UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~Quarterly Report Pursuant to Section 13 or 15(d)~~

~~of the Securities Exchange Act of 1934~~

For the quarterly period ended September ~~24, 2017~~26, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number: 1-11437

LOCKHEED MARTIN CORPORATION

(Exact name of registrant as specified in its charter)

Maryland

52-1893632

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification No.)

6801 Rockledge Drive, ~~Bethesda, Maryland~~

Bethesda,

Maryland

20817

(Address of principal executive offices)

(Zip Code)

(301) 897-6000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $1 par value	LMT	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ~~YES~~ Yes ☒ NO No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ~~YES~~ Yes ☒ NO No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non–accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b–2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non–accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~YES~~ Yes ☐NO No ☒

There were ~~286,734,181~~275,786,440 shares of our common stock, $1 par value per share, outstanding as of ~~September 24, 2017.~~

October 20, 2021.

Table of Contents

Lockheed Martin Corporation

Form 10-Q

For the Quarterly Period Ended September ~~24, 2017~~26, 2021

Table of Contents


					Page

PART I. FINANCIAL INFORMATION

			ITEM 1.	Financial Statements (Unaudited)	~~Page~~

~~PART I. FINANCIAL INFORMATION~~

	~~ITEM 1.~~	~~Financial Statements~~

		Consolidated Statements of Earnings for the Quarters and Nine Months Ended September ~~24, 2017~~26, 2021 and September ~~25, 2016~~27, 2020	3

				Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended September ~~24, 2017~~26, 2021 and September ~~25, 2016~~27, 2020	4

				Consolidated Balance Sheets as of September ~~24, 2017~~26, 2021 and December 31, ~~2016~~2020	5

				Consolidated Statements of Cash Flows for the Nine Months Ended September ~~24, 2017~~26, 2021 and September ~~25, 2016~~27, 2020	6

				Consolidated Statements of Equity for the Quarters Ended September 26, 2021 and September 27, 2020	7

				Consolidated Statements of Equity for the Nine Months Ended September ~~24, 2017~~26, 2021 and September ~~25, 2016~~27, 2020	78

				Notes to Consolidated Financial Statements	89

				~~Review~~ Report of ~~Ernst & Young LLP,~~ Independent Registered Public Accounting Firm	2529

			ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2630

			ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	4551

			ITEM 4.	Controls and Procedures	4551

PART II. OTHER INFORMATION

			ITEM 1.	Legal Proceedings	4853

			ITEM 1A.	Risk Factors	4854

			ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4955

			ITEM 6.	Exhibits	5056

SIGNATURE					5157

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Lockheed Martin Corporation

Consolidated Statements of Earnings

(unaudited; in millions, except per share data)

Quarters Ended Nine Months Ended
September 24,
2017 September 25,
2016 September 24,
2017 September 25,
2016
Net sales
Products $ 10,496
$ 10,062
$ 30,837
$ 28,629

Services 1,673
1,489
5,074
4,867

Total net sales 12,169
11,551
35,911
33,496

Cost of sales
Products (9,481 ) (9,027 ) (27,919 ) (25,787 )
Services (1,513 ) (1,313 ) (4,547 ) (4,321 )
Severance charges —
—
—
(80 )
Other unallocated, net 176
173
484
401

Total cost of sales (10,818 ) (10,167 ) (31,982 ) (29,787 )
Gross profit 1,351
1,384
3,929
3,709

Other income, net 77
204
133
412

Operating profit 1,428
1,588
4,062
4,121

Interest expense (162 ) (162 ) (477 ) (492 )
Other non-operating (expense) income, net (7 ) 1
(8 ) 2

Earnings from continuing operations before income taxes 1,259
1,427
3,577
3,631

Income tax expense (320 ) (338 ) (933 ) (837 )
Net earnings from continuing operations 939
1,089
2,644
2,794

Net earnings from discontinued operations —
1,306
—
1,520

Net earnings $ 939
$ 2,395
$ 2,644
$ 4,314

Earnings per common share
Basic
Continuing operations $ 3.27
$ 3.64
$ 9.16
$ 9.25

Discontinued operations —
4.38
—
5.03

Basic earnings per common share $ 3.27
$ 8.02
$ 9.16
$ 14.28

Diluted
Continuing operations $ 3.24
$ 3.61
$ 9.08
$ 9.13

Discontinued operations —
4.32
—
4.97

Diluted earnings per common share $ 3.24
$ 7.93
$ 9.08
$ 14.10

Cash dividends paid per common share $ 1.82
$ 1.65
$ 5.46
$ 4.95



	Quarters Ended				Nine Months Ended
	September 26, 2021		September 27, 2020		September 26, 2021		September 27, 2020
Net sales
Products	$	13,475	$	13,869	$	41,486	$	40,607
Services	2,553		2,626		7,829		7,759
Total net sales	16,028		16,495		49,315		48,366
Cost of sales
Products	(11,838)		(12,370)		(36,985)		(36,204)
Services	(2,332)		(2,363)		(7,000)		(6,915)
Severance and restructuring charges	—		—		(36)		—
Other unallocated, net	444		374		1,345		1,193
Total cost of sales	(13,726)		(14,359)		(42,676)		(41,926)
Gross profit	2,302		2,136		6,639		6,440
Other (expense) income, net	(8)		11		29		(85)
Operating profit	2,294		2,147		6,668		6,355
Interest expense	(141)		(145)		(423)		(442)
Non-service FAS pension (expense) income	(1,572)		54		(1,385)		164


Other non-operating income (expense), net	98		—		200		(29)
Earnings from continuing operations before income taxes	679		2,056		5,060		6,048
Income tax expense	(65)		(303)		(794)		(952)
Net earnings from continuing operations	614		1,753		4,266		5,096
Net loss from discontinued operations	—		(55)		—		(55)
Net earnings	$	614	$	1,698	$	4,266	$	5,041

Earnings (loss) per common share
Basic
Continuing operations	$	2.22	$	6.28	$	15.37	$	18.19
Discontinued operations	—		(0.20)		—		(0.20)
Basic earnings per common share	$	2.22	$	6.08	$	15.37	$	17.99
Diluted
Continuing operations	$	2.21	$	6.25	$	15.32	$	18.12
Discontinued operations	—		(0.20)		—		(0.20)
Diluted earnings per common share	$	2.21	$	6.05	$	15.32	$	17.92

Cash dividends paid per common share	$	2.60	$	2.40	$	7.80	$	7.20

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

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Lockheed Martin Corporation

Consolidated Statements of Comprehensive Income

(unaudited; in millions)

Quarters Ended Nine Months Ended
September 24,
2017 September 25,
2016 September 24,
2017 September 25,
2016
Net earnings $ 939
$ 2,395
$ 2,644
$ 4,314

Other comprehensive income, net of tax
Postretirement benefit plans
Amounts reclassified from accumulated other comprehensive loss 200
175
602
521

Reclassification from divestiture of IS&GS —
(134 ) —
(134 )
Other comprehensive gain recognized during the period —
—
3
—

Other, net 77
72
137
66

Other comprehensive income, net of tax 277
113
742
453

Comprehensive income $ 1,216
$ 2,508
$ 3,386
$ 4,767



	Quarters Ended				Nine Months Ended
	September 26, 2021		September 27, 2020		September 26, 2021		September 27, 2020
Net earnings	$	614	$	1,698	$	4,266	$	5,041
Other comprehensive income, net of tax
Postretirement benefit plans
Net actuarial gain recognized due to plan remeasurements, net of $613 million tax	2,258		—		2,258		—
Pension settlement charge, net of $355 million tax	1,310		—		1,310		—
Amortization of previously deferred postretirement benefit plan costs	107		110		387		330
Other, net	(55)		34		(51)		(35)
Other comprehensive income, net of tax	3,620		144		3,904		295
Comprehensive income	$	4,234	$	1,842	$	8,170	$	5,336

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

Table of Contents

Lockheed Martin Corporation

Consolidated Balance Sheets

(in millions, except par value)

September 24,
2017 December 31,
2016
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 2,941
$ 1,837

Receivables, net 9,021
8,202

Inventories, net 4,803
4,670

Other current assets 443
399

Total current assets 17,208
15,108

Property, plant and equipment, net 5,511
5,549

Goodwill 10,812
10,764

Intangible assets, net 3,877
4,093

Deferred income taxes 5,970
6,625

Other noncurrent assets 5,568
5,667

Total assets $ 48,946
$ 47,806

Liabilities and equity
Current liabilities
Accounts payable $ 2,848
$ 1,653

Customer advances and amounts in excess of costs incurred 6,195
6,776

Salaries, benefits and payroll taxes 1,895
1,764

Other current liabilities 2,146
2,349

Total current liabilities 13,084
12,542

Long-term debt, net 14,268
14,282

Accrued pension liabilities 13,998
13,855

Other postretirement benefit liabilities 858
862

Other noncurrent liabilities 4,563
4,659

Total liabilities 46,771
46,200

Stockholders’ equity
Common stock, $1 par value per share 285
289

Additional paid-in capital —
—

Retained earnings 13,173
13,324

Accumulated other comprehensive loss (11,360 ) (12,102 )
Total stockholders’ equity 2,098
1,511

Noncontrolling interests in subsidiary 77
95

Total equity 2,175
1,606

Total liabilities and equity $ 48,946
$ 47,806


	September 26, 2021		December 31, 2020
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	2,727	$	3,160
Receivables, net	2,267		1,978
Contract assets	12,697		9,545
Inventories	2,903		3,545
Other current assets	763		1,150
Total current assets	21,357		19,378
Property, plant and equipment, net	7,332		7,213
Goodwill	10,815		10,806
Intangible assets, net	2,768		3,012
Deferred income taxes	2,664		3,475
Other noncurrent assets	6,907		6,826
Total assets	$	51,843	$	50,710
Liabilities and equity
Current liabilities
Accounts payable	$	1,520	$	880
Contract liabilities	7,515		7,545
Salaries, benefits and payroll taxes	3,122		3,163
Current maturities of long-term debt	6		500
Other current liabilities	2,863		1,845
Total current liabilities	15,026		13,933
Long-term debt, net	11,668		11,669
Accrued pension liabilities	9,351		12,874
Other noncurrent liabilities	6,167		6,196
Total liabilities	42,212		44,672
Stockholders’ equity
Common stock, $1 par value per share	274		279
Additional paid-in capital	98		221
Retained earnings	21,476		21,636
Accumulated other comprehensive loss	(12,217)		(16,121)
Total stockholders’ equity	9,631		6,015
Noncontrolling interests in subsidiary	—		23
Total equity	9,631		6,038
Total liabilities and equity	$	51,843	$	50,710

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

Table of Contents

Lockheed Martin Corporation

Consolidated Statements of Cash Flows

(unaudited; in millions)

Nine Months Ended
September 24,
2017 September 25,
2016
Operating activities
Net earnings $ 2,644
$ 4,314

Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization 880
888

Stock-based compensation 133
124

Severance charges —
99

Gain on divestiture of IS&GS business segment —
(1,234 )
Gain on step acquisition of AWE —
(104 )
Changes in assets and liabilities
Receivables, net (819 ) (1,537 )
Inventories, net (133 ) (235 )
Accounts payable 1,229
1,033

Customer advances and amounts in excess of costs incurred (581 ) 57

Postretirement benefit plans 1,012
787

Income taxes (202 ) 37

Other, net 801
231

Net cash provided by operating activities 4,964
4,460

Investing activities
Capital expenditures (670 ) (627 )
Other, net 15
76

Net cash used for investing activities (655 ) (551 )
Financing activities
Special cash payment from divestiture of IS&GS business segment —
1,800

Repurchases of common stock (1,500 ) (1,280 )
Dividends paid (1,591 ) (1,518 )
Repayments of long-term debt —
(952 )
Proceeds from stock option exercises 62
75

Other, net (176 ) (229 )
Net cash used for financing activities (3,205 ) (2,104 )
Net change in cash and cash equivalents 1,104
1,805

Cash and cash equivalents at beginning of period 1,837
1,090

Cash and cash equivalents at end of period $ 2,941
$ 2,895


	Nine Months Ended
	September 26, 2021		September 27, 2020
Operating activities
Net earnings	$	4,266	$	5,041
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization	999		927
Stock-based compensation	189		182
Equity method investment impairment	—		128
Tax resolution related to former IS&GS business	—		55

Pension settlement charge	1,665		—
Severance and restructuring charges	36		—

Changes in assets and liabilities
Receivables, net	(289)		(143)
Contract assets	(3,152)		(1,294)
Inventories	642		326
Accounts payable	653		247
Contract liabilities	(30)		300
Income taxes	55		58
Postretirement benefit plans	(200)		(130)
Other, net	119		679
Net cash provided by operating activities	4,953		6,376
Investing activities
Capital expenditures	(915)		(1,044)
Other, net	296		27
Net cash used for investing activities	(619)		(1,017)
Financing activities
Dividends paid	(2,178)		(2,036)
Repurchases of common stock	(2,000)		(1,100)
Issuance of long-term debt, net of related costs	—		1,131
Repayments of long-term debt	(500)		(1,150)

Other, net	(89)		(133)
Net cash used for financing activities	(4,767)		(3,288)
Net change in cash and cash equivalents	(433)		2,071
Cash and cash equivalents at beginning of period	3,160		1,514
Cash and cash equivalents at end of period	$	2,727	$	3,585

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

Table of Contents

Lockheed Martin Corporation

Consolidated Statements of Equity

For the Quarters Ended September 26, 2021 and September 27, 2020

(unaudited; in millions)

Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity
Noncontrolling
Interests in
Subsidiary
Total
Equity
Balance at December 31, 2016 $ 289
$ —
$ 13,324
$ (12,102 ) $ 1,511
$ 95
$ 1,606
Net earnings —
—
2,644
—
2,644
—
2,644
Other comprehensive income, net of tax —
—
—
742
742
—
742
Repurchases of common stock (5 ) (282 ) (1,213 ) —
(1,500 ) —
(1,500 )
Dividends declared —
—
(1,582 ) —
(1,582 ) —
(1,582 )
Stock-based awards and ESOP activity 1
282
—
—
283
—
283
Net decrease in noncontrolling interests in subsidiary —
—
—
—
—
(18 ) (18 )
Balance at September 24, 2017 $ 285
$ —
$ 13,173
$ (11,360 ) $ 2,098
$ 77
$ 2,175

Balance at December 31, 2015 $ 303
$ —
$ 14,238
$ (11,444 ) $ 3,097
$ —
$ 3,097
Net earnings —
—
4,314
—
4,314
—
4,314
Other comprehensive income, net of tax —
—
—
453
453
—
453
Shares tendered and retired in connection with divestiture of IS&GS business segment (9 ) —
(2,488 ) —
(2,497 ) (2,497 )
Repurchases of common stock (6 ) (272 ) (1,002 ) —
(1,280 ) —
(1,280 )
Dividends declared —
—
(2,056 ) —
(2,056 ) —
(2,056 )
Stock-based awards, ESOP activity and other 3
272
17
—
292
—
292
Net increase in noncontrolling interests in subsidiary —
—
—
—
—
107
107
Balance at September 25, 2016 $ 291
$ —
$ 13,023
$ (10,991 ) $ 2,323
$ 107
$ 2,430



	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity		Noncontrolling Interests in Subsidiary		Total Equity
Balance at June 27, 2021	$	276	$	122	$	21,961	$	(15,837)	$	6,522	$	8	$	6,530
Net earnings	—		—		614		—		614		—		614
Other comprehensive income, net of tax	—		—		—		3,620		3,620		—		3,620
Dividends declared	—		—		(775)		—		(775)		—		(775)
Repurchases of common stock	(2)		(174)		(324)		—		(500)		—		(500)
Stock-based awards, ESOP activity and other	—		150		—		—		150		—		150
Net decrease in noncontrolling interests in subsidiary	—		—		—		—		—		(8)		(8)
Balance at September 26, 2021	$	274	$	98	$	21,476	$	(12,217)	$	9,631	$	—	$	9,631

Balance at June 28, 2020	$	278	$	—	$	18,876	$	(15,403)	$	3,751	$	35	$	3,786
Net earnings	—		—		1,698		—		1,698		—		1,698
Other comprehensive income, net of tax	—		—		—		144		144		—		144
Dividends declared	—		—		(730)		—		(730)		—		(730)
Repurchases of common stock	—		(59)		—		—		(59)		—		(59)
Stock-based awards, ESOP activity and other	—		149		—		—		149		—		149

Net decrease in noncontrolling interests in subsidiary	—		—		—		—		—		(2)		(2)
Balance at September 27, 2020	$	278	$	90	$	19,844	$	(15,259)	$	4,953	$	33	$	4,986

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

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Lockheed Martin Corporation

Consolidated Statements of Equity

For the Nine Months Ended September 26, 2021 and September 27, 2020

(unaudited; in millions)



	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity		Noncontrolling Interests in Subsidiary		Total Equity
Balance at December 31, 2020	$	279	$	221	$	21,636	$	(16,121)	$	6,015	$	23	$	6,038
Net earnings	—		—		4,266		—		4,266		—		4,266
Other comprehensive income, net of tax	—		—		—		3,904		3,904		—		3,904
Dividends declared	—		—		(2,954)		—		(2,954)		—		(2,954)
Repurchases of common stock	(6)		(522)		(1,472)		—		(2,000)		—		(2,000)
Stock-based awards, ESOP activity and other	1		399		—		—		400		—		400
Net decrease in noncontrolling interests in subsidiary	—		—		—		—		—		(23)		(23)
Balance at September 26, 2021	$	274	$	98	$	21,476	$	(12,217)	$	9,631	$	—	$	9,631

Balance at December 31, 2019	$	280	$	—	$	18,401	$	(15,554)	$	3,127	$	44	$	3,171
Net earnings	—		—		5,041		—		5,041		—		5,041
Other comprehensive income, net of tax	—		—		—		295		295		—		295
Dividends declared	—		—		(2,757)		—		(2,757)		—		(2,757)
Repurchases of common stock	(3)		(256)		(841)		—		(1,100)		—		(1,100)
Stock-based awards, ESOP activity and other	1		346		—		—		347		—		347
Net decrease in noncontrolling interests in subsidiary	—		—		—		—		—		(11)		(11)
Balance at September 27, 2020	$	278	$	90	$	19,844	$	(15,259)	$	4,953	$	33	$	4,986

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

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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. We followed the accounting policies disclosed in the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016 (2016 Form 10-K) filed with the SEC.

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,~~recognition; postretirement benefit ~~plans,~~plans; environmental ~~receivables~~liability and ~~liabilities,~~assets for the portion of environmental costs that are probable of future recovery; evaluation of goodwill, intangible assets, investments and other assets for ~~impairment,~~impairment; income taxes including deferred tax ~~assets,~~assets; fair value ~~measurements~~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.

As previously announced, on June 30, 2021 the UK Ministry of Defence terminated the contract to operate the UK’s nuclear deterrent program and assumed control of the entity that manages the program (referred to as the renationalization of the Atomic Weapons Establishment (AWE program). Accordingly, the AWE program, including the entity that manages the program, is no longer included in our financial results beginning in the third quarter of 2021. Because of the renationalization, no sales or operating profit for the AWE program are included in the company’s financial results for the quarter ended September 26, 2021. However, during the first six months of 2021, AWE generated sales of $865 million and operating profit of $15 million, which are included in the company’s financial results for the nine months ended September 26, 2021. During the quarter and nine months ended September 26, 2020, AWE generated sales of $350 million and $1.0 billion and operating profit of $10 million and $30 million, which are included in the company’s financial results for 2020.

We close our books and records on the last Sunday of the interim calendar quarter ~~which was on September 24 for the third quarter of 2017 and September 25 for the third quarter of 2016,~~ 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 discussion and presentation of the operating results of our business segments have been impacted by the following recent events.~~

On August 16, 2016, we divested our former Information Systems & Global Solutions (IS&GS) business, which merged with Leidos Holdings, Inc. (Leidos) in a Reverse Morris Trust transaction. Accordingly, the operating results of the IS&GS business for the quarter and nine months ended September 25, 2016 have been classified as discontinued operations in the consolidated statements of earnings. However, the cash flows of the IS&GS business for the nine months ended September 25, 2016 have not been reclassified in our consolidated statement of cash flows as we retained the cash as part of the transaction. See “Note 3 – Divestiture” for additional information about the divestiture of the IS&GS business.

On August 24, 2016, we increased our ownership interest in the AWE Management Limited (AWE) joint venture from 33% to 51%, at which time we began consolidating AWE. Consequently, our operating results for the quarter and nine months ended September 24, 2017 include 100% of AWE’s sales and 51% of its operating profit. Prior to increasing our ownership interest, we accounted for our investment in AWE using the equity method of accounting. Under the equity method, we recognized only 33% of AWE’s earnings or losses and no sales. Accordingly, prior to August 24, 2016, the date we obtained control, we recorded 33% of AWE's net earnings in our operating results and subsequent to August 24, 2016, we recognized 100% of AWE's sales and 51% of its operating profit. Additionally, during the quarter and nine months ended September 25, 2016, we recorded a gain of $104 million associated with obtaining control of AWE, which consisted of a $127 million pre-tax gain recognized in the operating results of our Space Systems business segment and $23 million of deferred tax liabilities recorded at our corporate office.

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 ~~2016~~Annual Report on Form ~~10-K.~~

10-K for the year ended December 31, 2020 (2020 Form 10-K).

Table of Contents

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) ~~(continued)~~

NOTE 2 -PENDING ACQUISITION OF AEROJET ROCKETDYNE

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. We expect to finance the acquisition primarily through new debt issuances. The transaction was approved by Aerojet Rocketdyne’s stockholders on March 9, 2021, which was a closing condition. 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”, and the parties continue to engage with the FTC. Subject to satisfactory completion of the regulatory review process and satisfaction of the other closing conditions specified in the acquisition agreement, we anticipate closing the transaction in the first quarter of 2022. As previously disclosed, under the acquisition agreement, the “outside” date that gives rise to certain termination rights will automatically be extended from December 21, 2021 to March 21, 2022 in circumstances where all conditions have been satisfied but for the receipt of regulatory approvals. Our financial results will not include Aerojet Rocketdyne’s results until the acquisition is closed.

NOTE ~~2 –~~3 - EARNINGS PER COMMON SHARE

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

Quarters Ended Nine Months Ended
September 24,
2017 September 25,
2016 September 24,
2017 September 25,
2016
Weighted average common shares outstanding for basic computations 287.1
298.5
288.5
302.0

Weighted average dilutive effect of equity awards 2.9
3.6
2.8
3.9

Weighted average common shares outstanding for diluted computations 290.0
302.1
291.3
305.9


	Quarters Ended		Nine Months Ended
	September 26, 2021	September 27, 2020	September 26, 2021	September 27, 2020
Weighted average common shares outstanding for basic computations	276.2	279.3	277.5	280.1
Weighted average dilutive effect of equity awards	1.1	1.3	1.0	1.2
Weighted average common shares outstanding for diluted computations	277.3	280.6	278.5	281.3

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) and exercise of outstanding stock options based on the treasury stock method. There were no significant anti-dilutive equity awards during the quarters and nine months ended September ~~24, 2017~~26, 2021 or September ~~25, 2016.~~27, 2020.

