declared——(1,454)—(1,454)—(1,454)
Repurchases of common stock(2)(121)(377)—(500)—(500)
Stock-based awards, ESOP activity and other—178——178—178
Net decrease in noncontrolling interests in subsidiary—————(13)(13)
Balance at June 27, 2021$276$122$21,961$(15,837)$6,522$8$6,530

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Lockheed Martin Corporation

Consolidated Statements of Equity

For the Six Months Ended June 26, 2022 and June 27, 2021

(unaudited; in millions)

Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Stockholders’ EquityNoncontrolling Interests in SubsidiaryTotal Equity
Balance at December 31, 2021$271$94$21,600$(11,006)$10,959$—$10,959
Net earnings——2,042—2,042—2,042
Other comprehensive income, net of tax———2,8382,838—2,838
Dividends declared——(2,246)—(2,246)—(2,246)
Repurchases of common stock(8)(305)(2,060)—(2,373)—(2,373)
Stock-based awards, ESOP activity and other1211——212—212
Balance at June 26, 2022$264$—$19,336$(8,168)$11,432$—$11,432
Balance at December 31, 2020$279$221$21,636$(16,121)$6,015$23$6,038
Net earnings——3,652—3,652—3,652
Other comprehensive income, net of tax———284284—284
Dividends declared——(2,179)—(2,179)—(2,179)
Repurchases of common stock(4)(348)(1,148)—(1,500)—(1,500)
Stock-based awards, ESOP activity and other1249——250—250
Net decrease in noncontrolling interests in subsidiary—————(15)(15)
Balance at June 27, 2021$276$122$21,961$(15,837)$6,522$8$6,530

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited)

NOTE 1 - BASIS OF PRESENTATION

We prepared these consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information, the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission (SEC) Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.

In the opinion of management, these consolidated financial statements reflect all adjustments that are of a normal recurring nature necessary for a fair presentation of our results of operations, financial condition, and cash flows for the interim periods presented. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base these estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially from these estimates. Significant estimates inherent in the preparation of our consolidated financial statements include, but are not limited to, accounting for sales and cost recognition; postretirement benefit plans; environmental liabilities and assets for the portion of environmental costs that are probable of future recovery; evaluation of goodwill, intangible assets, investments and other assets for impairment; income taxes including deferred tax assets; fair value measurements; and contingencies. The consolidated financial statements include the accounts of subsidiaries we control and variable interest entities if we are the primary beneficiary. We eliminate intercompany balances and transactions in consolidation.

We close our books and records on the last Sunday of the interim calendar quarter, which was on June 26 for the second quarter of 2022 and June 27 for the second quarter of 2021, to align our financial closing with our business processes. The consolidated financial statements and tables of financial information included herein are labeled based on that convention. This practice only affects interim periods as our fiscal year ends on December 31.

The results of operations for the interim periods presented are not necessarily indicative of results to be expected for the full year or future periods. Unless otherwise noted, we present all per share amounts cited in these consolidated financial statements on a “per diluted share” basis. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021 (2021 Form 10-K).

NOTE 2 - EARNINGS PER COMMON SHARE

The weighted average number of shares outstanding used to compute earnings per common share were as follows (in millions):

Quarters EndedSix Months Ended
June 26, 2022June 27, 2021June 26, 2022June 27, 2021
Weighted average common shares outstanding for basic computations265.8277.4267.0278.1
Weighted average dilutive effect of equity awards0.91.00.91.0
Weighted average common shares outstanding for diluted computations266.7278.4267.9279.1

We compute basic and diluted earnings per common share by dividing net earnings by the respective weighted average number of common shares outstanding for the periods presented. Our calculation of diluted earnings per common share also includes the dilutive effects for the assumed vesting of outstanding restricted stock units (RSUs) and performance stock units (PSUs) based on the treasury stock method. There were no significant anti-dilutive equity awards during the quarters and six months ended June 26, 2022 and June 27, 2021. Basic and diluted weighted average common shares outstanding have decreased in 2022 and 2021 due to share repurchases. See “Note 9 - Stockholders’ Equity” for more information.

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

NOTE 3 - INFORMATION ON BUSINESS SEGMENTS

Overview

We operate in four business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space. We organize our business segments based on the nature of products and services offered.

Selected Financial Data by Business Segment

Net sales and operating profit of our business segments exclude intersegment sales, cost of sales, and profit as these activities are eliminated in consolidation and not included in management’s evaluation of performance of each segment. Business segment operating profit includes our share of earnings or losses from equity method investees as the operating activities of the equity method investees are closely aligned with the operations of our business segments.

Summary Operating Results

Summary operating results for each of our business segments were as follows (in millions):

Quarters EndedSix Months Ended
June 26, 2022June 27, 2021June 26, 2022June 27, 2021
Net sales
Aeronautics$5,862$6,666$12,263$13,053
Missiles and Fire Control2,7472,9445,1995,693
Rotary and Mission Systems4,0124,2427,5648,349
Space2,8253,1775,3846,192
Total net sales$15,446$17,029$30,410$33,287
Operating profit
Aeronautics$612$572$1,291$1,265
Missiles and Fire Control418401802797
Rotary and Mission Systems403458751891
Space268335513562
Total business segment operating profit1,7011,7663,3573,515
Unallocated items
FAS/CAS pension operating adjustment425489851978
Severance and restructuring charges———(36)
Other, net(163)(63)(312)(83)
Total unallocated items262426539859
Total consolidated operating profit$1,963$2,192$3,896$4,374
Intersegment sales
Aeronautics$58$52$118$105
Missiles and Fire Control161167317296
Rotary and Mission Systems453448908926
Space9992182174
Total intersegment sales$771$759$1,525$1,501
Amortization of purchased intangibles
Aeronautics$(1)$(1)$(1)$(1)
Missiles and Fire Control——(1)(1)
Rotary and Mission Systems(58)(58)(116)(116)
Space(3)(22)(6)(44)
Total amortization of purchased intangibles$(62)$(81)$(124)$(162)

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

Unallocated Items

Business segment operating profit excludes the FAS/CAS pension operating adjustment described below, a portion of corporate costs not considered allowable or allocable to contracts with the U.S. Government under the applicable U.S. Government cost accounting standards (CAS) or federal acquisition regulations (FAR), and other items not considered part of management’s evaluation of segment operating performance such as a portion of management and administration costs, legal fees and settlements, environmental costs, changes in the fair value of strategic investments in companies made by our Lockheed Martin Ventures Fund, stock-based compensation expense, changes in the fair value of investments held in a trust for deferred compensation plans, retiree benefits, significant severance actions, significant asset impairments, gains or losses from divestitures, and other miscellaneous corporate activities. Excluded items are included in the reconciling item “Unallocated items” between operating profit from our business segments and our consolidated operating profit. See “Note 10 - Other” for a discussion related to certain factors that may impact the comparability of net sales and operating profit of our business segments.