~~NOTE 3 –DIVESTITURE~~

~~Divestiture of the Information Systems & Global Solutions Business~~

On August 16, 2016, we divested our former IS&GS business, which merged with Leidos, in a Reverse Morris Trust transaction (the Transaction). The Transaction was completed in a multi-step process pursuant to which we initially contributed the IS&GS business to Abacus Innovations Corporation (Abacus), a wholly-owned subsidiary of Lockheed Martin created to facilitate the Transaction, and the common stock of Abacus was distributed to participating Lockheed Martin stockholders through an exchange offer. Under the terms of the exchange offer, Lockheed Martin stockholders had the option to exchange shares of Lockheed Martin common stock for shares of Abacus common stock. At the conclusion of the exchange offer, all shares of Abacus common stock were exchanged for 9,369,694 shares of Lockheed Martin common stock held by Lockheed Martin stockholders that elected to participate in the exchange. The shares of Lockheed Martin common stock that were exchanged and accepted were retired, reducing the number of shares of our common stock outstanding by approximately 3%. Following the exchange offer, Abacus merged with a subsidiary of Leidos, with Abacus continuing as the surviving corporation and a wholly-owned subsidiary of Leidos.

As a result of the Transaction, we recognized a net gain of $1.2 billion in net earnings from discontinued operations during the quarter and nine months ended September 25, 2016. The net gain represents the $2.5 billion fair value of the shares of Lockheed Martin common stock exchanged and retired as part of the exchange offer, plus a $1.8 billion one-time special cash payment received from Abacus, less the net book value of the IS&GS business of about $3.0 billion at August 16, 2016 and other adjustments of about $100 million. The final gain is subject to certain post-closing adjustments, including final working capital, indemnification, and tax adjustments.

~~Table of Contents~~

~~Lockheed Martin Corporation~~

~~Notes to Consolidated Financial Statements (unaudited) (continued)~~

The operating results of the IS&GS business that have been reflected within net earnings from discontinued operations for the quarter and nine months ended September 25, 2016 are as follows (in millions):

Quarter
Ended Nine Months
Ended
Net sales $ 739
$ 3,410

Cost of sales (635 ) (2,953 )
Severance charges —
(19 )
Gross profit 104
438

Other income, net 19
16

Operating profit 123
454

Earnings from discontinued operations before income taxes 123
454

Income tax expense (51 ) (168 )
Net gain on divestiture of discontinued operations 1,234
1,234

Net earnings from discontinued operations $ 1,306
$ 1,520

The operating results of the IS&GS business reported as discontinued operations for the quarter and nine months ended September 25, 2016 are different than the results previously reported for our former IS&GS business segment. Certain corporate overhead and pension costs that were historically allocated to and included in the operating results of IS&GS during the quarter and nine months ended September 25, 2016 have been reclassified into unallocated items and included in the results of our continuing operations because they were not directly attributable to IS&GS and we continue to incur these costs subsequent to the divestiture.

The amount of corporate overhead costs previously included in the operating results of IS&GS that have been reclassified to and included in our earnings from continuing operations were $17 million and $82 million during the quarter and nine months ended September 25, 2016. These costs are included in the other unallocated, net line. Additionally, we retained all assets and obligations related to the pension benefits earned by former IS&GS salaried employees through the date of the divestiture. We continue to incur the non-service portion of net pension costs (e.g., interest cost, actuarial gains and losses and expected return on plan assets) for these employees subsequent to the divestiture. The amount of the non-service pension costs previously included in the operating results of IS&GS that have been reclassified to and included in our continuing operations were $11 million and $54 million during the quarter and nine months ended September 25, 2016. These costs are included in the other unallocated, net line.

Financial information related to cash flows generated by the IS&GS business, such as depreciation and amortization, capital expenditures, and other non-cash items included in our consolidated statement of cash flows for the nine months ended September 25, 2016 were not significant.

In connection with the Transaction, Lockheed Martin retained certain liabilities, including liabilities associated with the New York Metropolitan Transportation Authority and its Capital Construction Company (collectively, the MTA) litigation discussed in “Note 7 – Legal Proceedings and Contingencies,” and has indemnified Abacus and Leidos in connection with other liabilities associated with the IS&GS business, including certain liabilities associated with ongoing investigations by the Department of Energy and the Department of Justice (DOJ) relating to the IS&GS business's involvement in the Mission Support Alliance, LLC (MSA) joint venture that manages and operates the Hanford Nuclear site for the Department of Energy. The DOJ has issued a number of Civil Investigative Demands to MSA, Lockheed Martin and the subsidiary of Lockheed Martin that performed information technology services for MSA, as well as current and former employees of each of these entities, and is continuing its False Claims Act investigation into matters involving MSA and the IS&GS business. The DOJ also is conducting a parallel criminal investigation. The investigations relate primarily to certain information technology services performed by a subsidiary of Lockheed Martin under a fixed price/fixed unit rate subcontract to MSA. In the event that the DOJ were to pursue a claim in connection with the ongoing MSA investigation, through the indemnification provisions agreed to as part of the Transaction, Lockheed Martin and Leidos have allocated liabilities between themselves.

~~Table of Contents~~

~~Lockheed Martin Corporation~~

~~Notes to Consolidated Financial Statements (unaudited) (continued)~~

NOTE 4 –-INFORMATION ON BUSINESS SEGMENTS

We operate in ~~four~~4 business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and ~~Space Systems.~~Space. We organize our business segments based on the nature of ~~the~~ products and services offered.

The financial information in the following tables excludes businesses included in discontinued operations for all periods presented and includes the results of businesses we have acquired from their respective acquisition dates (see “Note 1 – Basis of Presentation”).

Net sales and operating profit of our business segments exclude intersegment sales, cost of sales, and profit as these activities are eliminated in consolidation. ~~Under the equity method of accounting for nonconsolidated ventures and investments, we include~~Business segment operating profit includes our share of ~~the operating profit related to these ventures in operating profit of our business segments~~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. ~~United Launch Alliance (ULA), results of which are included in our Space Systems business~~

Business segment ~~is our primary equity method investee. Operating~~operating profit ~~of our business segments~~also excludes the FAS/CAS pension operating adjustment, ~~described below; expense for stock-based compensation;~~a portion of corporate costs not considered allowable or allocable to contracts with the ~~effects of~~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 ~~charges related to~~a portion of management and administration costs, legal fees and settlements, environmental costs, stock-based compensation expense, retiree benefits, significant severance actions, ~~and certain~~significant asset ~~impairments;~~impairments, gains or losses from ~~significant divestitures; the effects of certain legal settlements; corporate costs not allocated to our business segments;~~divestitures, and other miscellaneous corporate activities. ~~These~~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 –~~11 - Other” ~~(under the caption “Changes in Estimates”)~~ for a discussion related to certain factors that may impact the comparability of net sales and operating profit of our business segments.

~~Our~~

Table of Con tents

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

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



	Quarters Ended				Nine Months Ended
	September 26, 2021		September 27, 2020		September 26, 2021		September 27, 2020
Net sales
Aeronautics	$	6,568	$	6,680	$	19,621	$	19,552
Missiles and Fire Control	2,781		2,971		8,474		8,391
Rotary and Mission Systems	3,980		3,998		12,329		11,783
Space	2,699		2,846		8,891		8,640
Total net sales	$	16,028	$	16,495	$	49,315	$	48,366
Operating profit
Aeronautics	$	714	$	705	$	1,979	$	2,116
Missiles and Fire Control	413		405		1,210		1,171
Rotary and Mission Systems	459		404		1,350		1,209
Space	264		248		826		781
Total business segment operating profit	1,850		1,762		5,365		5,277
Unallocated items
FAS/CAS operating adjustment	491		469		1,469		1,407
Stock-based compensation	(62)		(67)		(189)		(182)

Severance and restructuring charges	—		—		(36)		—
Other, net	15		(17)		59		(147)
Total unallocated items	444		385		1,303		1,078
Total consolidated operating profit	$	2,294	$	2,147	$	6,668	$	6,355
Intersegment sales
Aeronautics	$	60	$	59	$	165	$	179
Missiles and Fire Control	153		129		449		405
Rotary and Mission Systems	455		438		1,381		1,438
Space	95		83		269		296
Total intersegment sales	$	763	$	709	$	2,264	$	2,318
Amortization of purchased intangibles
Aeronautics	$	—	$	—	$	(1)	$	—
Missiles and Fire Control	(1)		(1)		(2)		(2)
Rotary and Mission Systems	(58)		(58)		(174)		(174)
Space	(2)		(7)		(46)		(21)
Total amortization of purchased intangibles	$	(61)	$	(66)	$	(223)	$	(197)

Table of ~~operations include pension expense only as calculated under U.S. Government Cost Accounting Standards (CAS), which we refer~~Con tents

Lockheed Martin Corporation

Notes to ~~as CAS pension cost.~~ Consolidated Financial Statements (unaudited) (continued)

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, ~~the~~recognize CAS pension cost ~~is recognized~~ in each of our business ~~segments’~~segment’s net sales and cost of sales. ~~Since our~~Our consolidated financial statements must present FAS pension ~~expense~~and other postretirement benefit plan income calculated in accordance with ~~the financial accounting standards (FAS)~~FAS requirements under ~~GAAP, which we refer to as FAS pension expense,~~U.S. GAAP. The operating portion of the net FAS/CAS pension adjustment ~~increases or decreases~~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 ~~recorded in our business segments’ results~~exceeds the service cost component of ~~operations to equal the~~ FAS pension ~~expense.~~(expense) income, we have a favorable FAS/CAS operating adjustment.

Our total net FAS/CAS pension adjustment for the quarters and nine months ended September 26, 2021 and September 27, 2020, 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 Ended				Nine Months Ended
	September 26, 2021		September 27, 2020		September 26, 2021			September 27, 2020
Total FAS (expense) income and CAS costs
FAS pension (expense) income	$	(1,598)	$	29		$	(1,465)	$	88
Less: CAS pension cost	517		494			1,549		1,483
Net FAS/CAS pension adjustment	$	(1,081)	$	523		$	84	$	1,571

Service and non-service cost reconciliation
FAS pension service cost	$	(26)	$	(25)		$	(80)	$	(76)
Less: CAS pension cost	517		494			1,549		1,483
FAS/CAS operating adjustment	491		469			1,469		1,407
Non-service FAS pension (expense) income	(1,572)		54			(1,385)		164
Net FAS/CAS pension adjustment	$	(1,081)	$	523		$	84	$	1,571

The decrease in the net FAS/CAS pension adjustment during the quarter and nine months ended September 26, 2021 as compared to 2020 was principally driven by a noncash, non-operating pension settlement charge of $1.7 billion ($1.3 billion, or $4.72 per share, after-tax recognized in connection with the transfer of $4.9 billion of our gross defined benefit pension obligations and related plan assets to an insurance company on August 3, 2021. See “Note 7 -Postretirement Benefit Plans”.

Table of ~~Contents~~Con tents

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

~~Summary operating results for each of our business segments~~Net sales by products and services, contract type, customer, and geographic region were as follows (in millions):


	Quarter Ended September 26, 2021
	Aeronautics		MFC		RMS		Space		Total
Net sales
Products	$	5,573	$	2,429	$	3,201	$	2,272	$	13,475
Services	995		352		779		427		2,553
Total net sales	$	6,568	$	2,781	$	3,980	$	2,699	$	16,028
Net sales by contract type
Fixed-price	$	4,819	$	1,900	$	2,617	$	631	$	9,967
Cost-reimbursable	1,749		881		1,363		2,068		6,061
Total net sales	$	6,568	$	2,781	$	3,980	$	2,699	$	16,028
Net sales by customer
U.S. Government	$	4,312	$	1,938	$	2,838	$	2,671	$	11,759
International (a)	2,229		847		1,047		22		4,145
U.S. commercial and other	27		(4)		95		6		124
Total net sales	$	6,568	$	2,781	$	3,980	$	2,699	$	16,028
Net sales by geographic region
United States	$	4,339	$	1,934	$	2,933	$	2,677	$	11,883
Asia Pacific	890		81		409		(14)		1,366
Europe	910		226		213		32		1,381
Middle East	360		527		246		4		1,137
Other	69		13		179		—		261
Total net sales	$	6,568	$	2,781	$	3,980	$	2,699	$	16,028

Quarters Ended Nine Months Ended
September 24,
2017 September 25,
2016 September 24,
2017 September 25,
2016
Net sales
Aeronautics $ 4,771
$ 4,188
$ 14,102
$ 12,362

Missiles and Fire Control 1,793
1,737
4,919
4,851

Rotary and Mission Systems 3,353
3,346
9,864
9,653

Space Systems 2,252
2,280
7,026
6,630

Total net sales $ 12,169
$ 11,551
$ 35,911
$ 33,496

Operating profit
Aeronautics $ 517
$ 437
$ 1,503
$ 1,335

Missiles and Fire Control 270
289
757
763

Rotary and Mission Systems 244
247
606
678

Space Systems ^(a)
218
450
762
1,034

Total business segment operating profit 1,249
1,423
3,628
3,810

Unallocated items
FAS/CAS pension adjustment
FAS pension expense (342 ) (256 ) (1,030 ) (758 )
Less: CAS pension cost 562
482
1,686
1,430

FAS/CAS pension adjustment 220
226
656
672

Stock-based compensation (32 ) (28 ) (133 ) (124 )
Severance charges —
—
—
(80 )
Other, net ^{(b) (c)}
(9 ) (33 ) (89 ) (157 )
Total unallocated items 179
165
434
311

Total consolidated operating profit $ 1,428
$ 1,588
$ 4,062
$ 4,121

Intersegment sales
Aeronautics $ 33
$ 30
$ 98
$ 105

Missiles and Fire Control 104
81
253
225

Rotary and Mission Systems 452
469
1,438
1,382

Space Systems 31
21
76
90

Total intersegment sales $ 620
$ 601
$ 1,865
$ 1,802

^(a)

On August 24, 2016, our ownership interest in the AWE joint venture increased from 33% to 51% and we were required to change our accounting for this investment from the equity method to consolidation. As a result of the increased ownership interest, we recognized a non-cash gain of $127 million at our Space Systems business segment, which increased net earnings from continuing operations by $104 million ($0.34 per share) in the quarter and nine months ended September 25, 2016. See “Note 1 – Basis of Presentation” for more information.


^(b)			During the nine months ended September 24, 2017, we recognized a $64 million charge, which represents our portion of a noncash asset impairment charge recorded by our equity method investee, Advanced Military Maintenance, Repair and Overhaul Center LLC (AMMROC). See “Note 10 – Other” (under the caption “Equity Method Investee Impairment”) for more information.

^(c)

Includes $17 million and $82 million of corporate overhead costs incurred during the quarter and nine months ended September 25, 2016 that were previously allocated to our former IS&GS business. See “Note 3 – Divestiture” for more information.


	Nine Months Ended September 26, 2021
	Aeronautics		MFC		RMS		Space		Total
Net sales
Products	$	16,635	$	7,410	$	9,870	$	7,571	$	41,486
Services	2,986		1,064		2,459		1,320		7,829
Total net sales	$	19,621	$	8,474	$	12,329	$	8,891	$	49,315
Net sales by contract type
Fixed-price	$	14,473	$	5,769	$	8,096	$	1,890	$	30,228
Cost-reimbursable	5,148		2,705		4,233		7,001		19,087
Total net sales	$	19,621	$	8,474	$	12,329	$	8,891	$	49,315
Net sales by customer
U.S. Government	$	12,952	$	6,155	$	8,711	$	7,941	$	35,759
International (a)	6,611		2,316		3,384		926		13,237
U.S. commercial and other	58		3		234		24		319
Total net sales	$	19,621	$	8,474	$	12,329	$	8,891	$	49,315
Net sales by geographic region
United States	$	13,010	$	6,158	$	8,945	$	7,965	$	36,078
Asia Pacific	2,697		188		1,593		(10)		4,468
Europe	2,708		640		637		931		4,916
Middle East	955		1,452		593		5		3,005
Other	251		36		561		—		848
Total net sales	$	19,621	$	8,474	$	12,329	$	8,891	$	49,315

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

Table of ~~Contents~~Con tents

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

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


	Quarter Ended September 27, 2020
	Aeronautics		MFC		RMS		Space		Total
Net sales
Products	$	5,742	$	2,614	$	3,120	$	2,393	$	13,869
Services	938		357		878		453		2,626
Total net sales	$	6,680	$	2,971	$	3,998	$	2,846	$	16,495
Net sales by contract type
Fixed-price	$	4,718	$	2,034	$	2,666	$	516	$	9,934
Cost-reimbursable	1,962		937		1,332		2,330		6,561
Total net sales	$	6,680	$	2,971	$	3,998	$	2,846	$	16,495
Net sales by customer
U.S. Government	$	3,930	$	2,206	$	2,971	$	2,463	$	11,570
International (a)	2,729		764		914		381		4,788
U.S. commercial and other	21		1		113		2		137
Total net sales	$	6,680	$	2,971	$	3,998	$	2,846	$	16,495
Net sales by geographic region
United States	$	3,951	$	2,207	$	3,084	$	2,465	$	11,707
Asia Pacific	1,099		70		383		21		1,573
Europe	1,141		208		191		360		1,900
Middle East	440		475		206		—		1,121
Other	49		11		134		—		194
Total net sales	$	6,680	$	2,971	$	3,998	$	2,846	$	16,495


	Nine Months Ended September 27, 2020
	Aeronautics		MFC		RMS		Space		Total
Net sales
Products	$	16,671	$	7,311	$	9,365	$	7,260	$	40,607
Services	2,881		1,080		2,418		1,380		7,759
Total net sales	$	19,552	$	8,391	$	11,783	$	8,640	$	48,366
Net sales by contract type
Fixed-price	$	13,769	$	5,629	$	7,787	$	1,518	$	28,703
Cost-reimbursable	5,783		2,762		3,996		7,122		19,663
Total net sales	$	19,552	$	8,391	$	11,783	$	8,640	$	48,366
Net sales by customer
U.S. Government	$	13,315	$	6,259	$	8,685	$	7,479	$	35,738
International (a)	6,182		2,123		2,780		1,131		12,216
U.S. commercial and other	55		9		318		30		412
Total net sales	$	19,552	$	8,391	$	11,783	$	8,640	$	48,366
Net sales by geographic region
United States	$	13,370	$	6,268	$	9,003	$	7,509	$	36,150
Asia Pacific	2,447		217		1,165		65		3,894
Europe	2,595		546		528		1,072		4,741
Middle East	981		1,324		626		(6)		2,925
Other	159		36		461		—		656
Total net sales	$	19,552	$	8,391	$	11,783	$	8,640	$	48,366

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

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Notes to Consolidated Financial Statements (unaudited) (continued)

September 24,
2017 December 31,
2016
Assets
Aeronautics $ 7,918
$ 7,896

Missiles and Fire Control 4,510
4,000

Rotary and Mission Systems 18,500
18,367

Space Systems 5,425
5,250

Total business segment assets 36,353
35,513

Corporate assets ^(a)
12,593
12,293

Total assets $ 48,946
$ 47,806


^(a)	Corporate assets primarily include cash and cash equivalents, deferred income taxes, environmental receivables, and investments held in a separate trust to fund certain of our non-qualified deferred compensation plans.

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 ~~26%~~28% and ~~25%~~27% of our total consolidated net sales for the quarter and nine months ended September ~~24, 2017~~26, 2021 and ~~23%~~28% of our total consolidated net sales for both the quarter and nine months ended September ~~25, 2016.~~27, 2020.

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


	September 26, 2021		December 31, 2020
Assets
Aeronautics	$	12,369	$	9,903
Missiles and Fire Control	5,056		4,966
Rotary and Mission Systems	17,807		18,035
Space	6,551		6,451
Total business segment assets	41,783		39,355
Corporate assets (a)	10,060		11,355
Total assets	$	51,843	$	50,710

(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 and investments held in a separate trust.

NOTE 5 –~~INVENTORIES, NET~~- CONTRACT ASSETS AND LIABILITIES

~~Inventories, net consisted~~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 ~~following~~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):


	September 26, 2021		December 31, 2020
Contract assets	$	12,697	$	9,545
Contract liabilities	7,515		7,545

Contract assets increased $3.2 billion during the nine months ended September 26, 2021, primarily due to the recognition of revenue related to the satisfaction or partial satisfaction of performance obligations during the nine months ended September 26, 2021 for which we have not yet billed our customers. There were no significant credit or impairment losses related to our contract assets during the quarters and nine months ended September 26, 2021 and September 27, 2020.

Contract liabilities decreased $30 million during the nine months ended September 26, 2021, primarily due to revenue recognized in excess of payments received on these performance obligations. During the quarter and nine months ended September 26, 2021, we recognized $700 million and $3.9 billion of our contract liabilities at December 31, 2020 as revenue. During the quarter and nine months ended September 27, 2020, we recognized $919 million and $3.5 billion of our contract liabilities at December 31, 2019 as revenue.

September 24,
2017 December 31,
2016
Work-in-process, primarily related to long-term contracts and programs in progress $ 7,720
$ 7,864

Spare parts, used aircraft and general stock materials 798
833

Other inventories 767
719

Total inventories 9,285
9,416

Less: customer advances and progress payments (4,482 ) (4,746 )
Total inventories, net $ 4,803
$ 4,670

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

NOTE 6 –-INVENTORIES

Inventories consisted of the following (in millions):


	September 26, 2021		December 31, 2020
Materials, spares and supplies	$	627	$	612
Work-in-process	2,079		2,693
Finished goods	197		240
Total inventories	$	2,903	$	3,545

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 September 26, 2021 and December 31, 2020, $767 million and $583 million of pre-contract costs were included in inventories.

Table of Con tents

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Notes to Consolidated Financial Statements (unaudited) (continued)

NOTE 7 -POSTRETIREMENT BENEFIT PLANS

FAS Expense (Income)

Our pretax ~~net periodic benefit cost~~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 Ended				Nine Months Ended
	September 26, 2021		September 27, 2020		September 26, 2021		September 27, 2020
Qualified defined benefit pension plans
Operating:
Service cost	$	26	$	25	$	80	$	76
Non-operating:
Interest cost	302		385		923		1,154
Expected return on plan assets	(517)		(566)		(1,655)		(1,698)
Recognized net actuarial losses	210		213		714		637
Amortization of prior service credits	(88)		(86)		(262)		(257)
Pension settlement charge	1,665		—		1,665		—
Non-service FAS pension expense (income)	1,572		(54)		1,385		(164)
Total FAS pension expense (income)	$	1,598	$	(29)	$	1,465	$	(88)
Retiree medical and life insurance plans
Operating:
Service cost	$	3	$	3	$	10	$	10
Non-operating:
Interest cost	13		18		39		53
Expected return on plan assets	(35)		(32)		(105)		(96)
Recognized net actuarial gains	—		(1)		—		(3)
Amortization of prior service costs	9		10		27		29
Non-service FAS retiree medical and life (income)	(13)		(5)		(39)		(17)
Total FAS retiree medical and life (income)	$	(10)	$	(2)	$	(29)	$	(7)

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

Quarters Ended Nine Months Ended
September 24,
2017 September 25,
2016 September 24,
2017 September 25,
2016
Qualified defined benefit pension plans
Service cost $ 205
$ 208
$ 615
$ 615

Interest cost 452
465
1,357
1,396

Expected return on plan assets (602 ) (667 ) (1,806 ) (2,000 )
Recognized net actuarial losses 376
340
1,129
1,019

Amortization of prior service credits (89 ) (90 ) (265 ) (272 )
Total net periodic benefit cost $ 342
$ 256
$ 1,030
$ 758

Retiree medical and life insurance plans
Service cost $ 5
$ 6
$ 15
$ 18

Interest cost 25
30
76
89

Expected return on plan assets (31 ) (34 ) (95 ) (103 )
Recognized net actuarial losses 4
8
14
25

Amortization of prior service costs 4
5
11
16

Total net periodic benefit cost $ 7
$ 15
$ 21
$ 45

The recognized net actuarial losses and amortization of ~~net~~ prior service ~~(credits)~~credits or costs in the table above, along with similar ~~amounts~~costs related to our other postretirement benefit plans ~~and 2016 IS&GS reclassifications to discontinued operations~~ ($146 million and ~~$41 million during the quarter and nine months ended September 24, 2017 and $8 million and $18~~$13 million for the quarter and nine months ended September ~~25, 2016),~~26, 2021 and $4 million and $14 million for the quarter and nine months ended September 27, 2020) were reclassified from ~~accumulated other comprehensive loss~~Accumulated Other Comprehensive Loss (AOCL) and recorded as a component of net periodic benefit cost (income) for the periods presented. These costs totaled ~~$309~~$137 million ($~~200~~107 million, net of tax) and ~~$930~~$492 million ($~~602~~387 million, net of tax) during the quarter and nine months ended September ~~24, 2017~~26, 2021, and ~~$271~~$140 million ($~~175~~110 million, net of tax) and ~~$806~~$420 million ($~~521~~330 million, net of tax) during the quarter and nine months ended September ~~25, 2016, which~~27, 2020 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

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Notes to Consolidated Financial Statements (unaudited) (continued)

monthly retirement benefit payments to the affected retirees and beneficiaries. In connection with this transaction, we recognized a noncash pension settlement charge of $1.7 billion ($1.3 billion, or $4.72 per share, after tax) for the affected plans in the quarter ended September 26, 2021, 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 August 3, 2021 close date. The remeasurement reflects the use of updated actuarial assumptions as of the remeasurement date, primarily the discount rate and actual return on plan assets.

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, for the nine months ended September 26, 2021 (in millions):



Change in benefit obligation
Beginning balance at December 31, 2020	$	51,352
Service cost	80
Interest cost	923
Benefits paid	(1,611)
Settlements(a)	(4,885)
Change in benefit obligation due to remeasurement(b)	(1,253)



Ending balance at September 26, 2021	$	44,606
Change in plan assets
Beginning balance at December 31, 2020	$	38,481
Expected return on plan assets(c)	1,655
Incremental return on plan assets recognized in remeasurement(c)	1,618
Benefits paid	(1,611)
Settlements(a)	(4,885)
Company contributions	—


Ending balance at September 26, 2021	$	35,258
Net Unfunded status of the plans(d)	$	(9,348)

(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 August 3, 2021.

(b)Primarily reflects an increase in the discount rate from 2.50% at December 31, 2020 to 2.75% at the remeasurement date.

(c)The expected return on plan assets represents approximately 4.00% for the period January 1, 2021 through August 3, 2021 (the proportional effect, or approximately seven twelfths, of our previously expected 7.00% annual long-term rate of return on plan assets assumption). The incremental return on plan assets recognized in remeasurement represents the difference between our actual return on plan assets of approximately 8.00% and our expected return of approximately 4.00% for the period January 1, 2021 through August 3, 2021.

(d)For plans where the benefit obligation is in excess of plan assets, we report the net obligation (which was $9,351 million as of September 26, 2021) 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 $3 million as of September 26, 2021) as part of other noncurrent assets on our consolidated balance sheet. The net unfunded status of the plans of $9,348 million in the table above represents the net total of these two amounts.

In connection with the plan remeasurements, we lowered our expected long-term rate of return on plan assets from 7.00% to 6.50%, which reflects recent changes in our asset allocation targets.

The plan remeasurement resulted in a decrease of $2.9 billion to our net unfunded pension obligations (which includes the change in benefit obligation due to remeasurement of $1.3 billion and the incremental return on plan assets recognized in remeasurement of $1.6 billion in the table above) with a corresponding increase of $2.3 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 2021. However, deferred net actuarial gains or losses in stockholders’ equity are adjusted annually when the funded status of our postretirement benefit plans are measured, which will result in additional changes to our FAS pension income or expense in future periods.

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

The purchase of the group annuity contracts and the pension remeasurement did not have an impact on our CAS pension cost and did not significantly impact our total FAS pension expense or net FAS/CAS pension adjustment for the quarter ended September 26, 2021 or expected full year 2021, except for the noncash pension settlement charge. The increase in the discount rate, incremental return on plan assets, and settlement charge reduced FAS pension expense in future periods, which was offset by the impact of the lower expected long-term rate of return on plan assets.

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, ~~by the Pension Protection Act~~along with consideration of ~~2006 (PPA), and in a manner consistent with~~ CAS and Internal Revenue Code rules. ~~There were~~We made no ~~material~~ contributions to our qualified defined benefit pension plans during the quarters and nine months ended September ~~24, 2017~~26, 2021 and September 25, 2016. Currently, we do not plan to make material contributions to our pension plans in 2017, because none are required using current assumptions, including anticipated investment returns on plan assets.27, 2020.

NOTE ~~7 –~~8 - LEGAL PROCEEDINGS AND CONTINGENCIES

We are a party ~~to or have property subject~~ to litigation and other proceedings that arise in the ordinary course of our business, including matters arising under provisions relating to the protection of the 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.

~~Table of Contents~~

~~Lockheed Martin Corporation~~

~~Notes to Consolidated Financial Statements (unaudited) (continued)~~

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 ~~the following~~2 civil False Claims Act ~~lawsuit.~~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 ~~U.S. District Court for the Eastern District of Wisconsin in a lawsuit~~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 ~~alleged~~alleges that Sikorsky and ~~two~~2 of its wholly-owned subsidiaries, Derco and ~~Sikorsky Support Services, Inc. (SSSI),~~SSSI, violated the civil False Claims Act and the Truth in Negotiations Act in connection with a contract ~~that~~ 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 ~~the~~ spare parts for the training aircraft. The U.S. Government ~~alleges~~contends that SSSI overbilled the Navy on the contract ~~because Derco used~~as the result of Derco’s use of prohibited cost-plus-percentage-of-cost 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 ~~that~~to SSSI, ~~submitted false~~SSSI’s claims to the Navy, and SSSI’s yearly Certificates of Final Indirect Costs ~~in the years~~from 2006 through ~~2012.~~2012 were false and that SSSI submitted inaccurate cost or pricing data in violation of

Table of Con tents

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

the Truth in Negotiations Act for a sole-sourced, follow-on “bridge” contract. The U.S. Government’s ~~complaint asserts numerous~~complaints assert common law claims for ~~violations of the False Claims Act,~~ breach of contract and unjust enrichment.

~~On March 16, 2017, the~~The U.S. Government ~~filed a notice of partial intervention in a lawsuit also pending in the U.S. District Court for the Eastern District of Wisconsin brought by~~ ~~qui tam~~ relator Peter Cimma, a former SSSI employee, against Sikorsky, SSSI and Derco. On May 26, 2017, the Government filed its complaint in intervention, alleging claims against SSSI and Derco under the False Claims Act, Anti-Kickback Act, Truth-in-Negotiations Act, and common law. The Government declined to intervene in Cimma’s allegations against Sikorsky. The Government’s claims against SSSI and Derco rely on many of the same facts and legal elements as in its Patzer complaint, but for a later contract and time period, and add purportedfurther alleged violations of the Anti-Kickback Act and False Claims Act based on ~~Derco’s allowing~~a monthly “chargeback,” through which SSSI ~~to take a chargeback against Derco’s monthly invoice~~billed Derco for the cost of certain SSSI personnel, allegedly in exchange for ~~the~~SSSI’s permitting a pricing arrangement that was “highly favorable” ~~pricing arrangement.~~to Derco. On January 12, 2018, the Corporation filed a partial motion to dismiss intended to narrow the U.S. Government’s claims, including by seeking dismissal of the Anti-Kickback Act allegations. The ~~Government has indicated that it intends~~Corporation also moved to ~~amend its complaint in Patzer to add claims~~dismiss Cimma as a party under the False Claims Act’s first-to-file rule, which permits only the first relator to recover in a pending case. The District Court granted these motions, in part, on July 20, 2018, dismissing the Government’s claims under the Anti-Kickback Act and ~~Anti-Kickback Act related~~dismissing Cimma as a party to the ~~chargeback.~~litigation.

The U.S. Government ~~currently~~ seeks damages ~~in these lawsuits~~ of approximately $52 million, subject to trebling, plus statutory penalties. We believe that we have legal and factual defenses to the U.S. Government’s remaining claims. 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 in this matter and proves damages at or near $52 millionand 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 v. Metropolitan Transportation Authority

On April 24, 2009, we filed a declaratory judgment action against the ~~MTA~~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 ~~cost~~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 ~~IS&GS~~Information Systems & Global Solutions (IS&GS) business, we retained responsibility for the litigation when we divested IS~~&GS.~~

~~Table of Contents~~

~~Lockheed Martin Corporation~~

~~Notes to Consolidated Financial Statements (unaudited) (continued)~~

&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 ~~waste~~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 ~~a receivable~~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 ~~receivables~~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 ~~portion~~portions of those environmental costs expected to be allocated to our non-U.S. Government contracts, or ~~that is~~ determined not to ~~not~~ be recoverable under U.S. Government contracts, in our cost of sales at the time the liability is ~~established.~~established or adjusted.

At September ~~24, 2017~~26, 2021 and December 31, ~~2016,~~2020, the aggregate amount of liabilities recorded relative to environmental matters was ~~$952~~$771 million and ~~$1.0 billion,~~$789 million, most of which are recorded in other noncurrent liabilities on our consolidated balance sheets. We have recorded ~~receivables~~assets for the portion of environmental costs that are probable of future

Table of Con tents

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

recovery under U.S. Government contracts totaling ~~$825~~$669 million and ~~$870~~$685 million at September ~~24, 2017~~26, 2021 and December 31, ~~2016,~~2020, most of which are recorded in other noncurrent assets on our consolidated balance sheets, for the estimated future recovery of these costs, as we consider the recovery probable based on the factors previously mentioned. We project costs and recovery of costs over approximately 20 years.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. ~~There~~We are monitoring or investigating a number of former and present operating facilities ~~that we are monitoring or investigating~~ 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 ~~at a particular~~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 ~~cannot~~ 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 ~~loss or~~ reasonably possible loss or range of loss. We project costs and recovery of costs over approximately 20 years.

We also pursue claims for recovery of costs incurred or for contribution to site ~~cleanup~~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, ~~and~~ 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 ~~the U.S. Government’s~~their capacity as ~~a PRP~~PRPs under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).

In addition to the proceedings and potential proceedings discussed above, the California ~~previously established~~State Water Resources Control Board, a branch of the California Environmental Protection Agency, has indicated it will work to re-establish a maximum level of the contaminant hexavalent chromium in drinking water after a prior standard of 10 parts per billion (ppb)~~. Recently, this standard~~ was ~~successfully~~ challenged ~~by the California Manufacturers~~ and Technology Association (CMTA) for failure to conduct the required economic feasibility analysis. In response to the court's ruling, the State Water Resources Control Board (State Board) withdrew the hexavalent chromium standard from the published regulations, leaving only the 50 ppb standard for total chromium. The State Board has indicated it will work to re-establish a hexavalent chromium standard. If the standard for hexavalent chromium is re-established at 10 ppb or above, it will not have a material impact on our existing remediation costs in California. Further, the U.S. Environmental Protection Agency (U.S. EPA) is considering whether to regulate hexavalent chromium.

~~Table of Contents~~

~~Lockheed Martin Corporation~~

~~Notes to Consolidated Financial Statements (unaudited) (continued)~~

~~California~~withdrawn, and is also reevaluating its existing drinking water standard of 6 ppb for ~~perchlorate, and the~~perchlorate. The U.S. ~~EPA is taking steps~~Environmental Protection Agency decided in June 2020 not to regulate perchlorate in drinking ~~water.~~ water at the federal level, although this decision has been challenged, and is considering whether to regulate hexavalent chromium.

If substantially lower standards are adopted ~~in either~~for perchlorate (in California) or for hexavalent chromium (in California or at the federal ~~level for perchlorate or for hexavalent chromium,~~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 ~~not~~ 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 ~~$3.3 billion and $3.7~~$3.4 billion at both September ~~24, 2017~~26, 2021 and December 31, ~~2016.~~2020. Third-party guarantees do not include guarantees issued on behalf of subsidiaries and other consolidated entities.

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Notes to Consolidated Financial Statements (unaudited) (continued)

At September ~~24, 2017~~26, 2021 and December 31, ~~2016,~~2020, third-party guarantees totaled ~~$726~~$842 million and ~~$709~~$871 million, of which approximately ~~60%~~69% and ~~56%~~71% related to guarantees of contractual performance of joint ventures to which we currently are or previously were a party. ~~This amount represents~~These amounts represent our estimate of the maximum ~~amount~~amounts we would expect to incur upon the contractual non-performance of the joint venture, ~~partners. In addition,~~joint venture partners or divested businesses. Generally, we ~~generally~~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. There~~partners and the transferee under novation agreements all of which include a guarantee as required by the FAR. At September 26, 2021 and December 31, 2020, there were no material amounts recorded in our ~~consolidated~~ financial statements related to third-party ~~guarantees.~~guarantees or novation agreements.

~~United Launch Alliance~~

In connection with our 50% ownership interest of ULA, we and The Boeing Company (Boeing) are required to provide ULA an additional capital contribution if ULA is unable to make required payments under its inventory supply agreement with Boeing. As of September 24, 2017, ULA’s total remaining obligation to Boeing under the inventory supply agreement was $120 million. The parties have agreed to defer the remaining payment obligation, as it is more than offset by other commitments to ULA. Accordingly, we do not expect to be required to make a capital contribution to ULA under this agreement.

In addition, both we and Boeing have cross-indemnified each other for guarantees by us and Boeing of the performance and financial obligations of ULA under certain launch service contracts. We believe ULA will be able to fully perform its obligations, as it has done through September 24, 2017, and that it will not be necessary to make payments under the cross-indemnities or guarantees.

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~~Lockheed Martin Corporation~~

~~Notes to Consolidated Financial Statements (unaudited) (continued)~~

NOTE ~~8 –~~9 -FAIR VALUE MEASUREMENTS

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



	September 26, 2021						December 31, 2020
	Total		Level 1		Level 2		Total		Level 1		Level 2
Assets
Mutual funds	$	1,377	$	1,377	$	—	$	1,335	$	1,335	$	—
U.S. Government securities	102		—		102		92		—		92
Other securities	649		436		213		555		341		214
Derivatives	19		—		19		52		—		52
Liabilities
Derivatives	40		—		40		22		—		22
Assets measured at NAV (a)
Other commingled funds	21						20

September 24, 2017 December 31, 2016
Total Level 1 Level 2 Total Level 1 Level 2
Assets
Equity securities $ 47
$ 47
$ —
$ 79
$ 79
$ —
Mutual funds 858
858
—
856
856
—
U.S. Government securities 110
—
110
113
—
113
Other securities 176
—
176
151
—
151
Derivatives 28
—
28
27
—
27
Liabilities
Derivatives 105
—
105
85
—
85
Assets measured at NAV
Other commingled funds 18
—

(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 ~~classified as trading securities~~ 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 ~~equity securities and~~ 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 ~~exchange~~ forward contracts, including embedded derivatives, and interest rate swap contracts, are primarily ~~are~~ 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 did not have any transfers of assets or liabilities between levels of the fair value hierarchy during the nine months ended September 24, 2017.~~

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 and the Australian dollar. These contracts hedge forecasted foreign currency transactions in order to mitigate 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 ~~reduce~~hedge changes in the ~~amount~~fair value of ~~interest paid.~~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 derivative instruments that are not

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Notes to Consolidated Financial Statements (unaudited) (continued)

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~~foreign currency hedges was $3.4 billion at both September ~~24, 2017~~26, 2021 and December 31, ~~2016 was $1.2 billion and the fair value was not significant.~~2020. The aggregate notional amount of our outstanding interest rate swaps was $500 million and $572 million at September 26, 2021 and December 31, 2020. The fair values of our outstanding foreign currency hedges and interest rate swaps at September ~~24, 2017~~26, 2021 and December 31, ~~2016 was $4.4 billion and $4.0 billion and the fair value was~~2020 were not significant. Derivative instruments did not have a material impact on net earnings and comprehensive income during the quarters and nine months ended September ~~24, 2017~~26, 2021 and September ~~25, 2016.~~27, 2020. Substantially all of our derivatives are designated for hedge accounting.

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~~Lockheed Martin Corporation~~

~~Notes to Consolidated Financial Statements (unaudited) (continued)~~

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 ~~$16.6~~$15.6 billion and ~~$16.2~~$16.9 billion at September ~~24, 2017~~26, 2021 and December 31, ~~2016.~~2020. The outstanding principal amount of debt was ~~$15.5~~$12.8 billion at September 26, 2021 and ~~$15.3~~$13.3 billion at December 31, 2020, excluding $1.1 billion of unamortized discounts and issuance costs ~~of $1.2 billion and $1.0 billion~~ at both September ~~24, 2017~~26, 2021 and December 31, ~~2016.~~2020. 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). We also hold investments in early stage companies. Most of these investments are in equity securities without readily determinable fair values. Investments with quoted market prices ~~for similar instruments~~ in active markets (Level 2)1) are recorded at fair value at the end of each reporting period and reflected in other securities in the table above. See “Note 11 - Other - Lockheed Martin Ventures Fund”.

NOTE ~~9 –~~10 -STOCKHOLDERS’ EQUITY

Repurchases of Common Stock

During the nine months ended September ~~24, 2017,~~26, 2021, we repurchased ~~5.4~~5.6 million shares of our common stock for ~~$1.5 billion.~~$2.0 billion under accelerated share repurchase (ASR) agreements pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934. The total remaining authorization for future common share repurchases under our share repurchase program was ~~$2.0~~$6.0 billion as of September ~~24, 2017. On September 28, 2017, subsequent~~26, 2021, including a $5.0 billion increase to the ~~end of our third quarter,~~program authorized by our Board of Directors ~~authorized a $2.0 billion increase to the program.~~on September 23, 2021. 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. Due to the volume of repurchases made under our share repurchase program, additional paid-in capital was reduced to zero, with the remainder of the excess purchase price over par value of $1.2 billion and $1.0 billion recorded as a reduction of retained earnings during the nine months ended September 24, 2017 and September 25, 2016, respectively.

Dividends

We declared cash dividends totaling ~~$1.6 billion~~$775 million ($~~5.46~~2.80 per share) and ~~$2.1~~$3.0 billion ($~~6.77~~10.60 per share) during the quarter and nine months ended September ~~24, 2017 and September 25, 2016.~~26, 2021. Dividends declared in ~~2016 includes our fourth quarter dividend of $537 million ($1.82 per share), which was declared during~~ the quarter ended September ~~25, 2016 and~~26, 2021 represent our 2021 fourth quarter dividend payment, a per share increase of $0.20 over our 2021 third quarter dividend of $2.60 per share, which we declared in the second quarter of 2021. Our fourth quarter dividend will be paid in ~~the fourth quarter of 2016. On September 28, 2017, subsequent to the end of our third quarter, we increased our quarterly dividend rate by 10%, or $0.18~~December 2021. We declared dividends totaling $730 million ($2.60 per ~~share, to $2.00~~share) and $2.8 billion ($9.80 per ~~share, and we declared our fourth quarter dividend.~~

~~Restricted Stock Unit Grants~~

~~During~~share) during the quarter ~~ended September 24, 2017, there were no significant grants of RSUs. During the~~and nine months ended September ~~24, 2017, we granted certain employees approximately 0.5 million RSUs with~~27, 2020. The total amount declared may differ from the total amount of dividends paid during a ~~grant date fair value of $254.53 per RSU. The grant date fair value of these RSUs is equal~~period due to the ~~closing market price~~timing of ~~our common stock~~dividend-equivalents paid on ~~the grant date less a discount to reflect the delay in payment of dividend-equivalent cash payments that~~RSUs and PSUs. These dividend-equivalents are made only upon vesting, which is generally three years from the grant date. We recognize the grant date fair value of RSUs, less estimated forfeitures, as compensation expense ratably over the requisite service period, which is shorter thanaccrued during the vesting period ifand are paid upon the ~~employee is retirement eligible on the date of grant or will become retirement eligible before the end~~vesting of the ~~vesting period.~~

RSUs and PSUs, which primarily occurs in the first quarter each year.

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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 Plans		Other, net		AOCL
Balance at December 31, 2020	$	(16,155)	$	34	$	(16,121)
Other comprehensive income (loss) before reclassifications (a)	2,258		(55)		2,203

Amounts reclassified from AOCL
Pension settlement charge (b)	1,310		—		1,310
Recognition of net actuarial losses (c)	579		—		579
Amortization of net prior service credits (c)	(192)		—		(192)
Other	—		4		4
Total reclassified from AOCL	1,697		4		1,701
Total other comprehensive income (loss)	3,955		(51)		3,904
Balance at September 26, 2021	$	(12,200)	$	(17)	$	(12,217)

Balance at December 31, 2019	$	(15,528)	$	(26)	$	(15,554)
Other comprehensive loss before reclassifications	—		(40)		(40)
Amounts reclassified from AOCL
Recognition of net actuarial losses (c)	517		—		517
Amortization of net prior service credits (c)	(187)		—		(187)
Other			5		5
Total reclassified from AOCL	330		5		335
Total other comprehensive income (loss)	330		(35)		295
Balance at September 27, 2020	$	(15,198)	$	(61)	$	(15,259)

(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 $4.9 billion of our gross defined benefit pension obligations and related plan assets to an insurance company on August 3, 2021. See “Note 7 - Postretirement Benefit Plans”.