FAS/CAS Pension Operating Adjustment

We recover CAS pension and other postretirement benefit plan cost through the pricing of our products and services on U.S. Government contracts and, therefore, recognize CAS pension cost in each of our business segment’s net sales and cost of sales. Our consolidated financial statements must present pension and other postretirement benefit plan income calculated in accordance with FAS requirements under U.S. GAAP. The operating portion of the net FAS/CAS pension adjustment represents the difference between the service cost component of FAS pension (expense) income and total CAS pension cost. The non-service FAS pension (expense) income components are included in non-service FAS pension (expense) income in our consolidated statements of earnings. As a result, to the extent that CAS pension cost exceeds the service cost component of FAS pension (expense) income, we have a favorable FAS/CAS pension operating adjustment.

The total FAS/CAS pension adjustment for the quarters and six months ended June 26, 2022 and June 27, 2021, including the service and non-service cost components of FAS pension (expense) income for our qualified defined benefit pension plans, were as follows (in millions):

Quarters EndedSix Months Ended
June 26, 2022June 27, 2021June 26, 2022June 27, 2021
Total FAS (expense) income and CAS cost
Total FAS pension (expense) income$(1,355)$67$(1,239)$133
Less: CAS pension cost4495168991,032
Total FAS/CAS pension adjustment$(906)$583$(340)$1,165
Service and non-service cost reconciliation
FAS pension service cost$(24)$(27)$(48)$(54)
Less: CAS pension cost4495168991,032
Total FAS/CAS pension operating adjustment425489851978
Non-service FAS pension (expense) income(1,331)94(1,191)187
Total FAS/CAS pension adjustment$(906)$583$(340)$1,165

The decrease in the total FAS/CAS pension adjustment during the quarter and six months ended June 26, 2022 as compared to 2021 was principally driven by a noncash, non-operating pension settlement charge of $1.5 billion ($1.2 billion, or $4.33 per share, after-tax) recognized in connection with the transfer of $4.3 billion of our gross defined benefit pension obligations and related plan assets to an insurance company on June 24, 2022. See “Note 6 - Postretirement Benefit Plans”.

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

Disaggregation of Net Sales

Net sales by products and services, contract type, customer, and geographic region were as follows (in millions):

Quarter Ended June 26, 2022
AeronauticsMFCRMSSpaceTotal
Net sales
Products$4,804$2,444$3,150$2,363$12,761
Services1,0583038624622,685
Total net sales$5,862$2,747$4,012$2,825$15,446
Net sales by contract type
Fixed-price$3,916$1,943$2,589$753$9,201
Cost-reimbursable1,9468041,4232,0726,245
Total net sales$5,862$2,747$4,012$2,825$15,446
Net sales by customer
U.S. Government$3,963$1,924$2,785$2,786$11,458
International (a)1,8688231,129293,849
U.S. commercial and other31—9810139
Total net sales$5,862$2,747$4,012$2,825$15,446
Net sales by geographic region
United States$3,994$1,924$2,883$2,796$11,597
Europe845262178201,305
Asia Pacific70510755361,371
Middle East2224172013843
Other9637197—330
Total net sales$5,862$2,747$4,012$2,825$15,446
Six Months Ended June 26, 2022
AeronauticsMFCRMSSpaceTotal
Net sales
Products$10,221$4,617$5,938$4,479$25,255
Services2,0425821,6269055,155
Total net sales$12,263$5,199$7,564$5,384$30,410
Net sales by contract type
Fixed-price$8,602$3,656$4,807$1,390$18,455
Cost-reimbursable3,6611,5432,7573,99411,955
Total net sales$12,263$5,199$7,564$5,384$30,410
Net sales by customer
U.S. Government$8,176$3,519$5,296$5,302$22,293
International (a)4,0181,6752,100637,856
U.S. commercial and other69516819261
Total net sales$12,263$5,199$7,564$5,384$30,410
Net sales by geographic region
United States$8,245$3,524$5,464$5,321$22,554
Europe1,868518365442,795
Asia Pacific1,426213985132,637
Middle East48488237761,749
Other24062373—675
Total net sales$12,263$5,199$7,564$5,384$30,410

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

Quarter Ended June 27, 2021
AeronauticsMFCRMSSpaceTotal
Net sales
Products$5,583$2,571$3,369$2,735$14,258
Services1,0833738734422,771
Total net sales$6,666$2,944$4,242$3,177$17,029
Net sales by contract type
Fixed-price$4,920$1,991$2,802$645$10,358
Cost-reimbursable1,7469531,4402,5326,671
Total net sales$6,666$2,944$4,242$3,177$17,029
Net sales by customer
U.S. Government$4,367$2,176$3,063$2,719$12,325
International (a)2,2837661,1174474,613
U.S. commercial and other162621191
Total net sales$6,666$2,944$4,242$3,177$17,029
Net sales by geographic region
United States$4,383$2,178$3,125$2,730$12,416
Europe9442322234441,843
Asia Pacific9145653421,506
Middle East3114671771956
Other11411183—308
Total net sales$6,666$2,944$4,242$3,177$17,029
Six Months Ended June 27, 2021
AeronauticsMFCRMSSpaceTotal
Net sales
Products$11,062$4,981$6,669$5,299$28,011
Services1,9917121,6808935,276
Total net sales$13,053$5,693$8,349$6,192$33,287
Net sales by contract type
Fixed-price$9,654$3,869$5,479$1,259$20,261
Cost-reimbursable3,3991,8242,8704,93313,026
Total net sales$13,053$5,693$8,349$6,192$33,287
Net sales by customer
U.S. Government$8,640$4,217$5,873$5,270$24,000
International (a)4,3821,4692,3379049,092
U.S. commercial and other31713918195
Total net sales$13,053$5,693$8,349$6,192$33,287
Net sales by geographic region
United States$8,671$4,224$6,012$5,288$24,195
Europe1,7984144248993,535
Asia Pacific1,8071071,18443,102
Middle East59592534711,868
Other18223382—587
Total net sales$13,053$5,693$8,349$6,192$33,287

(a)International sales include foreign military sales (FMS) contracted through the U.S. Government and direct commercial sales to international governments and other international customers.

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

Our Aeronautics business segment includes our largest program, the F-35 Lightning II Joint Strike Fighter, an international multi-role, multi-variant, stealth fighter aircraft. Net sales for the F-35 program represented approximately 23% and 26% of our total consolidated net sales for the quarter and six months ended June 26, 2022 and 27% of our total consolidated net sales for both the quarter and six months ended June 27, 2021.