(b)During the quarter ended September 26, 2021, we recognized a noncash, non-operating pension settlement charge of $1.7 billion ($1.3 billion, or $4.72 per share, after-tax) in connection with the purchase of group annuity contracts to transfer $4.9 billion of our gross defined benefit pension obligations and related plan assets to an insurance company on August 3, 2021. See “Note 7 - Postretirement Benefit Plans”.

(c)Reclassifications from AOCL related to our postretirement benefit plans were recorded as a component of FAS expense (income) for each period presented. See “Note 7 - Postretirement Benefit Plans”. These amounts include $107 million and $110 million, net of tax, for the quarters ended September 26, 2021 and September 27, 2020, which are comprised of the recognition of net actuarial losses of $171 million and $173 million for the quarters ended September 26, 2021 and September 27, 2020, and the amortization of net prior service credits of $64 million and $63 million for the quarters ended September 26, 2021 and September 27, 2020.

Postretirement
Benefit Plans
Other, net AOCL
Balance at December 31, 2016 $ (11,981 ) $ (121 ) $ (12,102 )
Other comprehensive income before reclassifications 3
123
126
Amounts reclassified from AOCL
Recognition of net actuarial losses ^(a)
774
—
774
Amortization of net prior service credits ^(a)
(172 ) —
(172 )
Other —
14
14
Total reclassified from AOCL 602
14
616
Total other comprehensive income 605
137
742
Balance at September 24, 2017 $ (11,376 ) $ 16
$ (11,360 )

Balance at December 31, 2015 $ (11,314 ) $ (130 ) $ (11,444 )
Other comprehensive loss before reclassifications —
(46 ) (46 )
Amounts reclassified from AOCL
Recognition of net actuarial losses ^(a)
703
—
703
Amortization of net prior service credits ^(a)
(182 ) —
(182 )
Recognition of net prior service credits from divestiture of IS&GS ^(b)
(134 ) —
(134 )
Other —
112
112
Total reclassified from AOCL 387
112
499
Total other comprehensive income 387
66
453
Balance at September 25, 2016 $ (10,927 ) $ (64 ) $ (10,991 )

^(a)

Reclassifications from AOCL related to our postretirement benefit plans were recorded as a component of net periodic benefit cost for each period presented (see “Note 6 – Postretirement Plans”). These amounts include $200 million and $175 million, net of tax, for the quarters ended September 24, 2017 and September 25, 2016, which are comprised of the recognition of net actuarial losses of $258 million and $234 million for the quarters ended September 24, 2017 and September 25, 2016 and the amortization of net prior service credits of $(58) million and $(59) million for the quarters ended September 24, 2017 and September 25, 2016.


^(b)	~~Associated with the divestiture of the IS&GS business and included in net gain on divestiture of discontinued operations.~~

NOTE ~~10 –~~11 - OTHER

Changes in Estimates

~~Accounting for contracts using the percentage-of-completion method requires judgment relative to assessing risks,~~Significant estimates and assumptions are made in estimating contract sales and costs, ~~(including estimating award and incentive fees and penalties related to performance) and making assumptions for schedule and technical issues. Due to~~including the number of years it may take to complete many of our contracts and the scope and nature of the work required to be performed on those contracts, the estimation of total sales and costs at completion is complicated and subject to many variables and, accordingly, is subject to change. When adjustments in estimated total contract sales or estimated total costs are required, any changes from prior estimates are recognized in the current period for the inception-to-date effect of such changes. When estimates of total costs to be incurred on a contract exceed estimates of total sales to be earned, a provision for the entire loss on the contract is recorded in the period in which the loss is determined.

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~~Lockheed Martin Corporation~~

~~Notes to Consolidated Financial Statements (unaudited) (continued)~~

~~Many of our contracts span several years and include highly complex technical requirements.~~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 sales and 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, general and administrative and the estimated costs to fulfill our industrial cooperation agreements, sometimes referred to as offset or localization agreements, required under certain contracts with international customers). The initial profit booking rate of each contract considers risks surrounding

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Notes to Consolidated Financial Statements (unaudited) (continued)

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 surrounding the 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.~~increase or our estimates of variable consideration we expect to receive decrease. All of the estimates are 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.

~~Comparability~~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 ~~accounted~~ for which we recognize revenue over time using the percentage-of-completion cost-to-cost method ~~of accounting.~~to measure progress towards completion. Increases in ~~the~~ profit booking rates, typically referred to as risk retirements, 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, resulting in an increase in the estimated total costs to ~~complete~~fulfill the performance obligations and a reduction in the profit booking rate. 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.~~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~~operating results; reserves for disputes; certain asset impairments; and losses on sales of certain assets. ~~Segment~~

Our consolidated net adjustments not related to volume, including net profit booking rate adjustments and other matters, increased segment operating profit by approximately $580 million and ~~items such as risk retirements, reductions~~$1.5 billion during the quarter and nine months ended September 26, 2021 and $415 million and $1.4 billion during the quarters and nine months ended September 27, 2020. These adjustments increased net earnings by approximately $458 million ($1.65 per share) and $1.2 billion ($4.14 per share) during the quarter and nine months ended September 26, 2021 and $328 million ($1.17 per share) and $1.1 billion ($3.82 per share) during the quarter and nine months ended September 27, 2020. We recognized net sales from performance obligations satisfied in prior periods of approximately $616 million and $1.6 billion during the quarter and nine months ended September 26, 2021, and $487 million and $1.5 billion during the quarter and nine months ended September 27, 2020, which primarily relate to changes in profit booking rates that impacted revenue.

As previously disclosed, 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. During the second quarter of 2021, we completed a comprehensive review and negotiation of scope of the program with our customer, including the technical requirements, performance to date, remaining work, schedule, and estimated costs to complete the program. At the conclusion of the review, we determined that the total costs to complete the current phase of the program will exceed the contract price. Accordingly, during the second quarter of 2021, we recognized a loss of $225 million ($169 million, or ~~other matters~~$0.61 per share, after tax) on the program at our Aeronautics business segment, which represented our estimated total losses on the current phase of the program. During the third quarter of 2021, we signed a Memorandum of Agreement (MOA) with the customer to modify the contract scope and price. We are ~~presented net~~working with the customer to incorporate the MOA updates into the contract, which we currently expect to complete by the end of ~~state income taxes.~~2021. The terms of the MOA are consistent with the assumptions used to estimate the loss recognized in the second quarter of 2021. Therefore, our current estimated loss remains at $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.

As previously disclosed, 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. During the quarter ended September 26, 2021, we revised our estimated costs to complete the program by reviewing the technical requirements, performance to date, remaining work, and schedule and recorded a charge of

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

approximately $45 million ($34 million, or $0.12 per share, after-tax) at our RMS business segment, which resulted in cumulative losses of approximately $280 million on this program as of September 26, 2021. 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.

As previously disclosed, we have a program, EADGE-T, to design, integrate and install an air missile defense command, control, communications, computers –- intelligence (C4I) ~~systems~~system for an international customer that has experienced performance ~~matters~~issues and for which we have periodically accrued reserves. During the first quarter of 2017, we revised our estimated costs to complete EADGE-T as a consequence of ongoing performance matters and recorded an additional charge of $120 million ($74 million or $0.25 per share, after tax)reserves at our RMS business segment. As of September ~~24, 2017,~~26, 2021, cumulative losses ~~including reserves,~~ remained at approximately $260 ~~million on this program.~~million. We ~~are continuing~~continue to monitor ~~the viability of the~~ program ~~and the available options and could record additional charges in future periods. However, based on the reserves already accrued~~requirements and our ~~current estimate of the costs to complete the program, at~~performance. At this time, we do not anticipate ~~that~~ additional charges ~~if any,~~that would ~~be material.~~

We have certain commercial satellite programs at our Space Systems business segment, where we have experienced performance matters related to the development and integration of the enhanced and modernized A2100 satellite platform. These commercial programs represent the development of new satellite technology to enhance the A2100’s power, propulsion and electronics, among other items, which is expected to benefit other commercial and government satellite programs. We have periodically revised our estimated costs to complete these programs. As previously reported, we recorded cumulative losses of approximately $260 million through June 25, 2017, including approximately $90 million recorded during the six months ended June 25, 2017. While the loss reflected our estimated total losses on the programs at that time, we continue to monitor any changes to the scope and estimated costs of these programs and may have to record additional loss reserves in future periods, which could be material to our operating ~~results.~~results or financial condition.

As previously disclosed, we had a program to design, develop and install an upgraded turret for the Warrior Capability Sustainment Program (“Warrior”) at our MFC business segment. In March 2021, we received notification from our customer that it had made a decision to not proceed with the demonstration and manufacturing phases of the program and we were directed to suspend work on the program. We worked with our customer to develop a plan to wind down the program and entered into negotiations about final scope, milestones, remaining costs, and price during the second quarter of 2021. These negotiations were completed during the third quarter of 2021 along with the final settlement of substantially all of our claims. Upon completion of final settlements, we determined that future losses will not be incurred. As a result, we reversed previously recognized losses of approximately $25 million ($19 million, or $0.07 per share, after-tax) during the quarter ended September 26, 2021 to reflect the removal of terminated scope on this program, net of incremental close-out costs, and the settlement of the claims. Total cumulative losses on this program were approximately $75 million at September 26, 2021.

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 ~~consolidated net adjustments~~backlog includes both funded (firm 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 ~~volume, including net profit booking rate adjustments~~the technical, schedule and ~~other matters, net~~cost impacts to complete the contract and an estimate of ~~state income taxes, increased segment operating profit by~~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 September 26, 2021, our ending backlog was $134.8 billion. We expect to recognize approximately ~~$330~~38% of our backlog over the next 12 months and approximately 60% 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 certain early stage 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, 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) are recorded at fair value at the end of each reporting period. The carrying amounts of investments held in our Lockheed Martin Ventures Fund were $355 million and ~~$1.1 billion in~~$173 million at September 26, 2021 and December 31, 2020. During the quarter and nine months ended September ~~24, 2017~~26, 2021, we recorded $98 million ($74 million, or $0.27 per share, after-tax) and ~~$405~~$180 million ~~and $1.1 billion in the quarter and nine months ended September 25, 2016. These adjustments increased~~($135 million, or $0.49 per share, after-tax) of net earnings by approximately $214 million ($0.74 per share) and $718 million ($2.46 per share) in the quarter and nine months ended September 24, 2017 and $265 million ($0.88 per share) and $730 million ($2.39 per share) in the quarter and nine months ended September 25, 2016.

gains due to

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Notes to Consolidated Financial Statements (unaudited) (continued)

changes in fair value and/or sales of investments which are reflected in the other non-operating income, net account on our consolidated statements of earnings.

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

In July 2020, we entered into an agreement to sell our ownership interest in AMMROC to our joint venture partner for $307 million. As a result, we adjusted the carrying value of our investment to the selling price of $307 million, which resulted in the recognition of a noncash impairment charge of $128 million ($96 million, or $0.34 per share, after-tax) in our results of operations during the nine months ended September 27, 2020. The sale was completed on November 25, 2020. The purchase price was paid in cash installments in 2021, of which we received $231 million as of September 26, 2021 (the end of our third quarter). The final installment payment of $76 million was received on September 30, 2021 (subsequent to our third quarter).

Severance and Restructuring Charges

During the first quarter of ~~2016,~~2021, we recorded severance and restructuring charges ~~totaling approximately $80~~of $36 million ~~related~~($28 million, or $0.10 per share, after-tax) associated with plans to close and consolidate certain facilities and reduce total workforce within our ~~Aeronautics~~RMS business segment. The ~~charges consisted~~actions were taken to better align RMS' organization and cost structure to improve the efficiency of ~~severance costs associated with the planned elimination~~its operations and affordability of ~~certain positions through either voluntary or involuntary actions.~~its products and services. Upon separation, terminated employees ~~received~~were to receive lump-sum severance payments primarily based on years of ~~service. As~~service, the majority of which will be paid over the ~~end of the first quarter of 2017, we had substantially paid the severance cost associated with these actions.~~next several quarters.

~~Equity Method Investee Impairment~~Income Taxes

During the nine months ended September 24, 2017, equity earnings included a charge recorded in the first quarter of approximately $64 million ($40 million or $0.14 per share, after tax), which represented our portion of a noncash asset impairment related to certain long-lived assets held by our equity method investee, AMMROC. We are continuing to monitor this investment. It is possible that we may have to record our portion of additional charges should their business continue to experience performance issues, which could adversely affect our business, financial conditionOur effective income tax rate was 9.6% and ~~results of operations.~~

~~Sales of Customer Receivables~~

~~On occasion, our customers may seek deferred payment terms to purchase our products. In connection with these transactions, we may enter into arrangements~~15.7% for the non-recourse sale of customer receivables to unrelated third–party financial institutions. For accounting purposes, these transactions are treated as a sale of receivables and the sale proceeds from the financial institutions are reflected in our operating cash flows on the statement of cash flows. During the quarterquarters and nine months ended September ~~24, 2017,~~26, 2021, and 14.7% and 15.7% for the quarters and nine months ended September 27, 2020. The rate for the third quarter of 2021 is lower than the third quarter of 2020 primarily due to lower pretax earnings resulting from a noncash pension settlement charge of $1.7 billion, which reduced the tax expense by approximately $355 million. The rates for both periods benefited from tax deductions for foreign derived intangible income, the research and development tax credit, and dividends paid to the corporation's defined contribution plans with an employee stock ownership plan feature.

Net Loss on Discontinued Operations

During the third quarter of 2020, we ~~sold approximately $146~~recognized a $55 million~~and$511 million~~ ($0.20 per share) non-cash charge resulting from the resolution of ~~customer receivables. There were no gains or losses~~certain tax matters related to ~~sales of these receivables.~~the former IS&GS business divested in 2016.

Revolving Credit Facility ~~Extension~~

~~In October 2017, our $2.5~~On August 24, 2021, we entered into a new $3.0 billion revolving credit facility (the ~~5-year~~Revolving Credit Facility) ~~was amended to extend its~~with various banks that is available for general corporate purposes including supporting commercial paper borrowings and which has an expiration date ~~by one year from October 9, 2021~~of August 24, 2026. We concurrently terminated our existing $2.5 billion revolving credit facility. We may request and the banks may grant, at their discretion, an increase in the borrowing capacity under the Revolving Credit Facility of up to ~~October 9, 2022.~~an additional $500 million. There were no borrowings outstanding under the Revolving Credit Facility at September 26, 2021.

Long-Term Debt

In September 2017, we issued notes totaling approximately $1.6 billion with a fixed interest rate of 4.09% maturing in September 2052 (the New Notes) in exchange for outstanding notes totaling approximately $1.4 billion with fixed interest rates ranging from 4.70% to 8.50% maturing 2029 to 2046 (the Old Notes). In connection with the exchange of principal, we paid a premium of $237 million, substantially all of which was in the form of New Notes. This premium will be amortized as additional interest expense over the term of the New Notes using the effective interest method. We may, at our option, redeem some or all of the New Notes at any time by paying the principal amount of notes being redeemed plus a make-whole premium and accrued and unpaid interest. Interest on the New Notes is payable on March 15 and September 15 of each year, beginning on March 15, 2018. The New Notes are unsecured senior obligations and rank equally in right of payment with all of our existing and future unsecured and unsubordinated indebtedness.

~~In September 2016,~~2021, we repaid $500 million of long-term notes with a fixed interest rate of ~~2.13%~~3.35% according to their scheduled maturities.

In May ~~2016,~~2020, we ~~repaid $452~~received net cash proceeds of $1.1 billion from issuance of senior unsecured notes. In June 2020, we used the net proceeds from the offering plus cash on hand to redeem $750 million of ~~long-term~~ notes ~~with a fixed interest rate~~due in 2020 and $400 million of ~~7.65% according to~~notes due in 2021, each at their ~~scheduled maturities. We also had related variable interest rate swaps with a notional amount of $450 million mature, which did not have a significant impact on net earnings or comprehensive income.~~

~~Income Taxes~~

Our effective income tax rates were 25.4% and 26.1% for the quarter and nine months ended September 24, 2017, and 23.7% and 23.1% for the quarter and nine months ended September 25, 2016. The rates for both periods benefited from tax deductions for U.S. manufacturing activities, dividends paid to our defined contribution plans with an employee stock ownership plan feature, tax deductions for employee equity awards, and the research and development tax credit. The rates in the quarter and nine months ended September 25, 2016 also benefited from the nontaxable gain recorded in connection with the increase in AWE ownership.

redemption price.

Table of ~~Contents~~Con tents

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

NOTE 12 -RECENT ACCOUNTING PRONOUNCEMENTS

~~Recent Accounting Pronouncements~~

In ~~May 2014,~~2017, the ~~FASB issued~~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 ~~No. 2014-09,~~ ~~Revenue from Contracts with Customers,~~2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended, ~~(Topic 606)~~ ~~(commonly referred to as ASC 606), which will change~~helps limit the way we recognize revenue and significantly expand the disclosure requirements for revenue arrangements. We will adopt the requirements of the new standard on the effective date of January 1, 2018 using the full retrospective transition method, whereby ASC 606 will be applied to each prior year presented and the cumulative effect of applying ASC 606 will be recognized at January 1, 2016, the beginning of the earliest year presented.

~~As ASC 606 supersedes substantially all existing revenue guidance affecting us under current GAAP, it will~~accounting impact revenue and cost recognition across all of our business segments, as well as our business processes and our information technology systems. We do not expect our adoption of ASC 606 to impact our cash flows.

We commenced our evaluation of the impact of ASC 606 in late 2014, by evaluating its impact on selected contracts at each of our business segments. With this baseline understanding, we developed a project plan to evaluate thousands of contracts across our business segments, develop processes and tools to dual report financial results under both current GAAP and ASC 606 and assess the internal control structure in order to adopt ASC 606 on January 1, 2018. We have periodically briefed our Audit Committee on our progress made towards adoption.

We currently recognize the majority of our revenue using the percentage-of-completion method of accounting, whereby revenue is recognized as we progress on the contract. For contracts with a significant amount of development and/or requiring the delivery of a minimal number of units, revenue and profit are recognized using the percentage-of-completion cost-to-cost method to measure progress. For example, we use this method at our Aeronautics business segment for the F-35 program; at our MFC business segment for the THAAD program; at our RMS business segment for the Littoral Combat Ship and Aegis Combat System programs; and at our Space Systems business segment for government satellite programs. For contracts that require us to produce a substantial number of similar items without a significant level of development, we currently record revenue and profit using the percentage-of-completion units-of-delivery method as the basis for measuring progress on the contract. For example, we use this method in Aeronautics for the C-130J and C-5 programs; in MFC for tactical missile programs (e.g., Hellfire, JASSM), PAC-3 programs and fire control programs (e.g., LANTIRN®~~, Sniper~~®~~); in RMS for Black Hawk and Seahawk helicopter programs; and in Space Systems for commercial satellite programs. For contracts to provide services~~from contract modifications, including hedging relationships, due to the ~~U.S. Government, revenue is generally recorded using the percentage-of-completion cost-to-cost method.~~

Under ASC 606, revenue will be recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations). Given the nature of our products and terms and conditions in our contracts, in particular those with the U.S. Government (including foreign military sales (FMS) contracts), the customer obtains control as we perform work under the contract. Therefore, we expecttransition from LIBOR to recognize revenue over time for substantially all of our contracts using a method similar to our current percentage-of-completion cost-to-cost method. Accordingly, adoption of ASC 606 will primarily impact our contracts where revenue is currently recognized using the percentage-of-completion units-of-delivery method. As a result, we anticipate recognizing revenue for these contracts earlier in the performance period as we incur costs, as opposed to when unitsalternative reference rates that are delivered. We may also have more performance obligations in our contracts under ASC 606, which may impact the timing of recording sales and operating profit, including those where sales recognition is deferred pending the incurrence of costs. Backlog will also be impacted upon our adoption to reflect these changes and the requirements of ASC 606.

~~During the third quarter of 2017, we~~ completed ~~our preliminary assessment of the cumulative effect of adopting ASC 606 on our~~by December 31, 2015 balance sheet using the full retrospective transition method. The adoption resulted in a decrease in inventories, an increase in billed receivables, contract assets (i.e., unbilled receivables) and contract liabilities (i.e., customer advances and amounts in excess of costs incurred) to primarily reflect the impact of converting contracts currently applying the units-of-delivery method to the cost-to-cost method for recognizing revenue and profits. We expect the net impact of these reclassifications to increase both our current assets and current liabilities by approximately 2%.

In addition, we completed our preliminary assessment of adopting ASC 606 on our fiscal year 2016 operating results during the third quarter of 2017. We expect the adoption of ASC 606 to increase our 2016 net sales by approximately less than 1% and decrease our operating profit and net earnings from continuing operations each by approximately less than 2%.

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~~Lockheed Martin Corporation~~

~~Notes to Consolidated Financial Statements (unaudited) (continued)~~

The impact of adopting ASC 606 on our 2016 operating results may not be indicative of the adoption impacts in future periods or of our operating performance. We will continue our evaluation of ASC 606, including any new interpretations, through the date of adoption.

~~In August 2017, the FASB issued ASU No. 2017-12,~~ ~~Derivatives and Hedging (Topic 815), which eliminates the requirement to separately measure and report hedge ineffectiveness. The guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted.~~2022. We do not expect a significant impact to our ~~consolidated assets and liabilities, net earnings,~~operating results, financial position or cash flows ~~as a result of adopting this new standard. We plan to adopt the new standard January 1, 2019.~~

~~In March 2017, the FASB issued ASU No. 2017-07,~~ ~~Compensation-Retirement Benefits (Topic 715)~~, which changes the income statement presentation of certain components of net periodic benefit cost related to defined benefit pension and other postretirement benefit plans. Currently, we record all components of net periodic benefit costs in operating profit as part of cost of sales. Under ASU 2017-07, we will be required to record only the service component of net periodic benefit cost in operating profit and the non-service components of net periodic benefit cost (i.e., interest cost, expected return on plan assets, amortization of prior service cost or credits, and net actuarial gains or losses) as part of non-operating income. We plan to adopt the requirements of ASU 2017-07 on January 1, 2018 using the retrospective transition method. We expect the adoption of ASU 2017-07 to result in an increase to consolidated operating profit of $471 million and $846 million for 2016 and 2017, respectively, and a corresponding decrease in non-operating income for each year. We do not expect any impact to our business segment operating profit, our consolidated net earnings, or cash flows as a result of adopting ASU 2017-07.

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~Intangibles-Goodwill and Other (Topic 350), which eliminates the requirement to compare the implied fair value of reporting unit goodwill with the carrying amount of that goodwill (i.e., commonly referred to as Step 2)~~ from the ~~current goodwill impairment test. The new standard does not change how a goodwill impairment is identified. We~~transition from LIBOR to alternative reference interest rates, but we will continue to ~~perform our quantitative and qualitative goodwill impairment test by comparing~~monitor the fair value of each reporting unit to its carrying amount, but if we are required to recognize a goodwill impairment charge, under the new standard the amount of the charge will be calculated by subtracting the reporting unit’s fair value from its carrying amount. Under the current standard, if we are required to recognize a goodwill impairment charge, Step 2 requires us to calculate the implied value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination and the amount of the charge is calculated by subtracting the reporting unit’s implied fair value of goodwill from its actual goodwill balance. The new standard is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted, and should be applied prospectively from the date of adoption. We elected to adopt the new standard for future goodwill impairment tests at the beginning of the third quarter of 2017, because it significantly simplifies the evaluation of goodwill for impairment. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (under the caption "Critical Accounting Policies") for additional information. The impact of ~~the new standard will depend on the outcomes of future goodwill impairment tests.~~

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842), which requires the recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements for both lessees and lessors. The new standard~~this transition until it is effective January 1, 2019 for public companies, with early adoption permitted. The new standard will be applied using a modified retrospective approach to the beginning of the earliest period presented in the financial statements. We are continuing to evaluate the expected impact to our consolidated financial statements and related disclosures. We plan to adopt the new standard effective January 1, 2019.

completed.

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~~Review~~ Report of ~~Ernst & Young LLP,~~

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 September ~~24, 2017, and~~26, 2021, the related consolidated statements of earnings, ~~and~~ comprehensive income and equity for the quarters and nine months ended September ~~24, 2017~~26, 2021 and September ~~25, 2016,~~27, 2020, and ~~the~~ consolidated statements of cash flows ~~and equity~~ for thenine months ended September ~~24, 2017~~26, 2021 and September ~~25, 2016. These~~27, 2020, 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 ~~are the responsibility of the Corporation’s management.~~for them to be in conformity with U.S. generally accepted accounting principles.

We ~~conducted our review~~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, 2020, 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 28, 2021, 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, 2020, 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 ~~information~~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 ~~Public Company Accounting Oversight Board (United States),~~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.

Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above 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), the consolidated balance sheet of Lockheed Martin Corporation as of December 31, 2016, and the related consolidated statements of earnings, comprehensive income, cash flows, and equity for the year then ended (not presented herein), and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated February 9, 2017. In our opinion, the accompanying consolidated balance sheet as of December 31, 2016, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

Tysons, Virginia

October 26, ~~2017~~

2021

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

BUSINESS OVERVIEW

We are a global security and aerospace company principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. We also provide a broad range of management, engineering, technical, scientific, logistics, system integration and cybersecurity services. We serve both U.S. and international customers with products and services that have defense, civil and commercial applications, with our principal customers being agencies of the U.S. Government. ~~In 2016, 71%~~During the nine months ended September 26, 2021, 72% of our ~~$47.2~~$49.3 billion in net sales were from the U.S. Government, either as a prime contractor or as a subcontractor (including ~~59%~~63% from the Department of Defense (DoD)), 27% were from international customers (including foreign military sales (FMS) contracted through the U.S. Government) and 2%1% were from U.S. commercial and other customers. Our main areas of focus are in defense, space, intelligence, homeland security and information technology, including cybersecurity.

~~Business Developments~~The following discussion is a supplement to and should be read in conjunction with the accompanying consolidated financial statements and notes thereto and with our 2020 Form 10-K.

~~On August 16, 2016, we divested our former Information Systems & Global Solutions (IS&GS) business, which merged with Leidos Holdings, Inc. (Leidos) in a Reverse Morris Trust transaction.~~Renationalization of the Atomic Weapons Establishment Program

As previously announced, on June 30, 2021 the UK Ministry of Defence terminated the contract to operate the UK’s nuclear deterrent program and assumed control of the entity that manages the program (referred to as the renationalization of the Atomic Weapons Establishment (AWE program). Accordingly, the ~~operating~~AWE program, including the entity that manages the program, is no longer included in our financial results beginning in the third quarter of 2021. Because of the ~~IS&GS business~~renationalization, no sales or operating profit for the AWE program are included in the company’s financial results for the quarter ended September 26, 2021. However, during the first six months of 2021, AWE generated sales of $865 millionand ~~nine months endedSeptember 25, 2016 have been classified as discontinued operations~~operating profit of $15 million, which are included in the ~~consolidated statements of earnings. However, the cash flows of the IS&GS business~~company’s financial results for the nine months ended September 25, 2016 have not been reclassified in our consolidated statement of cash flows as we retained the cash as part of the transaction. See “Note 3 – Divestiture” included in our Notes to Consolidated Financial Statements for additional information.

On August 24, 2016, we increased our ownership interest in the AWE Management Limited (AWE) joint venture from 33% to 51%, at which time we began consolidating AWE. Consequently, our operating results for the quarter and nine months endedSeptember 24, 2017 include 100% of AWE’s sales and 51% of its operating profit. Prior to increasing our ownership interest, we accounted for our investment in AWE using the equity method of accounting. Under the equity method, we recognized only 33% of AWE’s earnings or losses and no sales. Accordingly, prior to August 24, 2016, the date we obtained control, we recorded 33% of AWE's net earnings in our operating results and subsequent to August 24, 2016, we recognized 100% of AWE's sales and 51% of its operating profit. Additionally, during26, 2021. During the quarter and nine months ended September ~~25, 2016,~~26, 2020, AWE generated sales of $350 million and $1.0 billion and operating profit of $10 million and $30 million which are included in the company’s financial results for 2020.

Pending Acquisition Of Aerojet Rocketdyne

On December 20, 2020, we ~~recorded a gain of $104 million associated with obtaining control of AWE,~~entered into an agreement to acquire Aerojet Rocketdyne Holdings, Inc. (“Aerojet Rocketdyne”) for $51.00 per share, which ~~consisted~~is net of a ~~$127 million pre-tax gain recognized~~$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. We expect to finance the acquisition primarily through new debt issuances. The transaction was approved by Aerojet Rocketdyne’s stockholders on March 9, 2021, which was a closing condition. 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”, and the parties continue to engage with the FTC. Subject to satisfactory completion of the regulatory review process and satisfaction of the other closing conditions specified in the ~~operating~~acquisition agreement, we anticipate closing the transaction in the first quarter of 2022. As previously disclosed, under the acquisition agreement, the “outside” date that gives rise to certain termination rights will automatically be extended from December 21, 2021 to March 21, 2022 in circumstances where all conditions have been satisfied but for the receipt of regulatory approvals. Our financial results will not include Aerojet Rocketdyne’s results until the acquisition is closed.

COVID-19

The COVID-19 pandemic continues to present business challenges in 2021. During the first nine months of 2021, we continued to experience impacts in each of our ~~Space Systems~~ business ~~segment~~areas related to COVID-19, primarily in continued increased coronavirus-related costs, delays in supplier deliveries, travel restrictions, site access and ~~$23 million~~quarantine restrictions, and the remote work and adjusted work schedules. In the second quarter of ~~deferred tax liabilities recorded~~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 third quarter of 2021. Although we have not yet returned to pre-pandemic operations, we are experiencing stabilization of our employee attendance. We continued to take measures to protect the health and safety of our employees, including measures to facilitate the provision of vaccines to our employees in line with state and local guidelines. We also continued to work with our customers and suppliers to minimize disruptions, including using

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accelerated progress payments from the U.S. Government and cash on hand to accelerate $1.5 billion of payments to our suppliers as of September 26, 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 to our current acceleration approach, we will prioritize small and COVID-19 impacted businesses.

We are closely tracking developments regarding the Administration’s Path Out Of The Pandemic: COVID-19 Action Plan, announced by President Biden on September 9, 2021, including Executive Order 14042, the Safer Federal Workforce Task Force guidance issued September 24, 2021, and the DoD’s Force Health Protection Guidance. As of September 13, 2021, 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, pursuant to Executive Order 14042, 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, must be fully vaccinated, or have an approved medical or religious accommodation. This includes employees who telework. Contractors that are not working directly or indirectly on covered government contracts but who work at a facility where covered contracts are performed, administered, or otherwise supported are strongly encouraged to be fully vaccinated. We have determined the December 8, 2021 deadline for vaccination will apply to all U.S. sites. We are in the process of executing this executive order across our ~~corporate office.~~workforce. It is uncertain to what extent compliance with the vaccine mandate may result in workforce attrition for us or our suppliers. If attrition is significant, our operations and ability to execute on our contracts could be adversely affected.

~~2017~~The ultimate impact of COVID-19 on our operations and financial performance in future periods, including our ability to execute our programs in the expected timeframe, remains uncertain and will depend on future COVID-19 related developments, including the duration of the pandemic, any potential subsequent waves of COVID-19 infection or potential new variants, the effectiveness of COVID-19 vaccines and the impacts of implementation of the vaccine mandates, and related government actions to prevent and manage disease spread, all of which are uncertain and cannot be predicted. The long-term impacts of COVID-19 on government budgets and other funding priorities, including international priorities, that impact demand for our products and services are also difficult to predict but could negatively affect our future results and business operations.

For additional risks to the corporation related to the COVID-19 pandemic, see Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020 (2020 Form 10-K).

2021 Financial Outlook ~~and 2018 Financial Trends~~

We now expect ~~2017~~our 2021 net sales to increase ~~in the mid-single digit percentage range~~ from ~~2016 levels.~~2020 to approximately $67 billion. The projected growth is driven by F-16 and classified programs at Aeronautics, increased ~~production~~volume within integrated air and ~~sustainment~~missile defense programs at MFC, increased volume on ~~the F-35 program~~Sikorsky helicopter programs and training and logistics solutions programs at ~~Aeronautics as well as increased~~RMS, and hypersonics development volume at ~~Missiles and Fire Control (MFC) and Rotary and Mission Systems (RMS), partially offset by a slight decrease in volume at Space Systems.~~Space. We continue to expect total business segment operating profit margin in 2021 to be just above 10% compared to the 2016 margin of 10.8%, primarily driven by lower AWE earnings as a result of the non-cash gain recognized in 2016 related to the consolidation of AWE, amortization of AWE intangible assets in 2017, lower equity earnings at Space Systems, and a charge recorded in the first quarter of 2017 related to EADGE-T at RMS. We expect full year diluted earnings per share to increase to a range of $12.85 per share to $13.15 per share. The increase is driven primarily by a previously deferred non-cash gain of approximately $200 million that we expect to recognize in the fourth quarter, in other income, net at our corporate office related to properties sold in 2015. Recognition of this gain is expected to increase net earnings from continuing operations by $120 million, or $0.40 per share.

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~~Effective January 1, 2018, we will adopt Accounting Standards Update (ASU) No. 2014-09,~~ ~~Revenue from Contracts with Customers,~~ as amended (commonly referred to as ASC 606), which will change the way we recognize revenue for certain customer contracts. During the third quarter of 2017, we completed a preliminary assessment of the impacts of adopting ASC 606 on our 2017 financial outlook. The following table presents our updated 2017 outlook under the current revenue recognition accounting standard (ASC 605) and our preliminary estimate under ASC 606. We are providing this information to assist in understanding our 2018 trend information in the following paragraphs. Additional information regarding the impacts of adopting ASC 606 can be found in "Note 10 - Other" included in our Notes to Consolidated Financial Statements (under the caption "Recent Accounting Pronouncements")11.0%.



	~~2017 Financial Outlook~~
~~(in millions)~~	~~ASC 605~~	~~ASC 606~~
~~Net sales~~	~~$50,000 – $51,200~~	~~$49,000 – $50,200~~
~~Business segment operating profit~~	~~$5,040 – $5,160~~	~~$5,040 – $5,160~~
~~FAS/CAS pension adjustment~~	~~~880~~	~~~880~~
~~Property sale gain~~ ^(a)	~~~200~~	~~~200~~
~~Other, net~~	~~~(305)~~	~~~(305)~~
~~Consolidated operating profit~~ ^(a)	~~$5,815 – $5,935~~	~~$5,815 – $5,935~~
Cash ~~from operations~~	~~≥ $6,200~~	~~≥ $6,200~~


^(a)	In the fourth quarter of 2017, the corporation expects to recognize a previously deferred non-cash gain of approximately $200 million related to properties sold in 2015, which is expected to increase net earnings from continuing operations by $120 million ($0.40 per share).

We expect our 2018 net sales to increase by approximately 2% as compared to 2017 net sales adjusted for the adoption of ASC 606 presented in the preceding table. Total business segment operating margin in 2018 is expected to be in the 10.3% to 10.5% range and cash from operations in 2021 is now expected to be greater than or equal to ~~$5.0 billion. The preliminary~~$8.3 billion, with no pension contributions.

It is our practice not to incorporate adjustments into our financial outlook for ~~2018~~proposed acquisitions, divestitures, ventures, pension risk transfer transactions, changes in law, or new accounting standards until such items have been consummated, enacted or adopted. The outlook for 2021 assumes continued support and funding of our programs, known impacts of COVID-19, no additional impact to Lockheed Martin operations or the supply chain due to continued COVID-19 disruption or implementation of the vaccine executive order, continued accelerated payments to suppliers at current levels, and a statutory tax rate of 21%. Our 2021 outlook also reflects the supply chain impacts experienced in the third quarter of 2021 and the impact of net gains from investments held by the Lockheed Martin Ventures Fund recognized in the first nine months of 2021, but does not include any future gains or losses related to market volatility and changes in valuations of our investment holdings. Additionally, it assumes that there will not be significant reductions in customer budgets, changes in funding priorities and that the U.S. Government ~~continues to support and fund our key programs beyond the~~will not operate under a continuing resolution for ~~government fiscal year (GFY) 2018.~~ an extended period in which new contract and program starts are restricted.

Changes in circumstances may require us to revise our assumptions, which could materially change our current estimate of ~~2018~~2021 net sales, segment operating margin and cash from operations.

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2022 Financial Trends

We expect 2022 net sales to decline from expected 2021 levels to approximately $66 billion and 2022 total business segment operating margin to be approximately 11.0%. Cash from operations in 2022 is expected to be greater than or equal to $8.4 billion, which excludes a potential decrease in 2022 cash from operations of up to $2 billion if the provisions in the Tax Cuts and Jobs Act of 2017 that eliminate the option to immediately deduct research and development expenditures in the period incurred and requires companies to amortize such expenditures over five years is not modified or repealed by Congress before it takes effect on January 1, 2022. Although we continue to have ongoing discussions with members of Congress, both on our own and with other industries through coalitions, we have no assurance that these provisions will be modified or repealed. See “Income Tax Expense” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information regarding potential impacts of changes in tax laws and regulations, including the treatment of research and development costs.

The preliminary outlook for 2022 also assumes continued support and funding of our programs, a statutory tax rate of 21%, known impacts of COVID-19, and the continued acceleration of supplier payments at current levels. No additional impacts to the company’s operations, supply chain, or financial results as a result of continued COVID-19 disruption or implementation of the vaccine executive order have been incorporated into our preliminary 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 remains uncertain and there can be no assurance that our underlying assumptions are correct. Additionally, the company’s preliminary 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 currently expect ~~the~~a total net ~~2018~~ FAS/CAS pension ~~adjustment to be~~benefit of approximately ~~$860 million assuming~~$2.2 billion in 2022, which includes total expected U.S. Government cost accounting standards (CAS) pension cost of approximately $1.8 billion and total expected financial accounting standards (FAS) pension income of approximately $400 million. The estimated FAS pension income amount assumes a ~~3.875%~~2.75% discount rate ~~(a 25 basis point decrease from~~(the same rate used for the ~~end~~remeasurement of ~~2016)~~the defined benefit pension plans impacted by the pension risk transfer transaction in the third quarter of 2021), a ~~9.00%~~10.0% return on plan assets in ~~2017 (a 150 basis point increase from the expected rate of return at the end of 2016),~~2021, and a ~~7.50%~~6.5% expected long-term rate of return on plan assets in future years, among other assumptions. A change of plus or minus 25 basis points to the assumed discount rate, with all other assumptions held constant, would result in an incremental increase or decrease of approximately ~~$115~~$10 million to the estimated net ~~2018~~2022 FAS/CAS pension ~~adjustment.~~benefit. A change of plus or minus 100 basis points to the return on plan assets in ~~2017~~2021 only, with all other assumptions held constant, would result in an incremental increase or decrease of approximately $15 million to the estimated net ~~2018~~2022 FAS/CAS pension ~~adjustment by approximately $20 million.~~benefit. We will finalize the postretirement benefit plan assumptions and determine the 2017 actual return on plan assets on December 31, 2017. The final assumptions and actual investment return for 2017 may differ materially from those discussed above. Wedo not expect to make required contributions ~~of $1.6 billion~~ to our qualified defined benefit pension plans in ~~2018.~~

~~The following discussion is a supplement to~~2022. We will complete the annual remeasurement of our postretirement benefit plans and ~~should be read in conjunction with the accompanying consolidated financial statements and notes thereto and with~~update our ~~Annual Report~~estimated 2022 net FAS/CAS pension adjustment on ~~Form 10-K for the year ended~~ December 31, ~~2016 (2016 Form 10-K).~~2021. The final assumptions, including the actual investment return for 2021 may differ materially from those discussed above.

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INDUSTRY CONSIDERATIONS

U.S. Government Funding

~~The~~On May 28, 2021, the Administration submitted to Congress the President’s fiscal year (FY) 2022 budget request, which proposes $753 billion for total national defense spending including $715 billion for the DoD, a 1.6% increase above the FY 2021 enacted amounts for both total national defense and the DoD (a U.S. Government ~~has not yet passed an appropriations bill for~~ fiscal year ~~2018 (the U.S. Government’s fiscal year begins~~starts on October 1 and ends on September 30). This is the first budget over the past decade that is not restricted by the discretionary spending caps under the Budget Control Act of 2011. The budget also proposes to end the use of Overseas Contingency Operations (OCO) as a separate fund to finance overseas operations.

However, ~~on September 8, 2017,~~ the U.S. Government ~~passed~~has not yet enacted an annual budget for FY 2022. To avert a government shutdown, on September 30, 2021, a continuing resolution funding measure was enacted to finance all U.S. Government activities through December ~~8, 2017.~~3, 2021. Under ~~this~~the continuing resolution, partial-year funding at amounts consistent with appropriated levels for ~~fiscal year 2017~~FY 2021 are available, subject to certain restrictions, but new spending initiatives are not authorized. ~~Our~~Importantly, our key programs continue to be supported and funded despite the continuing resolution financing mechanism. However, during periods covered by continuing resolutions or ~~until~~in the ~~regular appropriation bills are passed,~~event of a government shutdown, we may experience delays in procurement of products and services due to lack of funding, and those delays may affect our

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results of operations.

In ~~May 2017,~~ the ~~President submitted a budget proposal for GFY 2018~~coming months, Congress will need to Congress, which includes a base budget for the DoD of $575 billion, approximately $52 billion above the spending limits established under the Budget Control Act of 2011 (the Budget Control Act) (described below) and an increase of $32 billion over the fiscal year 2017 funding level. The President’s budget requests also includes funding of $65 billion for Overseas Contingency Operations (OCO) / Global War on Terror (GWOT), which is not subject to the Budget Control Act spending limits. Congress must approve or revise the President’s ~~GFY 2018~~FY 2022 budget ~~proposals~~proposal through enactment of appropriations bills and other policy legislation, which would then require final ~~Presidential approval.~~

~~Both~~approval from the ~~House and Senate have passed versions of the 2018 National Defense Authorization bills, which~~ ~~establish funding levels~~President in order for the ~~agencies responsible for defense~~FY 2022 budget to become law and ~~set forth how~~complete the ~~funds will be used. Each~~budget process.

In addition to finalizing the FY 2022 budget, the U.S. Government continues to face a variety of ~~these proposals reflect significant increases over~~fiscal and monetary policy issues, including rising debt levels. The legal limit on U.S. debt, commonly known as the ~~President’s $575 billion request. These two positions~~ ~~must now be reconciled~~debt ceiling, was reinstated on August 1, 2021 at the amount of U.S. Government debt outstanding on that date, after a two-year suspension in ~~conference. It remains uncertain which measures will be adopted in the final~~ ~~National Defense Authorization Act~~ ~~and when an appropriations bill for fiscal year 2018 will be enacted or at what levels.~~

Currently, U.S. defense spending through fiscal year 2021 remains subject to statutory spending limits established by the Budget Control Act. The spending limits were modified for fiscal years 2013 through 2017 by the American Taxpayer Relief Act of 2012,accordance with the Bipartisan Budget Act of ~~2013 and~~2019 (BBA-19). To avoid exceeding the Bipartisan Budget Act of 2015. However, these acts did not provide relief to the spending limits beyond fiscal year 2017. If Congress approves the President’s budget proposal or other appropriation legislation with funding levels that exceed the spending limits, automatic across-the-board spending reductions, known as sequestration, would be triggered to reduce funding back to the spending limits. As currently enacted, the Budget Control Act limits defense spending to $522 billion for fiscal year 2018 with modest increases of about 2.5% per year through 2021. The President’s budget proposal as well as defense budget estimates for fiscal year 2018 and beyond exceed the spending limits established by the Budget Control Act. As a result, continued budget uncertainty and the risk of future sequestration cuts remain unless the Budget Control Act is repealed or significantly modified. The investments and acquisitions we have made in recent years have sought to align our businesses with what we believe are the most critical national priorities and mission areas. However, the possibility remains that our programs could be materially reduced, extended, or terminated as a result of the U.S. Government’s continuing assessment of priorities, changes in government priorities, the implementation of sequestration (particularly in those circumstances where sequestration is implemented across-the-board without regard to national priorities), or other budget cuts in lieu of sequestration.

~~In March 2017, the outstanding~~new debt ~~of the U.S. reached the debt borrowing~~ limit, ~~known as the debt ceiling, and~~ the U.S. Department of the Treasury began ~~employing~~to employ extraordinary measures to ~~finance~~continue financing the U.S. ~~Government to avoid exceeding~~Government. On October 15, 2021, the President signed legislation raising the debt ~~ceiling. On September 8, 2017, Congress passed legislation suspending~~limit by $480 billion to $28.9 trillion, which is estimated to provide federal borrowing authority until early December 2021. It is uncertain exactly when the debt ceiling ~~through December 8, 2017. Effective on December 9, 2017, the debt limit~~ will ~~be increased to the amount of debt the government holds outstanding on that date. However, despite using cash on hand~~again become critical, and ~~measures employed by~~whether the Department of Treasury will again be able to use “extraordinary measures” to delay the ~~debt ceiling is expected~~point at which the limit would be exceeded beyond year-end to ~~be reached again in~~ early ~~2018. Congress will need to raise the debt limit in order for the U.S. Government to continue borrowing money before these measures are exhausted.~~2022. If the debt ceiling is not raised, the U.S. Government may not be able to pay for expenditures or fulfill its funding obligations and there could be significant disruption to ~~all~~ discretionary ~~programs.~~programs and wider financial and economic repercussions. Although we believe that key defense, intelligence and homeland security programs would receive priority in these circumstances, the effect on individual programs or Lockheed Martin cannot be predicted at this time.