Assets

Total assets for each of our business segments were as follows (in millions):

June 26, 2022December 31, 2021
Assets
Aeronautics$12,168$10,756
Missiles and Fire Control5,7955,243
Rotary and Mission Systems18,09217,664
Space6,5276,199
Total business segment assets42,58239,862
Corporate assets (a)9,17611,011
Total assets$51,758$50,873

(a)Corporate assets primarily include cash and cash equivalents, deferred income taxes, assets for the portion of environmental costs that are probable of future recovery, investments held in a separate trust and investments held in the Lockheed Martin Ventures Fund.

NOTE 4 - CONTRACT ASSETS AND LIABILITIES

Contract assets include unbilled amounts typically resulting from sales under contracts when the percentage-of-completion cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. Contract liabilities include advance payments and billings in excess of revenue recognized. Contract assets and contract liabilities were as follows (in millions):

June 26, 2022December 31, 2021
Contract assets$11,753$10,579
Contract liabilities8,0778,107

Contract assets increased $1.2 billion during the six months ended June 26, 2022, due to the recognition of revenue related to the satisfaction or partial satisfaction of performance obligations during the six months ended June 26, 2022 for which we have not yet billed our customers (primarily on the F-35 program at Aeronautics). There were no significant credit or impairment losses related to our contract assets during the quarters and six months ended June 26, 2022 and June 27, 2021.

Contract liabilities decreased $30 million during the six months ended June 26, 2022, primarily due to revenue recognized in excess of payments received on these performance obligations. During the quarter and six months ended June 26, 2022, we recognized $1.4 billion and $3.5 billion of our contract liabilities at December 31, 2021 as revenue. During the quarter and six months ended June 27, 2021, we recognized $900 million and $3.2 billion of our contract liabilities at December 31, 2020 as revenue.

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

NOTE 5 - INVENTORIES

Inventories consisted of the following (in millions):

June 26, 2022December 31, 2021
Materials, spares and supplies$614$624
Work-in-process2,6222,163
Finished goods195194
Total inventories$3,431$2,981

Costs incurred to fulfill a contract in advance of the contract being awarded are included in inventories as work-in-process if we determine that those costs relate directly to a contract or to an anticipated contract that we can specifically identify and contract award is probable, the costs generate or enhance resources that will be used in satisfying performance obligations, and the costs are recoverable (referred to as pre-contract costs). Pre-contract costs that are initially capitalized in inventory are generally recognized as cost of sales consistent with the transfer of products and services to the customer upon the receipt of the anticipated contract. All other pre-contract costs, including start-up costs, are expensed as incurred. As of June 26, 2022 and December 31, 2021, $1.1 billion and $634 million of pre-contract costs were included in inventories. The increase in pre-contract costs as of June 26, 2022 is primarily driven by delays in receiving additional contractual authorization and funding of the Lots 15-17 contract of the F-35 program.

NOTE 6 - POSTRETIREMENT BENEFIT PLANS

FAS (expense) income

The pretax FAS (expense) income related to our qualified defined benefit pension plans and retiree medical and life insurance plans consisted of the following (in millions):

Quarters EndedSix Months Ended
June 26, 2022June 27, 2021June 26, 2022June 27, 2021
Qualified defined benefit pension plans
Operating:
Service cost$(24)$(27)$(48)$(54)
Non-operating:
Interest cost(303)(310)(605)(621)
Expected return on plan assets5035691,0051,138
Recognized net actuarial losses(151)(252)(301)(504)
Amortization of prior service credits9087180174
Pension settlement charge(1,470)—(1,470)—
Non-service FAS pension (expense) income(1,331)94(1,191)187
Total FAS pension (expense) income$(1,355)$67$(1,239)$133
Retiree medical and life insurance plans
Operating:
Service cost$(2)$(4)$(4)$(7)
Non-operating:
Interest cost(12)(13)(24)(26)
Expected return on plan assets34356870
Recognized net actuarial gains12—23—
Amortization of prior service costs(7)(9)(14)(18)
Non-service FAS retiree medical and life income27135326
Total FAS retiree medical and life income$25$9$49$19

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

We record the service cost component of FAS (expense) income for our qualified defined benefit plans and retiree medical and life insurance plans in the cost of sales accounts; the non-service components of our FAS (expense) income for our qualified defined benefit pension plans in the non-service FAS pension (expense) income account; and the non-service components of our FAS (expense) income for our retiree medical and life insurance plans as part of the other non-operating (expense) income, net account on our consolidated statements of earnings.

The recognized net actuarial losses or gains and amortization of prior service credits or costs in the table above, along with similar costs related to our other postretirement benefit plans ($6 million and $11 million for the quarter and six months ended June 26, 2022 and $3 million and $7 million for the quarter and six months ended June 27, 2021) were reclassified from accumulated other comprehensive loss (AOCL) and recorded as a component of FAS (expense) income for the periods presented. These costs totaled $62 million ($47 million, net of tax) and $123 million ($95 million, net of tax) during the quarter and six months ended June 26, 2022, and $177 million ($140 million, net of tax) and $355 million ($280 million, net of tax) during the quarter and six months ended June 27, 2021 and were recorded on our consolidated statements of comprehensive income as an increase to other comprehensive income.

Purchase of Group Annuity Contracts and Pension Remeasurement

On June 24, 2022, we purchased group annuity contracts to transfer $4.3 billion of gross defined benefit pension obligations and related plan assets to an insurance company for approximately 13,600 U.S. retirees and beneficiaries. The group annuity contracts were purchased using assets from Lockheed Martin’s master retirement trust and no additional funding contribution was required. This transaction had no impact on the amount, timing, or form of the monthly retirement benefit payments to the affected retirees and beneficiaries. In connection with this transaction, we recognized a noncash, non-operating pension settlement charge of $1.5 billion ($1.2 billion, or $4.33 per share, after-tax) for the affected plans in the quarter ended June 26, 2022, which represents the accelerated recognition of actuarial losses that were included in the AOCL account within stockholders’ equity.

As a result of this transaction, we were required to remeasure the benefit obligations and plan assets for the affected defined benefit pension plans as of the June 24, 2022 close date. The remeasurement reflects the use of an updated discount rate and actual return on plan assets.

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

The following table provides a reconciliation of the benefit obligations, plan assets and net unfunded status related to all of our qualified defined benefit pension plans, inclusive of the plans affected by the interim remeasurement and plans that were not affected, for the six months ended June 26, 2022 (in millions):

Change in benefit obligation
Beginning balance at December 31, 2021$43,447
Service cost48
Interest cost605
Benefits paid(776)
Settlements(a)(4,309)
Plan amendments30
Actuarial (gains) losses(b)(7,928)
Ending balance at June 26, 2022$31,117
Change in plan assets
Beginning balance at December 31, 2021$35,192
Actual return on plan assets(c)(4,734)
Benefits paid(776)
Settlements(a)(4,309)
Ending balance at June 26, 2022$25,373
Net unfunded status of the plans**(d)**$(5,744)

(a)Represents the transfer of gross defined benefit pension obligations and related plan assets to an insurance company pursuant to the group annuity contracts purchased on June 24, 2022, as described above.

(b)Primarily reflects an increase in the discount rate from 2.875% at December 31, 2021 to 4.75% at the remeasurement date.

(c)The actual return on plan assets for the period January 1, 2022 through the June 24, 2022 remeasurement date for the affected plans was approximately (16%), or $(4.7) billion which was approximately $5.7 billion lower (the incremental loss) than our expected return on plan assets of 3.25% for the period, or $1.0 billion (the proportional effect, or approximately half of our expected 6.50% annual long-term rate of return on plan assets assumption), for the period.

(d)For plans where the benefit obligation is in excess of plan assets, we report the net obligation (which was $5,808 million as of June 26, 2022) as part of accrued pension liabilities on our consolidated balance sheet. Conversely, for plans where the assets exceed the benefit obligation, we include the net asset (which was $64 million as of June 26, 2022) as part of other noncurrent assets on our consolidated balance sheet. The net unfunded status of the plans of $5,744 million in the table above represents the net total of these two amounts.

The plan remeasurement resulted in a decrease of $2.2 billion to our net unfunded pension obligations (which includes the change in benefit obligation due to remeasurement of $7.9 billion and the incremental loss on plan assets recognized in remeasurement of $5.7 billion) with a corresponding increase of $1.7 billion after taxes in stockholders’ equity. The change in stockholders’ equity reflects the decrease in deferred actuarial losses, which will be recognized as an increase in net FAS pension income (or a decrease in net FAS pension expense) over the estimated remaining life expectancy of the covered employees beginning in the third quarter of 2022.

We now expect FAS pension expense of approximately $1.1 billion in 2022, inclusive of the noncash, non-operating pension settlement charge of $1.5 billion (pretax) described above. Excluding the noncash, non-operating pension settlement charge, our expected FAS pension income will be approximately $410 million in 2022, which is $50 million lower than our prior 2022 FAS pension income estimate of $460 million.

Funding requirements

The required funding of our qualified defined benefit pension plans is determined in accordance with the Employee Retirement Income Security Act of 1974 (ERISA), as amended, along with consideration of CAS and Internal Revenue Code rules. We made no contributions to our qualified defined benefit pension plans during the quarters and six months ended June 26, 2022 and June 27, 2021.

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

NOTE 7 - LEGAL PROCEEDINGS AND CONTINGENCIES

We are a party to litigation and other proceedings that arise in the ordinary course of our business, including matters arising under provisions relating to the protection of the environment, and are subject to contingencies related to certain businesses we previously owned. These types of matters could result in fines, penalties, cost reimbursements or contributions, compensatory or treble damages or non-monetary sanctions or relief. We believe the probability is remote that the outcome of each of these matters, including the legal proceedings described below, will have a material adverse effect on the corporation as a whole, notwithstanding that the unfavorable resolution of any matter may have a material effect on our net earnings and cash flows in any particular interim reporting period. Among the factors that we consider in this assessment are the nature of existing legal proceedings and claims, the asserted or possible damages or loss contingency (if estimable), the progress of the case, existing law and precedent, the opinions or views of legal counsel and other advisers, our experience in similar cases and the experience of other companies, the facts available to us at the time of assessment and how we intend to respond to the proceeding or claim. Our assessment of these factors may change over time as individual proceedings or claims progress.

Although we cannot predict the outcome of legal or other proceedings with certainty, where there is at least a reasonable possibility that a loss may have been incurred, GAAP requires us to disclose an estimate of the reasonably possible loss or range of loss or make a statement that such an estimate cannot be made. We follow a thorough process in which we seek to estimate the reasonably possible loss or range of loss, and only if we are unable to make such an estimate do we conclude and disclose that an estimate cannot be made. Accordingly, unless otherwise indicated below in our discussion of legal proceedings, a reasonably possible loss or range of loss associated with any individual legal proceeding cannot be estimated.

Legal Proceedings

United States of America, ex rel. Patzer; Cimma v. Sikorsky Aircraft Corp., et al.

As a result of our acquisition of Sikorsky Aircraft Corporation (Sikorsky), we assumed the defense of and any potential liability for two civil False Claims Act lawsuits pending in the U.S. District Court for the Eastern District of Wisconsin. In October 2014, the U.S. Government filed a complaint in intervention in the first suit, which was brought by qui tam relator Mary Patzer, a former Derco Aerospace (Derco) employee. In May 2017, the U.S. Government filed a complaint in intervention in a second suit, which was brought by qui tam relator Peter Cimma, a former Sikorsky Support Services, Inc. (SSSI) employee. In November 2017, the Court consolidated the cases into a single action for discovery and trial.

The U.S. Government alleges that Sikorsky and two of its wholly-owned subsidiaries, Derco and SSSI, violated the civil False Claims Act and the Truth in Negotiations Act in connection with a contract the U.S. Navy awarded to SSSI in June 2006 to support the Navy’s T-34 and T-44 fixed-wing turboprop training aircraft. SSSI subcontracted with Derco, primarily to procure and manage spare parts for the training aircraft. The U.S. Government contends that SSSI overbilled the Navy on the contract as the result of Derco’s use of prohibited cost-plus-percentage-of-cost (CPPC) pricing to add profit and overhead costs as a percentage of the price of the spare parts that Derco procured and then sold to SSSI. The U.S. Government also alleges that Derco’s claims to SSSI, SSSI’s claims to the Navy, and SSSI’s yearly Certificates of Final Indirect Costs from 2006 through 2012 were false and that SSSI submitted inaccurate cost or pricing data in violation of the Truth in Negotiations Act for a sole-sourced, follow-on “bridge” contract. The U.S. Government’s complaints assert common law claims for breach of contract and unjust enrichment. On November 29, 2021, the District Court granted the U.S. Government’s motion for partial summary judgment, finding that the Derco-SSSI agreement was a CPPC contract.

We believe that we have legal and factual defenses to the U.S. Government’s remaining claims. The U.S. Government seeks damages of approximately $52 million, subject to trebling, plus statutory penalties. Although we continue to evaluate our liability and exposure, we do not currently believe that it is probable that we will incur a material loss. If, contrary to our expectations, the U.S. Government prevails on the remaining issues in this matter and proves damages at or near $52 million and is successful in having such damages trebled, the outcome could have an adverse effect on our results of operations in the period in which a liability is recognized and on our cash flows for the period in which any damages are paid.