See also the discussion of U.S. Government funding risks within “Item 1A, Risk Factors” included in our 2020 Form 10-K.

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We anticipate there will continue to be a significant amount of debate and negotiations within the U.S. Government over defense spending and the debt ceiling. In the context of these negotiations, it is possible that existing cuts to government programs could be kept in place, replaced with different spending cuts, and/or replaced with a package of broader reforms to reduce the federal deficit. However, we continue to believe that our portfolio of products and services will continue to be well supported in a strategically focused allocation of budget resources.

CONSOLIDATED RESULTS OF OPERATIONS

~~Since our~~Our operating cycle is primarily long-term and involves many types of contracts for the design, development and manufacture of products and related activities with varying delivery ~~schedules,~~schedules. Consequently, the results of operations of a particular period, or period-to-period comparisons of sales and profits, may not be indicative of future operating results. The following discussions of comparative results among periods should be reviewed in this context. All per share amounts cited in these discussions are presented on a “per diluted share” basis, unless otherwise noted. Our consolidated results of operations were as follows (in millions, except per share data):

Quarters Ended Nine Months Ended
September 24,
2017 September 25,
2016 September 24,
2017 September 25,
2016
Net sales $ 12,169
$ 11,551
$ 35,911
$ 33,496

Cost of sales (10,818 ) (10,167 ) (31,982 ) (29,787 )
Gross profit 1,351
1,384
3,929
3,709

Other income, net 77
204
133
412

Operating profit 1,428
1,588
4,062
4,121

Interest expense (162 ) (162 ) (477 ) (492 )
Other non-operating (expense) income, net (7 ) 1
(8 ) 2

Earnings from continuing operations before income taxes 1,259
1,427
3,577
3,631

Income tax expense (320 ) (338 ) (933 ) (837 )
Net earnings from continuing operations 939
1,089
2,644
2,794

Net earnings from discontinued operations —
1,306
—
1,520

Net earnings $ 939
$ 2,395
$ 2,644
$ 4,314

Diluted earnings per common share
Continuing operations $ 3.24
$ 3.61
$ 9.08
$ 9.13

Discontinued operations —
4.32
—
4.97

Total diluted earnings per common share $ 3.24
$ 7.93
$ 9.08
$ 14.10



	Quarters Ended				Nine Months Ended
	September 26, 2021		September 27, 2020		September 26, 2021		September 27, 2020
Net sales	$	16,028	$	16,495	$	49,315	$	48,366
Cost of sales	(13,726)		(14,359)		(42,676)		(41,926)
Gross profit	2,302		2,136		6,639		6,440
Other (expense) income, net	(8)		11		29		(85)
Operating profit	2,294		2,147		6,668		6,355
Interest expense	(141)		(145)		(423)		(442)


Non-service FAS pension (expense) income	(1,572)		54		(1,385)		164
Other non-operating income (expense), net	98		—		200		(29)
Earnings from continuing operations before income taxes	679		2,056		5,060		6,048
Income tax expense	(65)		(303)		(794)		(952)
Net earnings from continuing operations	614		1,753		4,266		5,096
Net loss from discontinued operations	—		(55)		—		(55)
Net earnings	$	614	$	1,698	$	4,266	$	5,041
Diluted earnings per common share
Continuing operations	$	2.21	$	6.25	$	15.32	$	18.12
Discontinued operations	—		(0.20)		—		(0.20)
Total diluted earnings per common share	$	2.21	$	6.05	$	15.32	$	17.92

Certain amounts reported in other (expense) income, net, ~~primarily~~including our share of earnings or losses from equity method investees, are included in the operating profit of our business segments. Accordingly, such amounts are included in the discussion of our business segment results of operations.

Net Sales

We generate sales from the delivery of products and services to our customers. Our consolidated net sales were as follows (in millions):

Quarters Ended Nine Months Ended
September 24,
2017 September 25,
2016 September 24,
2017 September 25,
2016
Products $ 10,496
$ 10,062
$ 30,837
$ 28,629

% of total net sales 86.3 % 87.1 % 85.9 % 85.5 %
Services 1,673
1,489
5,074
4,867

% of total net sales 13.7 % 12.9 % 14.1 % 14.5 %
Total net sales $ 12,169
$ 11,551
$ 35,911
$ 33,496

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	Quarters Ended						Nine Months Ended
	September 26, 2021			September 27, 2020			September 26, 2021			September 27, 2020
Products	$	13,475		$	13,869		$	41,486		$	40,607
% of total net sales	84.1		%	84.1		%	84.1		%	84.0		%
Services	2,553			2,626			7,829			7,759
% of total net sales	15.9		%	15.9		%	15.9		%	16.0		%
Total net sales	$	16,028		$	16,495		$	49,315		$	48,366

Substantially all of our contracts are accounted for using the percentage-of-completion cost-to-cost method. Under the percentage-of-completion cost-to-cost method, we record net sales on contracts over time based upon our progress towards completion on a particular contract, as well as our estimate of the profit to be earned at completion. The following discussion of material changes in our consolidated net sales should be read in tandem with the subsequent discussion of

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changes in our consolidated cost of sales and our business segment results of operations because changes in our sales are typically accompanied by a corresponding change in our cost of sales due to the nature of the percentage-of-completion cost-to-cost method. Overall, our sales were negatively affected in the third quarter of 2021 because of supply chain impacts at Aeronautics, MFC and Space.

Product Sales

Product sales ~~increased $434~~decreased $394 million, or 4%3%, during the quarter ended September ~~24, 2017~~26, 2021 compared to the same period in ~~2016, primarily due to increased product sales of about $565 million at Aeronautics, partially offset by a~~2020. The decrease ~~in product sales of about $65 million at Space Systems and about $60 million at RMS. The increase in product sales at Aeronautics~~ was primarily attributable to ~~higher sales for the F-35 program due to increased production volume. The decrease in~~lower product sales of approximately $185 million at ~~Space Systems was primarily~~MFC due to lower volume on ~~government satellite~~tactical and strike missile programs ~~(primarily~~(Guided Multiple Launch Rocket Systems (GMLRS) and Hellfire); $170 million at Aeronautics due to lower volume on F-35 development contracts and lower volume and risk retirements on F-35 production contracts; and $120 million at Space ~~Based Infrared Systems (SBIRS) and Advanced Extremely High Frequency (AEHF)), partially offset by net sales from~~due to the renationalization of AWE program which ~~we began consolidating during~~is no longer included in our financial results beginning in the third quarter of ~~2016. The decrease in product sales at RMS is primarily due to aircraft mix for Sikorsky helicopter programs,~~2021. These decreases were partially offset by ~~certain adjustments recorded in 2016 required~~higher product sales of approximately $80 million at RMS due to ~~account for the November 6, 2015 acquisition.~~higher production volume and risk retirements on various Sikorsky helicopter programs.

Product sales increased ~~$2.2 billion,~~$879 million, or 8%2%, during the nine months ended September ~~24, 2017~~26, 2021 compared to the same period in ~~2016, primarily due to increased product sales of about $1.6 billion at Aeronautics, $375 million at Space Systems and $300 million at RMS.~~2020. The increase ~~in product sales at Aeronautics was~~is primarily attributable to higher product sales ~~for the F-35 program~~of approximately $505 million at RMS due to ~~increased~~higher production volume ~~higher sales for the C-130 program~~and risk retirements on various Sikorsky helicopter programs; and $310 million at Space due to ~~aircraft configuration mix and~~ higher volume on ~~aircraft modernization for the F-16 program. Higher product sales at Space Systems were primarily due to net sales from AWE, which we began consolidating during the third quarter of 2016,~~Next Generation Overhead Persistent Infrared (Next Gen OPIR) and hypersonic development programs, partially offset by lower volume for government satellite programs (primarily SBIRS and AEHF). The increase in product sales at RMS was primarily attributable to certain adjustments recorded in 2016 required to account for acquisitionthe renationalization of ~~Sikorsky, partially offset by lower sales for Sikorsky helicopter programs due to fewer aircraft deliveries and mix.~~AWE.

Service Sales

Service sales ~~increased $184~~decreased $73 million, or ~~12%~~3%, during the quarter ended September ~~24, 2017~~26, 2021 compared to the same period in ~~2016.~~2020. The increase in service sales during the quarter ended September 24, 2017 was primarily due to higher sales of about $70 million at RMS, $60 million at MFC and $40 million at Space Systems. Higher service sales at RMS were primarily due to higher volume for training and logistics, C4ISR and Undersea Systems and Sensors (C4USS) and cyber, ships and advanced technologies (CSAT) services programs. The increase in service sales at MFCdecrease was primarily attributable to ~~higher~~lower sales of approximately $100 million at RMS due to lower sustainment volume for ~~sustainment activities (primarily Patriot Advanced Capability-3 (PAC-3))~~various Sikorsky helicopter programs. ~~Higher service sales at Space Systems were primarily due to increased volume on government satellite services.~~

Service sales increased ~~$207~~$70 million, or 4%1%, during the nine months ended September ~~24, 2017~~26, 2021 compared to the same period in ~~2016.~~2020. The increase ~~in service sales during the nine months ended September 24, 2017~~ was primarily ~~due~~attributable to ~~increased~~higher sales of ~~about $140~~approximately $105 million at Aeronautics due to higher sustainment volume for the F-35 and ~~$130 million at MFC,~~C-130 programs, partially offset by lower ~~service~~ sales of ~~about $85~~$60 million at ~~RMS. The increase in service sales at Aeronautics was primarily~~Space due to higher sustainment activities (primarily the F-35 program). Higher service sales at MFC were primarily attributable to higher volume for sustainment activities (primarily PAC-3). Lower service sales at RMS were primarily due to contract timing of service revenues (primarily CSAT and C4USS).various national security space programs.

Cost of Sales

Cost of sales, for both products and services, consist of materials, labor, subcontracting costs and an allocation of indirect costs (overhead and general and administrative), as well as the costs to fulfill our industrial cooperation agreements, sometimes referred to as offset agreements, required under certain contracts with international customers. For each of our contracts, we monitor the nature and amount of costs at the contract level, which form the basis for estimating our total costs to complete the contract.

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Our consolidated cost of sales were as follows (in millions):

Quarters Ended Nine Months Ended
September 24,
2017 September 25,
2016 September 24,
2017 September 25,
2016
Cost of sales – products $ (9,481 ) $ (9,027 ) $ (27,919 ) $ (25,787 )
% of product sales 90.3 % 89.7 % 90.5 % 90.1 %
Cost of sales – services (1,513 ) (1,313 ) (4,547 ) (4,321 )
% of service sales 90.4 % 88.2 % 89.6 % 88.8 %
Severance charges —
—
—
(80 )
Other unallocated, net 176
173
484
401

Total cost of sales $ (10,818 ) $ (10,167 ) $ (31,982 ) $ (29,787 )



	Quarters Ended						Nine Months Ended
	September 26, 2021			September 27, 2020			September 26, 2021			September 27, 2020
Cost of sales – products	$	(11,838)		$	(12,370)		$	(36,985)		$	(36,204)
% of product sales	87.9		%	89.2		%	89.2		%	89.2		%
Cost of sales – services	(2,332)			(2,363)			(7,000)			(6,915)
% of service sales	91.3		%	90.0		%	89.4		%	89.1		%
Severance and restructuring charges	—			—			(36)			—
Other unallocated, net	444			374			1,345			1,193
Total cost of sales	$	(13,726)		$	(14,359)		$	(42,676)		$	(41,926)

The following discussion of material changes in our consolidated cost of sales for products and services should be read in tandem with the preceding discussion of changes in our consolidated net sales and our business segment results of operations. WeOverall, our cost of sales in the third quarter of 2021 were reduced by the supply chain impacts discussed above that negatively affected sales. Except for potential impacts to our programs resulting from COVID-19, we have not

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identified any additional developing trends in cost of sales for products and services that would have a material impact on our future operations.

Product Costs

Product costs ~~increased $454~~decreased $532 million, or 5%4%, during the quarter ended September ~~24, 2017~~26, 2021 compared to the same period in ~~2016, primarily due to increased product costs of about $500 million at Aeronautics, partially offset by a~~2020. The decrease ~~in product costs of about $90 million at RMS. The increase in product costs at Aeronautics~~ was primarily attributable to ~~increased volume on aircraft production for the F-35 program. Lower~~lower product costs of approximately $205 million at ~~RMS were primarily~~MFC due to lower ~~cost for Sikorsky helicopter~~volume on tactical and strike missile programs (GMLRS and Hellfire); approximately $185 million at Space due to ~~certain adjustments recorded in 2016 required~~the renationalization of AWE program; and approximately $170 million at Aeronautics due to ~~account for the November 6, 2015 acquisition of Sikorsky~~lower volume on F-35 development and ~~product mix.~~production contracts.

Product costs increased ~~$2.1 billion,~~$781 million, or 8%2%, during the nine months ended September ~~24, 2017~~26, 2021 compared to the same period in ~~2016,~~2020. The decrease was primarily ~~due~~attributable to ~~increased~~higher product costs of approximately $360 million at RMS due to higher production volume for various Sikorsky helicopter programs and higher net sales for training and logistics solutions programs; about ~~$1.4 billion at Aeronautics, $415~~$220 million at Space ~~Systems~~due to higher volume for hypersonic development and ~~$350~~Next Gen OPIR programs, partially offset by a lower product costs due to the renationalization of the AWE program; and approximately $165 million at ~~RMS. The increase in product costs at~~ Aeronautics ~~was primarily~~ due to ~~increased~~higher volume on ~~aircraft~~classified contracts, higher production ~~for~~volume on the ~~F-35 program, higher cost for the C-130 program due to aircraft configuration mix, and higher cost on aircraft modernization for the~~ F-16, ~~program. The increase in product costs at Space Systems was primarily due to costs generated by AWE, which we began consolidating during the third quarter of 2016,~~ partially offset by lower development volume ~~for government satellite programs (primarily SBIRS and AEHF). Higher product costs at RMS were primarily due to a net increase in charges for C4USS programs for performance matters~~ on the ~~EADGE-T contract, which were recorded during the first quarter of 2017 and in 2016, and higher costs due to a performance matter on the Vertical Launching System (VLS) program~~.F-35 program.

Service Costs

Service costs ~~increased $200~~decreased $31 million, or ~~15%~~1%, during the quarter ended September ~~24, 2017~~26, 2021 compared to the same period in ~~2016.~~2020. The increase in service costs during the quarter ended September 24, 2017 was primarily due to increased service costs of about $100 million at RMS, $40 million at MFC and $40 million at Space Systems. Higher service costs at RMS were primarily due to higher volume for training and logistics, C4USS and CSAT services programs. The increase in service costs at MFCdecrease was primarily attributable to ~~higher~~lower sustainment ~~activities (primarily PAC-3 and Hellfire). Higher service costs~~volume for Sikorsky helicopter programs at ~~Space Systems were primarily due to increased volume on government satellite services.~~RMS.

Service costs increased ~~$226~~$85 million, or 5%1%, during the nine months ended September ~~24, 2017~~26, 2021 compared to the same period in ~~2016.~~2020. The increase ~~in service costs during the nine months ended September 24, 2017~~ was primarily due to increased service costs of about $165 million at Aeronautics and about $90 million at MFC, partially offset by lower service costs of about $65 million at RMS. Higher service costs at Aeronautics were primarily due to increased sustainment activities (primarily the F-35 program) and higher cost for the C-130 program due to timing of expenses for sustainment programs. Higher service costs at MFC were primarily attributable to higher ~~sustainment activities (primarily PAC-3 and Hellfire). Lower~~ service costs of approximately $60 million at RMS ~~were primarily~~ due to ~~contract timing of service costs (primarily CSAT~~higher volume for various integrated warfare systems and ~~C4USS).~~sensors (IWSS) programs; and about $45 million at Aeronautics due to higher sustainment volume for the F-35 and C-130 programs.

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Severance and Restructuring Charges

During the first quarter of ~~2016,~~2021, we recorded severance and restructuring charges ~~totaling approximately $80~~of $36 million ~~related~~ ($28 million, or $0.10 per share, after-tax) associated with plans to close and consolidate certain facilities and reduce total workforce within our ~~Aeronautics~~RMS business segment. The charges consisted of severance costs associated with the planned elimination of certain positions through either voluntary or involuntary actions. Upon separation, terminated employees received lump-sum severance payments primarily based on years of service. As of the end of the first quarter of 2017, we had substantially paid the severance cost associated with these actions.See “Note 11 - Other” included in our Notes to Consolidated Financial Statements for additional information.

Other Unallocated, Net

Other unallocated, net primarily includes the FAS/CAS operating adjustment (which represents the difference between CAS pension ~~adjustment as described~~cost recorded in our business segment’s results of operations and the ~~“Business Segment Results~~service cost component of ~~Operations” section below,~~FAS pension (expense) income, stock-based compensation expense and other corporate costs. These items are not allocated to the business segments and, therefore, are ~~excluded from the~~not allocated to cost of sales for products ~~and~~or services. Other unallocated, net ~~was a net reduction to expense~~reduced cost of ~~$176~~sales by $444 million and ~~$484 million~~$1.3 billion during the quarter and nine months ended September ~~24, 2017~~26, 2021, compared to ~~a net reduction to expense of $173~~$374 million and ~~$401 million~~$1.2 billion during the quarter and nine months ended September ~~25, 2016. During~~27, 2020. Other unallocated, net during the quarter ended September 24, 2017, there was a slight increase in the net reduction to expense driven by various corporate items, none of which were individually significant. The increase in net reduction to expense during theand nine months ended September ~~24, 2017,~~26, 2021 was higher primarily ~~attributable~~due to ~~corporate overhead costs reclassified during 2016 from the former IS&GS business to other unallocated, net, partially offset by~~an increase in our FAS/CAS operating adjustment and fluctuations in ~~other~~ costs associated with various corporate items, none of which were individually significant.

Other (Expense) Income, Net

Other (expense) income, net generally includes earnings generated by equity method investees. Other expense, net was $8 million during the quarter ended September 26, 2021, compared to other income, net of $11 million during the quarter ended September 27, 2020. Other income, net was $29 million during the nine months ended September 26, 2021, compared to other expense, net of $85 million during the nine months ended September 27, 2020. Other (expense) income, net during the quarter and nine months ended September 26, 2021 included lower earnings generated by equity method investments. Additionally, other expense, net during the nine months ended September 27, 2020 included a noncash impairment charge of $128 million ($96 million, or $0.34 per share, after-tax) related to our previous investment

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in AMMROC, which was sold in 2020. See “Note ~~3 – Divestiture”~~11 - Other” included in our Notes to Consolidated Financial Statements for additional ~~information about overhead costs reclassified~~information.

Non-Service FAS Pension (Expense) Income

Non-service FAS pension (expense) income for the quarter and nine months ended September 26, 2021 includes a noncash pension settlement charge of $1.7 billion ($1.3 billion, or $4.72 per share, after-tax), related to ~~other unallocated, net.~~the transfer of $4.9 billion of our gross defined benefit pension obligations and related plan assets to an insurance company. See “Note 7 -Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements for additional information.

Other Non-operating Income (Expense), Net

Other non-operating income (expense), net primarily includes ~~our share of earnings or losses from equity method investees and~~ gains or losses related to changes in the fair value of strategic investments in early stage companies made by our Lockheed Martin Ventures Fund. See “Note 11 - Other” included in our Notes to Consolidated Financial Statements for ~~acquisitions and divestitures.~~additional information. During the quarter and nine months ended September ~~24, 2017,~~26, 2021, other non-operating income, net was ~~$77~~$98 million and ~~$133 million, compared to $204 million and $412 million for~~$200 million. Other non-operating expense was not significant during the quarter ended September 27, 2020 and $29 million during nine months ended September ~~25, 2016.~~27, 2020. The decrease for the quarter and nine months ended September 24, 2017 was primarily attributable to the net gain of $104 million recognized in 2016 on the step acquisition of AWE and decreased earnings generated by equity method investees, as discussed in the “Business Segment Results of Operations” section below. In addition, the nine months ended September 24, 2017 includes our portion of a noncash asset impairment charge recorded by our equity method investee, Advanced Military Maintenance, Repair and Overhaul Center LLC (AMMROC), in the first quarter of 2017 of approximately $64 million.

~~Interest Expense~~

~~Interest expense was $162 million and $477 million~~increase during the quarter and nine months ended September ~~24, 2017, compared~~26, 2021 was primarily due to ~~$162 million~~ increases in the fair value of investments held in our Lockheed Martin Ventures Fund.

Income Tax Expense

Our effective income tax rate was 9.6% and ~~$492 million during~~15.7% for the quarter and nine months endedSeptember 25, 2016. Interest expense during the quarter was comparable to the same period in 2016. Lower interest expense during the nine months ended September 24, 2017 resulted primarily from our scheduled repayment of $952 million of debt during 2016.

~~Income Tax Expense~~

~~Our effective income tax rates were 25.4%~~26, 2021 and ~~26.1%~~14.7% and 15.7% for the quarter and nine months endedSeptember ~~24, 2017, and 23.7% and 23.1%~~27, 2020.The rate for the third quarter ~~and nine months ended September 25, 2016.~~of 2021 is lower than the third quarter of 2020 primarily due to lower pretax earnings resulting from a noncash pension settlement charge of $1.7 billion, which reduced the tax expense by approximately $355 million. The rates for both periods benefited from tax deductions for ~~U.S. manufacturing activities,~~foreign derived intangible income, the research and development tax credit, and dividends paid to ~~our~~the corporation's defined contribution plans with an employee stock ownership plan ~~feature,~~feature.