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

Lockheed Martin v. Metropolitan Transportation Authority

On April 24, 2009, we filed a declaratory judgment action against the New York Metropolitan Transportation Authority and its Capital Construction Company (collectively, the MTA) asking the U.S. District Court for the Southern District of New York to find that the MTA is in material breach of our agreement based on the MTA’s failure to provide access to sites where work must be performed and the customer-furnished equipment necessary to complete the contract. The MTA filed an answer and counterclaim alleging that we breached the contract and subsequently terminated the contract for alleged default. The primary damages sought by the MTA are the costs to complete the contract and potential re-procurement costs. While we are unable to estimate the cost of another contractor to complete the contract and the costs of re-procurement, we note that our contract with the MTA had a total value of $323 million, of which $241 million was paid to us, and that the MTA is seeking damages of approximately $190 million. We dispute the MTA’s allegations and are defending against them. Additionally, following an investigation, our sureties on a performance bond related to this matter, who were represented by independent counsel, concluded that the MTA’s termination of the contract was improper. Finally, our declaratory judgment action was later amended to include claims for monetary damages against the MTA of approximately $95 million. This matter was taken under submission by the District Court in December 2014, after a five-week bench trial and the filing of post-trial pleadings by the parties. We continue to await a decision from the District Court. Although this matter relates to our former Information Systems & Global Solutions (IS&GS) business, we retained responsibility for the litigation when we divested IS&GS in 2016.

Environmental Matters

We are involved in proceedings and potential proceedings relating to soil, sediment, surface water, and groundwater contamination, disposal of hazardous substances, and other environmental matters at several of our current or former facilities, facilities for which we may have contractual responsibility, and at third-party sites where we have been designated as a potentially responsible party (PRP). A substantial portion of environmental costs will be included in our net sales and cost of sales in future periods pursuant to U.S. Government regulations. At the time a liability is recorded for future environmental costs, we record assets for estimated future recovery considered probable through the pricing of products and services to agencies of the U.S. Government, regardless of the contract form (e.g., cost-reimbursable, fixed-price). We continually evaluate the recoverability of our assets for the portion of environmental costs that are probable of future recovery by assessing, among other factors, U.S. Government regulations, our U.S. Government business base and contract mix, our history of receiving reimbursement of such costs, and efforts by some U.S. Government representatives to limit such reimbursement. We include the portions of those environmental costs expected to be allocated to our non-U.S. Government contracts, or determined not to be recoverable under U.S. Government contracts, in our cost of sales at the time the liability is established or adjusted.

At June 26, 2022 and December 31, 2021, the aggregate amount of liabilities recorded relative to environmental matters was $726 million and $742 million, most of which are recorded in other noncurrent liabilities on our consolidated balance sheets. We have recorded assets for the portion of environmental costs that are probable of future recovery totaling $630 million and $645 million at June 26, 2022 and December 31, 2021, most of which are recorded in other noncurrent assets on our consolidated balance sheets.

Environmental remediation activities usually span many years, which makes estimating liabilities a matter of judgment because of uncertainties with respect to assessing the extent of the contamination as well as such factors as changing remediation technologies and changing regulatory environmental standards. We are monitoring or investigating a number of former and present operating facilities for potential future remediation. We perform quarterly reviews of the status of our environmental remediation sites and the related liabilities and receivables. Additionally, in our quarterly reviews, we consider these and other factors in estimating the timing and amount of any future costs that may be required for remediation activities, and we record a liability when it is probable that a loss has occurred or will occur for a particular site and the loss can be reasonably estimated. The amount of liability recorded is based on our estimate of the costs to be incurred for remediation for that site. We do not discount the recorded liabilities, as the amount and timing of future cash payments are not fixed or cannot be reliably determined. We cannot reasonably determine the extent of our financial exposure in all cases as, although a loss may be probable or reasonably possible, in some cases it is not possible at this time to estimate the reasonably possible loss or range of loss. We project costs and recovery of costs over approximately 20 years.

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

We also pursue claims for recovery of costs incurred or for contribution to site remediation costs against other PRPs, including the U.S. Government, and are conducting remediation activities under various consent decrees, orders, and agreements relating to soil, groundwater, sediment, or surface water contamination at certain sites of former or current operations. Under agreements related to certain sites in California, New York, United States Virgin Islands and Washington, the U.S. Government and/or a private party reimburses us an amount equal to a percentage, specific to each site, of expenditures for certain remediation activities in their capacity as PRPs under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).

In addition to the proceedings and potential proceedings discussed above, potential new regulations of perchlorate and hexavalent chromium at the federal and state level could adversely affect us. In particular, the U.S. Environmental Protection Agency (EPA) is considering whether to regulate hexavalent chromium at the federal level and the California State Water Resources Control Board continues to reevaluate its existing drinking water standard of 6 ppb for perchlorate.

If substantially lower standards are adopted for perchlorate in California or for hexavalent chromium at the federal level, we expect a material increase in our estimates for environmental liabilities and the related assets for the portion of the increased costs that are probable of future recovery in the pricing of our products and services for the U.S. Government. The amount that would be allocable to our non-U.S. Government contracts or that is determined not to be recoverable under U.S. Government contracts would be expensed, which may have a material effect on our earnings in any particular interim reporting period.

We also are evaluating the potential impact of existing and contemplated legal requirements addressing a class of chemicals known generally as per- and polyfluoroalkyl substances (PFAS). PFAS have been used ubiquitously, such as in fire-fighting foams, manufacturing processes, and stain- and stick-resistant products (e.g., Teflon, stain-resistant fabrics). Because we have used products and processes over the years containing some of those compounds, they likely exist as contaminants at many of our environmental remediation sites. Governmental authorities have announced plans, and in some instances have begun, to regulate certain of these compounds at extremely low concentrations in drinking water, which could lead to increased cleanup costs at many of our environmental remediation sites.

Letters of Credit, Surety Bonds and Third-Party Guarantees

We have entered into standby letters of credit and surety bonds issued on our behalf by financial institutions, and we have directly issued guarantees to third parties primarily relating to advances received from customers and the guarantee of future performance on certain contracts. Letters of credit and surety bonds generally are available for draw down in the event we do not perform. In some cases, we may guarantee the contractual performance of third parties such as joint venture partners. We had total outstanding letters of credit, surety bonds and third-party guarantees aggregating $3.6 billion at both June 26, 2022 and December 31, 2021. Third-party guarantees do not include guarantees issued on behalf of subsidiaries and other consolidated entities.

At June 26, 2022 and December 31, 2021, third-party guarantees totaled $865 million and $838 million, of which approximately 70% related to guarantees of contractual performance of joint ventures to which we currently are or previously were a party. These amounts represent our estimate of the maximum amounts we would expect to incur upon the contractual non-performance of the joint venture, joint venture partners or divested businesses. Generally, we also have cross-indemnities in place that may enable us to recover amounts that may be paid on behalf of a joint venture partner.

In determining our exposures, we evaluate the reputation, performance on contractual obligations, technical capabilities and credit quality of our current and former joint venture partners and the transferee under novation agreements all of which include a guarantee as required by the FAR. At June 26, 2022 and December 31, 2021, there were no material amounts recorded in our financial statements related to third-party guarantees or novation agreements.

Other

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

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

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.

In the normal course of business, we provide warranties to our customers associated with certain product sales. We record estimated warranty costs in the period in which the related products are delivered. The warranty liability is generally based on the number of months of warranty coverage remaining for the products delivered and the average historical monthly warranty payments. Warranty obligations incurred in connection with long-term production contracts are accounted for within the contract estimates at completion.

NOTE 8 - FAIR VALUE MEASUREMENTS

Assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following (in millions):

June 26, 2022December 31, 2021
TotalLevel 1Level 2TotalLevel 1Level 2
Assets
Mutual funds$1,108$1,108$—$1,434$1,434$—
U.S. Government securities101—101121—121
Other securities627415212684492192
Derivatives58—5815—15
Liabilities
Derivatives183—18360—60
Assets measured at NAV (a)
Other commingled funds—20

(a)Net Asset Value (NAV) is the total value of the fund divided by the number of the fund’s shares outstanding.

Substantially all assets measured at fair value, other than derivatives, represent investments held in a separate trust to fund certain of our non-qualified deferred compensation plans and are recorded in other noncurrent assets on our consolidated balance sheets. The fair values of mutual funds and certain other securities are determined by reference to the quoted market price per unit in active markets multiplied by the number of units held without consideration of transaction costs. The fair values of U.S. Government and certain other securities are determined using pricing models that use observable inputs (e.g., interest rates and yield curves observable at commonly quoted intervals), bids provided by brokers or dealers or quoted prices of securities with similar characteristics. The fair values of derivative instruments, which consist of foreign currency forward contracts and option contracts, including embedded derivatives, and interest rate swap contracts, are primarily determined based on the present value of future cash flows using model-derived valuations that use observable inputs such as interest rates, credit spreads and foreign currency exchange rates.

We use derivative instruments principally to reduce our exposure to market risks from changes in foreign currency exchange rates and interest rates. We do not enter into or hold derivative instruments for speculative trading purposes. We transact business globally and are subject to risks associated with changing foreign currency exchange rates. We enter into foreign currency hedges such as forward and option contracts that change in value as foreign currency exchange rates change. Our most significant foreign currency exposures relate to the British pound sterling, the euro, the Canadian dollar, the Australian dollar, the Norwegian kroner and the Polish zloty. These contracts hedge forecasted foreign currency transactions in order to minimize fluctuations in our earnings and cash flows associated with changes in foreign currency exchange rates. We designate foreign currency hedges as cash flow hedges. We also are exposed to the impact of interest rate changes primarily through our borrowing activities. For fixed rate borrowings, we may use variable interest rate swaps, effectively converting fixed rate borrowings to variable rate borrowings in order to hedge changes in the fair value of the debt. These swaps are designated as fair value hedges. For variable rate borrowings, we may use fixed interest rate swaps, effectively converting variable rate borrowings to fixed rate borrowings in order to mitigate the impact of interest rate changes on earnings. These swaps are designated as cash flow hedges. We also may enter into

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

derivative instruments that are not designated as hedges and do not qualify for hedge accounting, which are intended to mitigate certain economic exposures.

The aggregate notional amount of our outstanding interest rate swaps was $1.3 billion and $500 million at June 26, 2022 and December 31, 2021. The aggregate notional amount of our outstanding foreign currency hedges was $5.5 billion and $4.0 billion at June 26, 2022 and December 31, 2021. The fair values of our outstanding interest rate swaps and foreign currency hedges at June 26, 2022 and December 31, 2021 were not significant. Derivative instruments did not have a material impact on net earnings and comprehensive income during the quarters and six months ended June 26, 2022 and June 27, 2021. The impact of derivative instruments on our consolidated statements of cash flows is included in net cash provided by operating activities. Substantially all of our derivatives are designated for hedge accounting.

We also hold investments in public companies, primarily as a result of investments in early-stage companies through our Lockheed Martin Ventures Fund. These investments have quoted market prices in active markets (Level 1) and are recorded at fair value and reflected in other securities in the table above. See “Note 10 - Other - Lockheed Martin Ventures Fund” for more information on Lockheed Martin Ventures investments.

In addition to the financial instruments listed in the table above, we hold other financial instruments, including cash and cash equivalents, receivables, accounts payable and debt. The carrying amounts for cash and cash equivalents, receivables and accounts payable approximated their fair values. The estimated fair value of our outstanding debt was $12.5 billion and $15.4 billion at June 26, 2022 and December 31, 2021. The outstanding principal amount of debt was $12.8 billion at both June 26, 2022 and December 31, 2021, excluding $1.2 billion and $1.1 billion of unamortized discounts and issuance costs at June 26, 2022 and December 31, 2021. The estimated fair values of our outstanding debt were determined based on the present value of future cash flows using model-derived valuations that use observable inputs such as interest rates and credit spreads (Level 2).

NOTE 9 - STOCKHOLDERS’ EQUITY

Repurchases of Common Stock

During the six months ended June 26, 2022, we repurchased 7.7 million shares of our common stock for $2.4 billion, including pursuant to accelerated share repurchase (ASR) agreements. As previously disclosed, in January 2022, we received 2.2 million shares of our common stock for no additional consideration upon final settlement of the ASR we entered into in the fourth quarter of 2021. In addition, we repurchased 4.7 million shares for $2.0 billion under an ASR agreement that we entered into in the first quarter of 2022 and that settled in the second quarter of 2022. Some of the shares repurchased during the second quarter of 2022 were settled subsequent to the end of the quarter.

The total remaining authorization for future common share repurchases under our share repurchase program was $1.6 billion as of June 26, 2022. As we repurchase our common shares, we reduce common stock for the $1 of par value of the shares repurchased, with the excess purchase price over par value recorded as a reduction of additional paid-in capital. If additional paid-in capital is reduced to zero, we record the remainder of the excess purchase price over par value as a reduction of retained earnings.

Dividends

We declared cash dividends totaling $2.2 billion ($8.40 per share) during the six months ended June 26, 2022. In June 2022, we declared our 2022 third quarter dividend totaling approximately $743 million ($2.80 per share), which will be paid in September 2022. The total amount declared may differ from the total amount of dividends paid during a period due to the timing of dividend-equivalents paid on RSUs and PSUs. These dividend-equivalents are accrued during the vesting period and are paid upon the vesting of the RSUs and PSUs, which primarily occurs in the first quarter each year.