Changes in U.S. (federal or state) or foreign tax ~~deductions~~laws and regulations, or their interpretation and application, including those with retroactive effect, including the amortization for ~~employee equity awards, and the~~ research ~~and development tax credit. The rates in the quarter and nine months ended September 25, 2016 also benefited from the nontaxable gain recorded in connection with the increase in AWE ownership.~~

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~~Future changes in tax law~~or experimental expenditures, could significantly impact our provision for income taxes, the amount of taxes payable, our deferred tax asset and liability balances, and ~~stockholders'~~stockholders’ equity. Recent proposals to ~~lower~~increase the U.S. corporate income tax rate would require us to ~~reduce~~increase our net deferred tax assets upon enactment of new tax legislation, with a corresponding material, one-time, ~~non-cash increase~~noncash decrease in income tax expense, but our income tax expense and payments would likely be materially ~~reduced~~increased in subsequent years. Our net deferred tax assets were ~~$6.0~~$2.7 billion and ~~$6.6~~$3.5 billion at September ~~24, 2017~~26, 2021 and December 31, ~~2016,~~2020, based on ~~the current 35% Federal~~a 21% federal statutory income tax rate, and primarily relate to our postretirement benefit plans. If ~~Congress had enacted tax reform~~ legislation ~~at September 24, 2017 that set~~increasing the ~~Federal~~federal statutory income tax rate ~~between 15% and 25%,~~to 26.5% or 28% had been enacted at September 26, 2021, our net deferred tax assets would have been ~~reduced~~increased by ~~between $3.4 billion and $1.7 billion,~~approximately $700 million or $900 million and we would have recorded a corresponding one-time, ~~non-cash~~noncash increase in income tax ~~expense~~benefit of ~~between $3.4 billion and $1.7 billion. This additional expense would vary based on~~approximately $700 million or $900 million. In addition to future changes in tax laws, the ~~new statutory rate and whether the change in rate was phased in or temporary. The~~ amount of net deferred tax assets will change periodically based on several factors, including the measurement of our postretirement benefit plan obligations and actual cash contributions to our postretirement benefit plans.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years. While it is possible that Congress may modify or repeal this provision before it takes effect and we continue to have ongoing discussions with members of Congress, both on our own and with other industries through coalitions, we have no assurance that these provisions will be modified or repealed. Furthermore, we are continuing to work with our advisors to refine our legal interpretation of this provision prior to implementation in 2022. If these provisions are not repealed, they would materially decrease our expected cash from operations in 2022 by up to $2.0 billion and increase our net deferred tax assets by a similar amount. The largest impact would be to 2022 cash from operations, which would depend on the amount of research and development expenses paid or incurred in 2022 among other factors. The impact, however, would continue over the five year amortization period but would decrease over the period and be immaterial in year six.

We are regularly under audit or examination by tax authorities, including foreign tax authorities (including in, amongst others, Australia, Canada, India, Italy, Japan, Poland, and the United Kingdom). The final determination of tax audits and any related litigation could similarly result in unanticipated increases in our tax expense and affect profitability and cash flows.

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Net Earnings from Continuing Operations

We reported net earnings from continuing operations of ~~$939~~$614 million ($~~3.24~~2.21 per share) and ~~$2.6~~$4.3 billion ($~~9.08~~15.32 per share) during the quarter and nine months ended September ~~24, 2017,~~26, 2021, compared to ~~$1.1~~$1.8 billion ($~~3.61~~6.25 per share) and ~~$2.8~~$5.1 billion ($~~9.13~~18.12 per share) during the quarter and nine months ended September ~~25, 2016. Both~~27, 2020. Net earnings from continuing operations and earnings per share for both quarter and nine months ended September 26, 2021 were affected by factors mentioned above, including the noncash pension settlement charge of $1.7 billion ($1.3 billion, or $4.72 per share, after-tax) related to the transfer of $4.9 billion of gross defined benefit pension obligations and related plan assets to an insurance company. Additionally, both net earnings and earnings per share ~~from continuing operations~~for the nine months ended September 26, 2021 were affected by the ~~factors mentioned above.~~$225 million ($169 million, or $0.61 per share, after-tax) loss for performance issues experienced on a classified program at our Aeronautics business segment. Earnings per share also benefited from a net decrease of approximately ~~six~~3.3 million and 2.8 million weighted average common shares outstanding ~~from~~during the quarter and nine months ended September ~~25, 2016~~26, 2021, compared to ~~September 24, 2017 as a result of~~the same periods in 2020. Weighted average common shares include share repurchases, partially offset by share issuance under our stock-based awards and certain defined contribution plans.

Net ~~Earnings from~~Loss on Discontinued Operations

~~We reported net earnings from discontinued operations~~During the third quarter of ~~$1.3 billion~~2020, we recognized a $55 million ($~~4.32~~0.20 per share) ~~and $1.5 billion ($4.97 per share) during~~non-cash charge resulting from the ~~quarter and nine months ended September 25, 2016~~resolution of certain tax matters related to ~~our~~the former IS&GS business ~~which was~~ divested ~~on August 16,~~in 2016.

~~Net Earnings~~

Net earnings for the quarter and nine months ended September 24, 2017 were $939 million ($3.24 per share) and $2.6 billion ($9.08 per share) compared to $2.4 billion ($7.93 per share) and $4.3 billion ($14.10 per share) for the quarter and nine months ended September 25, 2016.

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BUSINESS SEGMENT RESULTS OF OPERATIONS

We operate in four business segments: Aeronautics, MFC, RMS and ~~Space Systems.~~Space. We organize our business segments based on the nature of ~~the~~ products and services offered.

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 –~~11 - Other” (under the caption “Changes in Estimates”) included in our Notes to Consolidated Financial Statements ~~(under the caption “Changes in Estimates”)~~ for a discussion related to certain factors that may impact the comparability of net sales and operating profit of our business segments.

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



	Quarters Ended				Nine Months Ended
	September 26, 2021		September 27, 2020		September 26, 2021		September 27, 2020
Net sales
Aeronautics	$	6,568	$	6,680	$	19,621	$	19,552
Missiles and Fire Control	2,781		2,971		8,474		8,391
Rotary and Mission Systems	3,980		3,998		12,329		11,783
Space	2,699		2,846		8,891		8,640
Total net sales	$	16,028	$	16,495	$	49,315	$	48,366
Operating profit
Aeronautics	$	714	$	705	$	1,979	$	2,116
Missiles and Fire Control	413		405		1,210		1,171
Rotary and Mission Systems	459		404		1,350		1,209
Space	264		248		826		781
Total business segment operating profit	1,850		1,762		5,365		5,277
Unallocated items
FAS/CAS operating adjustment	491		469		1,469		1,407
Stock-based compensation	(62)		(67)		(189)		(182)

Severance and restructuring charges	—		—		(36)		—
Other, net	15		(17)		59		(147)
Total unallocated items	444		385		1,303		1,078
Total consolidated operating profit	$	2,294	$	2,147	$	6,668	$	6,355

~~Our business segments’ results of operations include pension expense only as calculated under U.S. Government Cost Accounting Standards (CAS), which we refer to as CAS pension cost.~~ 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, ~~the~~recognize CAS pension cost ~~is recognized~~ in each of our business ~~segments’~~segment’s net sales and cost of sales. ~~Since our~~Our consolidated financial statements must present FAS pension ~~expense~~and other postretirement benefit plan income calculated in accordance with ~~the financial accounting standards (FAS)~~FAS requirements under ~~GAAP, which we refer to as FAS pension expense,~~U.S. GAAP. The operating portion of the net FAS/CAS pension adjustment ~~increases or decreases~~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-

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service FAS pension (expense) income in our consolidated statements of earnings. As a result, to the extent that CAS pension cost ~~recorded in our business segments’ results~~exceeds the service cost component of ~~operations to equal the~~ FAS pension ~~expense.~~(expense) income, we have a favorable FAS/CAS operating adjustment.

~~Summary operating results~~Our total net FAS/CAS pension adjustment for ~~each~~the quarters and nine months ended September 26, 2021 and September 27, 2020, including the service and non-service cost components of FAS pension (expense) income for our ~~business segments~~qualified defined benefit pension plans, were as follows (in millions):



	Quarters Ended				Nine Months Ended
	September 26, 2021		September 27, 2020		September 26, 2021		September 27, 2020
Total FAS (expense) income and CAS costs
FAS pension (expense) income	$	(1,598)	$	29	$	(1,465)	$	88
Less: CAS pension cost	517		494		1,549		1,483
Net FAS/CAS pension adjustment	$	(1,081)	$	523	$	84	$	1,571

Service and non-service cost reconciliation
FAS pension service cost	$	(26)	$	(25)	$	(80)	$	(76)
Less: CAS pension cost	517		494		1,549		1,483
FAS/CAS operating adjustment	491		469		1,469		1,407
Non-service FAS pension (expense) income	(1,572)		54		(1,385)		164
Net FAS/CAS pension adjustment	$	(1,081)	$	523	$	84	$	1,571

The decrease in the net FAS/CAS pension adjustment during the quarter and nine months ended September 26, 2021, was principally driven by a noncash, non-operating pension settlement charge of $1.7 billion ($1.3 billion, or $4.72 per share, after-tax) in connection with the transfer of $4.9 billion of our gross defined benefit pension obligations and related plan assets to an insurance company on August 3, 2021. See “Note 7 - Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements.

^(a)


^(b)	During the nine months ended September 24, 2017, we recognized a $64 million charge, which represents our portion of a noncash asset impairment charge recorded by our equity method investee, AMMROC. See “Note 10 – Other” (under the caption “Equity Method Investee Impairment”) included in our Notes to Consolidated Financial Statements for more information.


^(c)	Includes $17 million and $82 million of corporate overhead costs incurred during the quarter and nine months ended September 25, 2016 that were previously allocated to our former IS&GS business. See “Note 3 – Divestiture” included in our Notes to Consolidated Financial Statements for more information.

Management evaluates performance on our contracts by focusing on net sales and operating profit and not by type or amount of operating expense. Consequently, our discussion of business segment performance focuses on net sales and operating profit, consistent with our approach for managing the business. This approach is consistent throughout the life cycle of our contracts, as management assesses the bidding of each contract by focusing on net sales and operating profit and monitors performance on our contracts in a similar manner through their completion.

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We regularly provide customers with reports of our costs as the contract progresses. The cost information in the reports is accumulated in a manner specified by the requirements of each contract. For example, cost data provided to a customer for a product would typically align to the subcomponents of that product (such as a wing-box on an aircraft) and for services would align to the type of work being performed (such as aircraft sustainment). Our contracts generally ~~are cost-based, which allows~~allow for the recovery of costs in the pricing of our products and services. Most of our contracts are bid and negotiated with our customers under circumstances in which we are required to disclose our estimated total costs to provide the product or service. This approach for negotiating contracts with our U.S. Government customers generally allows for ~~the~~ recovery of our ~~costs.~~actual costs plus a reasonable profit margin. We also may enter into long-term supply contracts for certain materials or components to coincide with the production schedule of certain products and to ensure their availability at known unit prices.

Many of our contracts span several years and include highly complex technical requirements. At the outset of a contract, we identify and monitor risks to the achievement of the technical, schedule and cost aspects of the contract 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 ~~surrounding~~related to the technical, schedule and cost aspects of the contract, which decreases the estimated total costs to

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complete the contract. Conversely, our profit booking rates may decrease if the estimated total costs to complete the contract increase. All of the estimates are subject to change during the performance of the contract and may affect the profit booking rate.

We have a number of programs that are designated as classified by the U.S. Government which cannot be specifically described. The operating results of these classified programs are included in our consolidated and business segment results and are subjected to the same oversight and internal controls as our other programs.

Our net sales are primarily derived from long-term contracts for products and services provided to the U.S. Government as well as FMS contracted through the U.S. Government. We recognize revenue as performance obligations are satisfied and the customer obtains control of the products and services. For performance obligations to deliver products with continuous transfer of control to the customer, revenue is recognized based on the extent of progress towards completion of the performance obligation, generally using the percentage-of-completion cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer as we incur costs on our contracts. For performance obligations in which control does not continuously transfer to the customer, we recognize revenue at the point in time in which each performance obligation is fully satisfied. In the third quarter of 2021, lower supply chain activity negatively affected our net sales for the period.

Changes in net sales and operating profit generally are expressed in terms of volume. Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts. Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract.

As previously disclosed, we have a program, EADGE-T, to design, integrate, and install an air missile defense command, control, communications, computers – intelligence (C4I) systems for an international customer that has experienced performance matters and for which we have periodically accrued reserves. During the first quarter of 2017, we revised our estimated costs to complete EADGE-T as a consequence of ongoing performance matters and recorded an additional charge of $120 million ($74 million or $0.25 per share, after tax) at our RMS business segment. As of September 24, 2017, cumulative losses, including reserves, remained at approximately $260 million on this program. We are continuing to monitor the viability of the program and the available options and could record additional charges in future periods. However, based on the reserves already accrued and our current estimate of the costs to complete the program, at this time we do not anticipate that additional charges, if any, would be material.

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Our consolidated net adjustments not related to volume, including net profit booking rate adjustments and other matters, ~~net of state income taxes,~~ increased segment operating profit by approximately ~~$330~~$580 million and ~~$1.1~~$1.5 billion induring the ~~quarter~~quarters and nine months ended September ~~24, 2017~~26, 2021 and ~~$405~~$415 million and ~~$1.1~~$1.4 billion induring the ~~quarter~~quarters and nine months ended September ~~25, 2016.~~27, 2020.

We periodically experience performance issues and record losses for certain programs. For further discussion on the programs at Aeronautics, RMS and MFC, see “Note 11 - Other” included in our Notes to Consolidated Financial Statements.

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Aeronautics

Summary operating results for our Aeronautics business segment were as follows (in millions):



	Quarters Ended						Nine Months Ended
	September 26, 2021			September 27, 2020			September 26, 2021			September 27, 2020
Net sales	$	6,568		$	6,680		$	19,621		$	19,552
Operating profit	714			705			1,979			2,116
Operating margin	10.9		%	10.6		%	10.1		%	10.8		%

Quarters Ended Nine Months Ended
September 24,
2017 September 25,
2016 September 24,
2017 September 25,
2016
Net sales $ 4,771
$ 4,188
$ 14,102
$ 12,362

Operating profit 517
437
1,503
1,335

Operating margin 10.8 % 10.4 % 10.7 % 10.8 %

Aeronautics’ net sales during the quarter ended September ~~24, 2017 increased $583~~26, 2021 decreased $112 million, or ~~14%~~2%, compared to the same period in ~~2016.~~2020. The ~~increase~~decrease was primarily attributable to ~~higher~~lower net sales of approximately ~~$540~~$220 million for the F-35 program due to ~~increased~~lower volume on development contracts and lower volume and risk retirements on production contracts. This decrease was partially offset by an increase in sales of about $35 million for the F-16 program due to higher production volume that was partially offset by lower sustainment volume; and ~~sustainment.~~approximately $30 million for classified development contracts due to higher risk retirements.

Aeronautics’ operating profit during the quarter ended September ~~24, 2017~~26, 2021 increased ~~$80~~$9 million, or ~~18%~~1%, compared to the same period in ~~2016. Operating~~2020. The increase was primarily attributable to higher operating profit ~~increased~~of approximately ~~$65~~$45 million for classified development contracts due to higher risk retirements; about $25 million for the ~~F-35~~C-130 program primarily due to ~~increased volume on aircraft production and sustainment activities and~~ higher risk retirements on sustainment activities; and about ~~$55~~$15 million for the F-16 program due to higher risk ~~retirements.~~ retirements on sustainment contracts and higher production volume. These increases were partially offset by ~~a decrease~~lower operating profit of approximately ~~$25~~$75 million for the ~~C-5~~F-35 program due to lower risk retirements and ~~decreased deliveries (one aircraft delivered~~volume on production and development contracts that were partially offset by higher risk retirements on sustainment contracts.Adjustments not related to volume, including net profit booking rate adjustments, were $15 million higher in ~~2017~~the third quarter of 2021 compared to ~~two~~the same period in ~~2016)~~2020.

Aeronautics’ net sales during the nine months ended September 26, 2021 were comparable to the same period in 2020. Net sales increased approximately $180 million on classified development contracts due to higher volume; and about $155 million for the F-16 program due to higher volume and risk retirements on production contracts that was partially offset by lower sustainment volume. These increases were offset by a decrease of approximately $195 million for the F-35 program primarily due to lower volume and risk retirements on development contracts that was partially offset by higher risk retirements and volume on sustainment contracts and higher volume on production contracts; and about $135 million for lower sustainment volume for the F-22 program.

Aeronautics’ operating profit during the nine months ended September 26, 2021 decreased $137 million, or 6%, compared with the same period in 2020. Operating profit decreased approximately $175 million for classified contracts primarily due to a $225 million loss in the second quarter of 2021 for performance issues experienced on a classified program partially offset by higher risk retirements in the third quarter of 2021; and about $75 million for the F-35 program due to lower risk retirements and volume on development and production contracts that was offset by higher risk retirements and volume on sustainment contracts. These decreases were partially offset by an increase of approximately $55 million for the C-130 program due to higher risk retirements on sustainment contracts; and about $50 million for the F-16 program due to higher risk retirements on sustainment contracts and higher production volume. Adjustments not related to volume, including net profit booking rate adjustments, were $140 million lower during the nine months ended September 26, 2021 compared to the same period in 2020.

We currently expect Aeronautics’ 2021 net sales to increase in the low-single digit percentage range from 2020 levels driven by increased volume on F-16 and classified programs. Operating profit is expected to be slightly lower than 2020 levels. Operating profit margin for 2021 is expected to be lower than 2020 levels.

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Missiles and Fire Control

Summary operating results for our MFC business segment were as follows (in millions):


	Quarters Ended						Nine Months Ended
	September 26, 2021			September 27, 2020			September 26, 2021			September 27, 2020
Net sales	$	2,781		$	2,971		$	8,474		$	8,391
Operating profit	413			405			1,210			1,171
Operating margin	14.9		%	13.6		%	14.3		%	14.0		%

MFC’s net sales during the quarter ended September 26, 2021 decreased $190 million, or 6%, compared to the same period in 2020. The decrease was primarily attributable to lower net sales of approximately $130 million for tactical and strike missile programs due to lower volume (GMLRS and Hellfire); and a net decrease of about $50 million for sensors and global sustainment programs due to lower volume (primarily Sniper Advanced Targeting Pod (SNIPER®) and Infrared Search and Track (IRST)) that was partially offset by higher risk retirements due to close out activities related to the Warrior Capability Sustainment Program (Warrior) that was terminated by the customer in March 2021.

MFC’s operating profit during the quarter ended September 26, 2021 increased $8 million, or 2% compared to the same period in 2020. Operating profit increased approximately $20 million on integrated air and missile defense programs due to higher risk retirements (primarily PAC-3), and about $15 million for sensors and global sustainment programs primarily due to the reversal of a portion of previously recorded losses on the Warrior program in the third quarter of 2021 that are no longer expected to be incurred as a result of the program being terminated that was partially offset by lower volume (primarily IRST and SNIPER). These increases were offset by charges of approximately $25 million for performance issues on an energy program. Operating profit for tactical and strike missile programs was comparable as lower volume (primarily GMLRS and Hellfire) was offset by higher risk retirements (primarily Hellfire). Adjustments not related to volume, including net profit booking rate adjustments, were ~~about $45~~approximately $70 million higher ~~during~~in the third quarter ~~ended September 24, 2017~~of 2021 compared to the same period in ~~2016.~~2020.

~~Aeronautics’~~MFC’s net sales during the nine months ended September ~~24, 2017~~26, 2021 increased ~~$1.7 billion,~~$83 million, or ~~14%~~1%, compared to the same period in ~~2016.~~2020. The increase was primarily attributable to higher net sales of approximately ~~$1.4 billion for the F-35 program due to increased volume on production and sustainment; about $110~~$140 million for ~~the C-130 program due to aircraft configuration mix;~~integrated air and ~~about $105 million for the F-16 program~~missile defense programs due to higher volume ~~on aircraft modernization programs,~~and risk retirements (primarily PAC-3). This increase in net sales was partially offset by approximately $50 million for sensors and global sustainment programs due to lower ~~deliveries (seven aircraft delivered in 2017 compared~~volume (primarily SNIPER, IRST and Apache) that was partially offset by higher risk retirements due to ~~eight in 2016)~~close out activities related to Warrior and higher volume (primarily SOF GLSS).

~~Aeronautics’~~MFC’s operating profit during the nine months ended September ~~24, 2017~~26, 2021 increased $168 million, or 13%, compared to the same period in 2016. Operating profit increased approximately $215 million for the F-35 program due to increased volume on aircraft production and sustainment activities and higher risk retirements and about $75 million for the F-16 program due to higher risk retirements and higher volume on aircraft modernization programs. These increases were partially offset by a decrease of about $40 million for the C-130 program primarily due to the timing of expenses for sustainment programs; about $15 million due to lower equity earnings from an investee; and approximately $65 million for other aeronautics programs primarily due to lower risk retirements and the establishment of a reserve recorded in the first quarter of 2017. Adjustments not related to volume, including net profit booking rate adjustments, were about $115 million higher during the nine months ended September 24, 2017 compared to the same period in 2016.

We continue to expect Aeronautics’ 2017 net sales to increase in the low-double digit percentage range as compared to 2016 due to increased volume on the F-35 program. Operating profit is now expected to increase at a comparable percentage range, driven by performance improvements on several programs.

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~~Missiles and Fire Control~~

~~Summary operating results for our MFC business segment were as follows (in millions):~~

Quarters Ended Nine Months Ended
September 24,
2017 September 25,
2016 September 24,
2017 September 25,
2016
Net sales $ 1,793
$ 1,737
$ 4,919
$ 4,851

Operating profit 270
289
757
763

Operating margin 15.1 % 16.6 % 15.4 % 15.7 %

~~MFC’s net sales during the quarter ended September 24, 2017 increased $56~~$39 million, or 3%, compared to the same period in ~~2016. The increase was primarily attributable~~2020. Operating profit increased approximately $40 million for integrated air and missile defense programs due to higher ~~net sales of approximately $45 million for tactical missile programs (Joint Air-to-Surface Standoff Missile (JASSM)) due to product configuration mix.~~

MFC’s operating profit during the quarter ended September 24, 2017 decreased $19 million, or 7%, compared to the same period in 2016. Operating profit decreased approximately $30 million for tactical missile programsrisk retirements and volume (primarily ~~Precision Fires, Joint Air-to-Ground Missile (JAGM), and Hellfire) due to~~PAC-3) that was offset by lower risk retirements (primarily THAAD); and about $20 million for sensors and global sustainment programs due to the ~~establishment~~reversal of a ~~reserve~~portion of previously recorded losses on the Warrior program in the second and third quarters of 2021 that are no longer expected to be incurred as a result of the program being terminated that was partially offset by lower volume and risk retirements (SNIPER and Apache). These increases were partially offset by approximately $25 million of charges due to performance issues on an energy program. Adjustments not related to volume, including net profit booking rate adjustments, were ~~about $70~~approximately $80 million ~~lower~~higher during the ~~quarter~~nine months ended September ~~24, 2017~~26, 2021 compared to the same period in ~~2016.~~

MFC’s net sales during the nine months ended September 24, 2017 increased $68 million, or 1%, compared to the same period in 2016. The increase was attributable to higher net sales of approximately $95 million for tactical missile programs due to product configuration mix (JASSM) and due to increased deliveries (primarily Hellfire). This increase was partially offset by a decrease of approximately $45 million for air and missile defense programs due to lower deliveries (primarily PAC-3).