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

Accumulated Other Comprehensive Loss

Changes in the balance of AOCL, net of tax, consisted of the following (in millions):

Postretirement Benefit PlansOther, netAOCL
Balance at December 31, 2021$(10,964)$(42)$(11,006)
Other comprehensive income (loss) before reclassifications (a)1,698(121)1,577
Amounts reclassified from AOCL
Pension settlement charge (a)1,156—1,156
Recognition of net actuarial losses (b)230—230
Amortization of net prior service credits (b)(135)—(135)
Other—1010
Total reclassified from AOCL1,251101,261
Total other comprehensive income (loss)2,949(111)2,838
Balance at June 26, 2022$(8,015)$(153)$(8,168)
Balance at December 31, 2020$(16,155)$34$(16,121)
Other comprehensive income (loss) before reclassifications—22
Amounts reclassified from AOCL
Recognition of net actuarial losses (b)408—408
Amortization of net prior service credits (b)(128)—(128)
Other—22
Total reclassified from AOCL2802282
Total other comprehensive income (loss)2804284
Balance at June 27, 2021$(15,875)$38$(15,837)

(a)Changes in AOCL before reclassifications related to our postretirement benefit plans represent the net actuarial gains from the interim remeasurement of certain defined benefit pension plans required as a result of the purchase of group annuity contracts to transfer $4.3 billion of our gross defined benefit pension obligations and related plan assets to an insurance company on June 24, 2022. See “Note 6 - Postretirement Benefit Plans”. Also as a result, during the quarter ended June 26, 2022, we recognized a noncash, non-operating pension settlement charge of $1.5 billion ($1.2 billion, or $4.33 per share, after-tax).

(b)These amounts include $47 million and $140 million, net of tax, for the quarters ended June 26, 2022 and June 27, 2021, which are comprised of the recognition of net actuarial losses of $115 million and $204 million for the quarters ended June 26, 2022 and June 27, 2021, and the amortization of net prior service credits of $68 million and $64 million for the quarters ended June 26, 2022 and June 27, 2021.

NOTE 10 - OTHER

Changes in Estimates

Significant estimates and assumptions are made in estimating contract sales and costs, including the profit booking rate. At the outset of a long-term contract, we identify and monitor risks to the achievement of the technical, schedule and cost aspects of the contract, as well as variable consideration, and assess the effects of those risks on our estimates of total costs to complete the contract. The estimates consider the technical requirements (e.g., a newly-developed product versus a mature product), the schedule and associated tasks (e.g., the number and type of milestone events) and costs (e.g., material, labor, subcontractor, overhead and the estimated costs to fulfill our industrial cooperation agreements, sometimes referred to as offset agreements, required under certain contracts with international customers). The initial profit booking rate of each contract considers risks surrounding the ability to achieve the technical requirements, schedule and costs in the initial estimated total costs to complete the contract. Profit booking rates may increase during the performance of the contract if we successfully retire risks related to technical, schedule and cost aspects of the contract, which decreases the estimated total costs to complete the contract or may increase the variable consideration we expect to receive on the contract. Conversely, our profit booking rates may decrease if the estimated total costs to complete the contract increase or our estimates of variable consideration we expect to receive decrease. All of the estimates are

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

subject to change during the performance of the contract and may affect the profit booking rate. When estimates of total costs to be incurred on a contract exceed total estimates of the transaction price, a provision for the entire loss is determined at the contract level and is recorded in the period in which the loss is determined.

In addition, comparability of our segment sales, operating profit and operating margin may be impacted favorably or unfavorably by changes in profit booking rates on our contracts for which we recognize revenue over time using the percentage-of-completion cost-to-cost method to measure progress towards completion. Increases in the profit booking rates, typically referred to as favorable profit adjustments, usually relate to revisions in the estimated total costs to fulfill the performance obligations that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate, for example COVID-19 impacts or supply chain disruptions, resulting in an increase in the estimated total costs to fulfill the performance obligations and a reduction in the profit booking rate and are typically referred to as unfavorable profit adjustments. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes. Segment operating profit and margin may also be impacted favorably or unfavorably by other items, which may or may not impact sales. Favorable items may include the positive resolution of contractual matters, cost recoveries on severance and restructuring charges, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual matters; restructuring charges, except for significant severance actions, which are excluded from segment operating results; reserves for disputes; certain asset impairments; and losses on sales of certain assets.

Our consolidated net adjustments not related to volume, including net profit booking rate adjustments and other matters, increased segment operating profit by approximately $455 million and $860 million during the quarter and six months ended June 26, 2022 and $385 million and $880 million during the quarter and six months ended June 27, 2021. These adjustments increased net earnings by approximately $359 million ($1.35 per share) and $679 million ($2.53 per share) during the quarter and six months ended June 26, 2022 and $304 million ($1.09 per share) and $695 million ($2.49 per share) during the quarter and six months ended June 27, 2021. We recognized net sales from performance obligations satisfied in prior periods of approximately $481 million and $897 million during the quarter and six months ended June 26, 2022, and $492 million and $984 million during the quarter and six months ended June 27, 2021, which primarily relate to changes in profit booking rates that impacted revenue.

We have experienced performance issues on a classified fixed-price incentive fee contract that involves highly complex design and systems integration at our Aeronautics business segment. As of June 26, 2022, cumulative losses remained at approximately $225 million. We will continue to monitor our performance, any future changes in scope, and estimated costs to complete the program and may have to record additional losses in future periods if we experience further performance issues, increases in scope, or cost growth, which could be material to our operating results. In addition, we and our industry team will incur advanced procurement costs (also referred to as precontract costs) in order to enhance our ability to achieve the revised schedule and certain milestones. We will monitor the recoverability of precontract costs, which could be impacted by the customer’s decision regarding future phases of the program.

We are responsible for a program to design, develop and construct a ground-based radar at our RMS business segment. The program has experienced performance issues for which we have periodically accrued reserves. As of June 26, 2022, cumulative losses remained at approximately $280 million. We will continue to monitor our performance, any future changes in scope, and estimated costs to complete the program and may have to record additional losses in future periods if we experience further performance issues, increases in scope, or cost growth. However, based on the losses previously recorded and our current estimate of the sales and costs to complete the program, at this time we do not anticipate that additional losses, if any, would be material to our operating results or financial condition.

We have a program, EADGE-T, to design, integrate and install an air missile defense command, control, communications, computers - intelligence (C4I) system for an international customer that has experienced performance issues and for which we have periodically accrued reserves at our RMS business segment. We last recorded a charge and accrued reserves for this program in 2017. During the second quarter of 2022, the program was completed with a settlement of all claims between the parties and, as such, we determined that additional losses will not be incurred. Total cumulative losses on this program were approximately $260 million at June 26, 2022.

Backlog

Backlog (i.e., unfulfilled or remaining performance obligations) represents the sales we expect to recognize for our products and services for which control has not yet transferred to the customer. Our backlog includes both funded (firm

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

orders for our products and services for which funding has been both authorized and appropriated by the customer) and unfunded (firm orders for which funding has not been appropriated) amounts. We do not include unexercised options or potential orders under indefinite-delivery, indefinite-quantity agreements in our backlog. For our cost-reimbursable and fixed-priced-incentive contracts, the estimated consideration we expect to receive pursuant to the terms of the contract may exceed the contractual award amount. The estimated consideration is determined at the outset of the contract and is continuously reviewed throughout the contract period. In determining the estimated consideration, we consider the risks related to the technical, schedule and cost impacts to complete the contract and an estimate of any variable consideration. Periodically, we review these risks and may increase or decrease backlog accordingly. As the risks on such contracts are successfully retired, the estimated consideration from customers may be reduced, resulting in a reduction of backlog without a corresponding recognition of sales. As of June 26, 2022, our ending backlog was $134.6 billion. We expect to recognize approximately 36% of our backlog over the next 12 months and approximately 59% over the next 24 months as revenue with the remainder recognized thereafter.

Lockheed Martin Ventures Fund

Through our Lockheed Martin Ventures Fund, we make strategic investments in companies that we believe are advancing or developing new technologies applicable to our business. These investments may be in the form of common or preferred stock, warrants, convertible debt securities or investments in funds. Most of the investments are in equity securities without readily determinable fair values (privately held securities), which are measured initially at cost and are then adjusted to fair value only if there is an observable price change or reduced for impairment, if applicable. Investments with quoted market prices in active markets (Level 1) (publicly held securities) are recorded at fair value. The carrying amounts of investments held in our Lockheed Martin Ventures Fund were $451 million and $465 million at June 26, 2022 and December 31, 2021. Due to changes in fair value and/or sales of investments, we recorded net losses of $143 million ($107 million, or $0.40 per share, after-tax) and $40 million ($30 million, or $0.11 per share, after-tax) during the quarter and six months ended June 26, 2022; and net gains of $14 million ($11 million, or $0.04 per share, after-tax) and $82 million ($62 million, or $0.22 per share, after-tax) during the quarter and six months ended June 27, 2021. These gains and losses are reflected in the other non-operating (expense) income, net account on our consolidated statements of earnings.

Income Taxes

Our effective income tax rates were 6.4% and 14.6% and 16.4% and 16.6% for the quarters and six months ended June 26, 2022 and June 27, 2021. The rate for the second quarter of 2022 is lower than the second quarter of 2021 primarily due to lower earnings before income taxes resulting from a noncash, non-operating pension settlement charge of $1.5 billion, which reduced the tax expense by approximately $314 million. The rates for all periods benefited from the research and development tax credit, tax deductions for foreign derived intangible income and dividends paid to the corporation's defined contribution plans with an employee stock ownership plan feature.

Severance and Restructuring Charges

During the first quarter of 2021, we recorded severance and restructuring charges of $36 million ($28 million, or $0.10 per share, after-tax) related to workforce reductions and facility exit costs within our RMS business segment. These actions were taken to consolidate certain operations in order to improve the efficiency of RMS’ manufacturing operations and affordability of its products and services. Employees terminated as part of these actions were to receive lump-sum severance payments upon separation primarily based on years of service.

Debt Issuance and Redemption

On May 5, 2022, we issued a total of $2.3 billion of senior unsecured notes, consisting of $800 million aggregate principal amount of 3.90% Notes due June 15, 2032 (the “2032 Notes”), $850 million aggregate principal amount of 4.15% Notes due June 15, 2053 (the “2053 Notes”) and $650 million aggregate principal amount of 4.30% Notes due June 15, 2062 (the “2062 Notes” and, together with the 2032 Notes and 2053 Notes, the “Notes”) in a registered public offering. Net proceeds received from the offering were after deducting pricing discounts and debt issuance costs, which are being amortized and recorded as interest expense over the term of the Notes. We will pay interest on the Notes semi-annually in arrears on June 15 and December 15 of each year with the first payment made on June 15, 2022. We may, at our option, redeem the Notes of any series in whole or in part at any time and from time to time at a redemption price equal to the greater of 100% of the principal amount of the Notes to be redeemed or an applicable make-whole amount, plus accrued

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

and unpaid interest to the date of redemption. The Notes rank equally in right of payment with all of our existing unsecured and unsubordinated indebtedness.

On May 11, 2022, we used the net proceeds from the offering of the Notes to redeem all of the outstanding $500 million in aggregate principal amount of our 3.10% Notes due 2023, $750 million in aggregate principal amount of our 2.90% Notes due 2025, and the remaining balance of the net proceeds to redeem $1.0 billion of our outstanding $2.0 billion in aggregate principal amount of our 3.55% Notes due 2026 at their redemption price. We paid make-whole premiums of $13.9 million in connection with the early extinguishments of debt. We incurred losses of $34 million ($26 million, or $0.10 per share, after tax) on these transactions related to early extinguishments of debt, additional interest expense and other related charges, which was recorded in other non-operating (expense) income, net in our consolidated statements of earnings.

NOTE 11 - RECENT ACCOUNTING PRONOUNCEMENTS

Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

In 2017, the United Kingdom’s Financial Conduct Authority (FCA) announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate (LIBOR), which have been widely used as reference rates for various securities and financial contracts, including loans, debt and derivatives. This announcement indicates that the continuation of LIBOR on the current basis is not guaranteed after 2021. Subsequently in March 2021, the FCA announced some USD LIBOR tenors (overnight, 1 month, 3 month, 6 month and 12 month) will continue to be published until June 30, 2023. Regulators in the U.S. and other jurisdictions have been working to replace these rates with alternative reference interest rates that are supported by transactions in liquid and observable markets, such as the Secured Overnight Financing Rate (SOFR) for USD LIBOR. Currently, our credit facility and certain of our derivative instruments reference LIBOR-based rates. Our credit facility contains provisions specifying alternative interest rate calculations to be employed when LIBOR ceases to be available as a benchmark and we have adhered to the ISDA 2020 IBOR Fallbacks Protocol, which will govern our derivatives upon the final cessation of USD LIBOR. ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended, limits the accounting impact from contract modifications, including hedging relationships, due to the transition from LIBOR to alternative reference rates that are completed by December 31, 2022. The Financial Accounting Standards Board (FASB) is currently working on a project to extend the date to December 31, 2024. We do not expect a significant impact to our financial results, financial position or cash flows from the transition from LIBOR to alternative reference interest rates, but we will continue to monitor the impact of this transition until it is completed.

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Lockheed Martin Corporation

Results of Review of Interim Financial Statements

We have reviewed the accompanying consolidated balance sheet of Lockheed Martin Corporation (the Corporation) as of June 26, 2022, the related consolidated statements of earnings, comprehensive income and equity for the quarters and six months ended June 26, 2022 and June 27, 2021, and consolidated statements of cash flows for the six months ended June 26, 2022 and June 27, 2021, and the related notes (collectively referred to as the “consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Corporation as of December 31, 2021, the related consolidated statements of earnings, comprehensive income, cash flows and equity for the year then ended, and the related notes (not presented herein); and in our report dated January 25, 2022, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Corporation’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ Ernst & Young LLP

Tysons, Virginia

July 19, 2022

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