MFC’s operating profit during the nine months ended September 24, 2017 was comparable with the same period in 2016. Operating profit decreased about $65 million for tactical missiles programs (primarily Precision Fires, JAGM, and Hellfire) due to lower risk retirements and the establishment of the reserve referenced above, partially offset by increased deliveries (primarily Hellfire). This decrease was partially offset by an increase of approximately $30 million for fire control programs (primarily LANTIRN^® ~~and SNIPER~~^®) due to higher risk retirements and increased deliveries; and about $25 million for air and missile defense programs due to higher volume (primarily Terminal High Altitude Area Defense (THAAD)) and a reserve recorded in fiscal year 2016 for a contractual matter that did not recur in 2017. Adjustments not related to volume, including net profit booking rate adjustments, were about $70 million lower during the nine months ended September 24, 2017 compared to the same period in 2016.2020.

We expect MFC’s 2021 net sales to increase in the ~~high-single~~low-single digit percentage range from 2020 levels driven by higher volume in ~~2017 as compared to 2016 driven primarily by our~~the integrated air and missile defense ~~and tactical missile programs.~~business, primarily PAC-3. Operating profit is expected to increase in the ~~low-single~~low-to-mid-single digit percentage range ~~in 2017 as compared to 2016. Accordingly, operating~~above 2020 levels. Operating profit margin for 2021 is expected to ~~decline from 2016~~be higher than 2020 levels.

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Rotary and Mission Systems

Summary operating results for our RMS business segment were as follows (in millions):


	Quarters Ended						Nine Months Ended
	September 26, 2021			September 27, 2020			September 26, 2021			September 27, 2020
Net sales	$	3,980		$	3,998		$	12,329		$	11,783
Operating profit	459			404			1,350			1,209
Operating margin	11.5		%	10.1		%	10.9		%	10.3		%

Quarters Ended Nine Months Ended
September 24,
2017 September 25,
2016 September 24,
2017 September 25,
2016
Net sales $ 3,353
$ 3,346
$ 9,864
$ 9,653

Operating profit 244
247
606
678

Operating margin 7.3 % 7.4 % 6.1 % 7.0 %

RMS’ net sales during the quarter ended September ~~24, 2017~~26, 2021 were comparable with the same period in ~~2016. An increase of~~2020. Net sales decreased by approximately ~~$95~~$50 million ~~in higher sales~~ for IWSS programs due to lower volume on radar surveillance systems (primarily TPQ-53) and the Littoral Combat Ship (LCS) program;about $45 million for various C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance) programs due to lower volume; and about $30 million for various training and logistics ~~services~~solutions programs primarily due to ~~higher volume was mostly~~lower risk retirements and volume. These decreases were offset by ~~a decrease~~higher net sales of approximately ~~$85~~$120 million for Sikorsky helicopter programs ~~primarily~~ due to ~~aircraft mix, partially offset by certain adjustments recorded in 2016 required to account for the November 5, 2015 acquisition.~~

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higher risk retirements (Black Hawk, Seahawk and CH-53-K) and higher production volume (Combat Rescue Helicopter (CRH) and Seahawk).

RMS’ operating profit during the quarter ended September ~~24, 2017 was comparable with~~26, 2021 increased $55 million, or 14%, compared to the same period in ~~2016. Operating~~2020. The increase was primarily attributable to higher operating profit ~~decreased~~of approximately ~~$40 million for CSAT programs due to a performance matter on the VLS program; and about $20~~$75 million for Sikorsky helicopter programs due to ~~aircraft mix,~~higher risk retirements (Black Hawk, Seahawk and CH-53K) and higher production volume (CRH). This increase was partially offset by ~~certain adjustments recorded in 2016 required to account for the acquisition. These decreases were offset by an increase~~a decrease of approximately ~~$35~~$20 million for training and logistics ~~services~~solutions programs primarily due to lower risk retirements and volume; and about $15 million for IWSS programs due to charges that were $30 million higher on a ground-based radar program partially offset by higher risk retirements on Vertical Launching System (VLS) programs. Operating profit for C6ISR programs was comparable as lower volume was offset by lower charges on certain programs (primarily undersea combat systems programs). Adjustments not related to volume, including net profit booking rate adjustments, were $50 million higher in the third quarter of 2021 compared to the same period in 2020.

RMS’ net sales during the nine months ended September 26, 2021 increased $546 million, or 5%, compared to the same period in 2020. The increase was attributable to higher net sales of $520 million for Sikorsky helicopter programs due to higher production volume (CH-53K, Black Hawk, CRH, and VH-92A) and higher risk retirements (Black Hawk and CRH); and about $270 million for training and logistics solutions programs primarily due to the delivery of an international pilot training system in the first quarter of 2021. These increases were partially offset by lower net sales of about $135 million for various C6ISR programs due to lower volume; and about $110 million for IWSS programs due to lower volume on the LCS and TPQ-53 programs that were partially offset by higher volume on the Canadian Surface Combatant (CSC) and Aegis programs.

RMS’ operating profit during the nine months ended September 26, 2021 increased $141 million, or 12%, compared to the same period in 2020. Operating profit increased approximately $110 million for Sikorsky helicopter programs due to higher production volume and risk retirements (Black Hawk), and higher production volume (CH-53K and CRH); and about $10 million for IWSS programs due to charges that were lower on a ground-based radar program and higher volume on the CSC program, partially offset by lower volume and risk retirements on the LCS program. Operating profit for C6ISR programs was comparable due to lower volume was offset by lower charges on certain programs (primarily undersea combat systems programs). Operating profit for training and logistics solutions programs was comparable due to higher volume being offset by lower risk retirements. Adjustments not related to volume, including net profit booking rate adjustments, were ~~about $10~~$70 million higher ~~during the quarter ended September 24, 2017 compared to the same period during 2016.~~

~~RMS’ net sales~~ during the nine months ended September ~~24, 2017 increased $211~~26, 2021 compared to the same period in 2020.

We currently expect RMS’ 2021 net sales to increase in the mid-single digit percentage range from 2020 levels driven by higher volume on Sikorsky helicopter programs and TLS programs. Operating profit is expected to increase in the low-double digit percentage range above 2020 levels. Operating profit margin for 2021 is expected to be higher than 2020 levels.

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Space

Summary operating results for our Space business segment were as follows (in millions):


	Quarters Ended						Nine Months Ended
	September 26, 2021			September 27, 2020			September 26, 2021			September 27, 2020
Net sales	$	2,699		$	2,846		$	8,891		$	8,640
Operating profit	264			248			826			781
Operating margin	9.8		%	8.7		%	9.3		%	9.0		%

Space’s net sales during the quarter ended September 26, 2021 decreased $147 million, or 2%5%, compared to the same period in ~~2016.~~2020. The ~~increase~~decrease was primarily attributable to lower net sales of approximately ~~$235~~$340 million ~~for Sikorsky helicopter programs~~ due to ~~certain adjustments recorded~~the renationalization of the Atomic Weapons Establishment (AWE) program, which is no longer included in ~~2016 required to account for~~ the ~~acquisition,~~company's financial results beginning in the third quarter of 2021. This decrease was partially offset by ~~lower aircraft deliveries and mix; and~~higher sales of about ~~$95~~$140 million for ~~training~~strategic and ~~logistics services~~missile defense programs due to higher ~~volume. These increases were partially offset by a decrease of~~volume (hypersonic development, Fleet Ballistic Missile (FBM) and Next Generation Interceptor (NGI) programs); and about ~~$170~~$70 million for ~~CSAT~~national security space programs due to ~~lower volume.~~higher risk retirements and volume (primarily Next Gen OPIR).

~~RMS’~~Space’s operating profit during the ~~nine months~~quarter endedSeptember ~~24, 2017 decreased $72~~26, 2021 increased $16 million, or ~~11%~~6%, compared to the same period in ~~2016. Operating~~2020. The increase was primarily attributable to higher operating profit ~~decreased about $70~~of approximately $30 million for ~~C4USS~~strategic and missile defense programs ~~primarily~~ due to higher risk retirements (primarily FBM programs) and higher volume (primarily hypersonic development). This increase was partially offset by a ~~net $85~~decrease of approximately $10 million ~~increase in charges for performance matters on the EADGE-T contract, which were recorded in the first quarter of 2017 and in 2016; and about $60 million for CSAT programs primarily~~ due to the ~~performance matter on~~renationalization of the ~~VLS program referenced above. These decreases~~AWE program. Operating profit for national security space programs was comparable as higher volume and risk retirements (primarily Next Gen OPIR) were ~~partially~~ offset by ~~an increase~~a charge of $45 million ~~for Sikorsky helicopter programs due to certain adjustments recorded in 2016 required to account for the acquisition, partially offset by decreases due to lower aircraft deliveries and mix.~~on a commercial ground solutions program. Adjustments not related to volume, including net profit booking rate adjustments, were ~~about $35~~$30 million ~~lower~~higher in the third quarter of 2021 compared to the same period in 2020.

Space’s net sales during the nine months ended September ~~24, 2017 compared to the same period in 2016.~~

~~We expect RMS’ 2017 net sales to increase in the mid-single digit percentage range compared to 2016. Operating profit is expected to be comparable to 2016 as a result of~~26, 2021 increased sales volume offset by a charge recorded in the third quarter of 2017 for performance matters on the VLS program and a charge recorded in the first quarter of 2017 for performance matters on the EADGE-T contract. Accordingly, we expect slightly lower operating profit margins between years.

~~Space Systems~~

~~Summary operating results for our Space Systems business segment were as follows (in millions):~~

Quarters Ended Nine Months Ended
September 24,
2017 September 25,
2016 September 24,
2017 September 25,
2016
Net sales $ 2,252
$ 2,280
$ 7,026
$ 6,630

Operating profit 218
450
762
1,034

Operating margin 9.7 % 19.7 % 10.8 % 15.6 %

~~Space Systems’ net sales during the quarter ended September 24, 2017 decreased $28~~$251 million, or 1%3%, compared to the same period in ~~2016.~~2020. The ~~decrease~~increase was primarily attributable to higher net sales of approximately ~~$160~~$235 million for ~~government satellite~~strategic and missile defense programs due to higher volume (primarily ~~SBIRS~~hypersonic development and ~~AEHF)~~NGI programs); and about ~~$60~~$170 million ~~across other~~for national security space programs ~~(including the Orion program) with these decreases~~ due to ~~lower volume.~~higher volume and risk retirements (primarily Next Gen OPIR). These ~~decreases~~increases were partially offset by ~~an increase~~a decrease of approximately ~~$190~~$155 million ~~due to net sales from~~as a result of the renationalization of the AWE ~~which we began consolidating during the third quarter of 2016.~~program.

~~Space Systems’~~Space’s operating profit during the ~~quarter~~nine months ended September ~~24, 2017 decreased $232~~26, 2021 increased $45 million, or ~~52%~~6%, compared to the same period in ~~2016.~~2020. Operating profit ~~decreased~~increased approximately ~~$127~~$25 million for commercial civil space programs due to higher risk retirements (primarily space transportation programs); about $25 million for strategic and missile defense programs due to higher volume (primarily hypersonic development programs); and about $15 million for national security space programs to higher risk retirements (primarily SBIRS) and higher volume (primarily Next Gen OPIR), offset by charges of $70 million on a commercial ground solutions program and lower risk retirements (primarily Advanced Extremely High Frequency (AEHF). These increases were partially offset by a decrease of approximately $15 million due to the ~~pre-tax gain recorded in~~renationalization of the ~~third quarter of 2016 related to the consolidation of~~ AWE which did not recur in 2017; about $70 million for government satellite programs (primarily SBIRS and AEHF) due to lower risk retirements, a charge for performance matters and lower volume; and about $20 million for lower equity earnings from ULA.program. Adjustments not related to volume, including net profit booking rate adjustments, were ~~about $60~~$90 million ~~lower~~higher during the ~~quarter~~nine months ended September ~~24, 2017~~26, 2021 compared to the same period in ~~2016.~~2020.

~~Table~~Total equity earnings (primarily United Launch Alliance (ULA)) recognized in Space's operating profit were not significant during the quarter ended September 26, 2021 and 2020; and represented $35 million, or 4%, of ~~Contents~~

~~Space Systems’ net sales~~Space’s operating profit during the nine months ended September ~~24, 2017 increased $396~~26, 2021, compared to approximately $45 million, or 6%, compared to the same period in 2016. The increase was attributable to approximately $790 million due to net sales from AWE, which the corporation began consolidating during the third quarter of 2016. This increase was partially offset by a decrease of about $215 million for government satellite programs (primarily SBIRS and AEHF) due to lower volume; and approximately $150 million across other programs (including the Orion program) due to lower volume.

~~Space Systems’ operating profit during the nine months ended~~September 24, 2017 decreased $272 million, or 26%, compared to the same period in 2016. Operating profit decreased about $127 million due to the pre-tax gain recorded in the third quarter of 2016 related to the consolidation of AWE; a net decrease of about $55 million for charges recorded in the second quarter of 2017 for performance matters on certain commercial satellite programs; about $45 million for government satellite programs (primarily SBIRS and AEHF) due to the charge for performance matters referenced above and lower volume; and about $50 million for lower equity earnings from ULA. Adjustments not related to volume, including net profit booking rate adjustments, were about $25 million lower during the nine months ended September ~~24, 2017 compared to the same period in 2016.~~

Total equity earnings recognized by Space Systems (primarily ULA) represented approximately $45 million, or 21% and approximately $170 million or 22%, of this business segment’s operating profit during the quarter and nine months ended September 24, 2017, compared to approximately $70 million, or 16% and approximately $240 million or 23%, during the quarter and nine months ended September 25, 2016.

26, 2020.

We currently expect ~~Space Systems’ 2017~~Space’s 2021 net sales to be comparable to ~~2016,~~2020 levels driven by higher volume on strategic and missile defense programs (primarily hypersonics development and NGI programs) and on national security space programs (primarily Next Gen OPIR), offset by lower volume ~~resulting from~~at AWE due to the UK Ministry of Defence’s renationalization of the program ~~lifecycles~~ on government satellite programs and decreased commercial launch-related activities, offset by the recognition of AWE net sales for a full year in 2017 versus a partial year in 2016 following the consolidation of AWE in the third quarter of 2016.June 30, 2021. Operating profit is expected to ~~decline in the low-double digit percentage range, primarily~~be slightly lower than 2020 levels driven by ~~the one-time AWE non-cash gain in 2016, amortization of the AWE intangible assets in 2017, and~~ lower equity earnings from the company’s investment in ~~2017 compared to 2016. As a result operating~~ULA. Operating profit margin for 2021 is also expected to ~~decline from 2016~~be slightly lower than 2020 levels.

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FINANCIAL CONDITION

Liquidity and Cash Flows

At September 26, 2021, we had cash and cash equivalents of $2.7 billion. Our principal source of liquidity is our cash from operations. However, we also have access to additional financial resources as described in the “Capital Resources” section below.

We have a balanced cash deployment strategy to invest in our business and key technologies to provide our customers with enhanced capabilities, enhance stockholder value, and position ourselves to take advantage of new business opportunities when they arise. Consistent with that strategy, we have continued to invest in our business ~~including~~and technologies through capital expenditures, independent research and development, and ~~have made~~ selective business acquisitions and ~~investments, while returning~~investments. We have returned cash to stockholders through dividends and share ~~repurchases, and managing~~repurchases. We also continue to actively manage our debt levels, including maturities and interest ~~rates.~~rates, and our pension obligations. We expect to continue to opportunistically manage our pension liabilities through the purchase of group annuity contracts for portions of our outstanding defined benefit pension obligations using assets from the pension trust.

WeOn August 3, 2021, we purchased group annuity contracts to transfer $4.9 billion of gross defined benefit pension obligations and related plan assets to an insurance company for approximately 18,000 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 by us. See “Note 7 - Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements. Future pension risk transfer transactions could also be significant and result in us making additional contributions to the pension trust and/or require us to recognize noncash pension settlement charges in earnings in the applicable reporting period.

To date, the effects of COVID-19 have ~~generated strong operating~~resulted in some negative impact on our cash flows, ~~which have been~~partially due to supplier delays. The U.S. Government has taken certain actions and enacted legislation to mitigate the ~~primary source~~impacts of ~~funding~~COVID-19 on public health, the economy, state and local governments, individuals, and businesses. In March 2020, the U.S. Department of Defense (DoD) increased the rate for certain progress payments from 80% to 90% for costs incurred and work performed on relevant contracts. Since the pandemic began, Lockheed Martin has remained committed to flowing down the benefits received from the DoD’s modification of the progress payment rate to our operations, capital expenditures, debt service and repayments, dividends, share repurchases and postretirement benefit plan contributions. The total remaining authorization for future common share repurchases under our share repurchase program was $2.0 billion assupply chain partners. As of September ~~24, 2017. On~~26, 2021, we have received approximately $1.5 billion of net accelerated progress payments, the majority of which were in 2020. We continue to use accelerated progress payments and cash on hand to accelerate payments to our suppliers. As of September ~~28, 2017, subsequent~~26, 2021, we have accelerated $1.5 billion of payments to our suppliers 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 will continue to accelerate payments to our suppliers based on risk assessed need through the end of 2022. Consistent to our ~~third quarter, our Board of Directors authorized a $2.0 billion increase~~current acceleration approach, we will prioritize small and COVID-19 impacted businesses.

On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) into law. Pursuant to the ~~program.~~CARES Act, U.S. companies could defer the employer’s portion of social security taxes between March 27, 2020 and December 31, 2020, which allowed us to defer cash outlays of $460 million in 2020, of which approximately half will be paid in the fourth quarter of 2021 and approximately half will be paid in the fourth quarter of 2022. Section 3610 of the CARES Act also authorized the U.S. Government to reimburse qualifying contractors for any paid leave, including sick leave, provided to employees during the pandemic to keep its workforce in a ready state. Section 3610 of the CARES Act expired on September 30, 2021 and has not been extended. While that option is currently unavailable, we continue to monitor other legislation that may reinstate Section 3610 and work with our government customers to seek recovery of COVID-19-related costs through other contract provisions.

On March 11, 2021, the President signed the American Rescue Plan Act of 2021 (ARPA) into law. ARPA eased funding rules for single-employer defined benefit pension plans by extending the amortization of funding shortfalls and enhancing interest rate stabilization, which has the effect of reducing the funding requirements for our single-employer defined benefit pension plans beginning in 2021 and reducing the amount of CAS pension costs allocated to our U.S. Government contracts beginning in 2022. The lower pension contributions will be partially offset by lower tax deductions.

As disclosed in the “Business Overview” section above, on December 20, 2020, we entered into an agreement to acquire Aerojet Rocketdyne for approximately $4.4 billion after the assumption of Aerojet Rocketdyne’s then-projected net cash. Subject to satisfactory completion of the regulatory review process and satisfaction of the other closing conditions specified in the acquisition agreement, we anticipate closing the transaction in the first quarter of 2022. We expect to finance the acquisition primarily through new debt issuances.

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Currently, we expect our cash from operations will continue to be sufficient to support our operations and anticipated capital expenditures and ~~postretirement benefit plan contributions~~independent research and development for the foreseeable future. However, we may as conditions warrant issue commercial paper backed by our revolving credit facility to manage the timing of our cash flows. As described in the “Capital Resources” section below, we have financing resources available to fund potential cash outflows that are less predictable or more discretionary, should they occur. We also have access to credit markets, if needed, for liquidity or general corporate purposes, including our revolving credit facility or the ability to issue commercial paper, and letters of credit to support customer advance payments and for other trade finance purposes such as guaranteeing our performance on particular contracts.

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The following table provides a summary of our cash flow information followed by a discussion of the key elements (in millions):

Nine Months Ended
September 24,
2017 September 25,
2016
Cash and cash equivalents at beginning of year $ 1,837
$ 1,090

Operating activities
Net earnings 2,644
4,314

Non-cash adjustments 1,013
(227 )
Changes in working capital (304 ) (682 )
Other, net 1,611
1,055

Net cash provided by operating activities 4,964
4,460

Net cash used for investing activities (655 ) (551 )
Net cash used for financing activities (3,205 ) (2,104 )
Net change in cash and cash equivalents 1,104
1,805

Cash and cash equivalents at end of period $ 2,941
$ 2,895


	Nine Months Ended
	September 26, 2021		September 27, 2020
Cash and cash equivalents at beginning of year	$	3,160	$	1,514
Operating activities
Net earnings	4,266		5,041
Noncash adjustments	2,889		1,292
Changes in working capital	(2,176)		(564)
Other, net	(26)		607
Net cash provided by operating activities	4,953		6,376
Net cash used for investing activities	(619)		(1,017)
Net cash used for financing activities	(4,767)		(3,288)
Net change in cash and cash equivalents	(433)		2,071
Cash and cash equivalents at end of period	$	2,727	$	3,585

Operating Activities

Net cash provided by operating activities increased $504 million during the nine months ended September 24, 2017 compared to the same period in 2016. Cash provided by changes in working capital during the nine months ended September 24, 2017 increased $378 million. The change in working capital is defined as receivables and inventories less accounts payable and customer advances and amounts in excess of costs incurred. The change in working capital was largely driven by timing of cash receipts for accounts receivable (primarily tactical missiles and government satellite programs) and timing of payments for accounts payable, partially offset by timing of cash receipts for customer advances (primarily THAAD). Cash tax payments during the nine months ended September 24, 2017 were $885 million compared to $945 million in 2016. In addition, cash provided by operating activities during the nine months ended September ~~25, 2016 included~~26, 2021 decreased $1.4 billion compared to the same period in 2020. The decrease was primarily due to lower working capital, higher tax payments and a decrease in net earnings. The $1.6 billion decrease in cash ~~generated~~flows related to working capital (defined as receivables, contract assets, and inventories less accounts payable and contract liabilities) was primarily attributable to timing of production and billing cycles affecting contract assets and contract liabilities (primarily the F-35 and F-16 programs in our Aeronautics business segment and Sikorsky helicopter programs in our RMS business segment), partially offset by ~~IS&GS~~timing of ~~approximately $310~~cash payments for accounts payable and liquidation of inventories (primarily the delivery of an international pilot training system in our RMS business segment). During the nine months ended September 26, 2021, we paid federal and foreign income taxes and employer portion of payroll taxes of $974 million and $578 million, compared to $865 million and $236 million during the nine months ended September 27, 2020. The increase in the employer portion of payroll taxes was due to the deferral of $315 million of payments to the fourth quarters of 2021 and 2022 pursuant to the CARES Act during the nine months ended September 27, 2020. In addition, we accelerated $1.5 billion of payments to suppliers as ~~we retained this cash~~of September 26, 2021 that were due in the fourth quarter of 2021, compared to $1.8 billion of payments to suppliers as ~~part~~ of September 27, 2020 that were due in the ~~divestiture.~~fourth quarter of 2020.

Investing Activities

Net cash used for investing activities ~~increased $104 million~~ during the nine months ended September ~~24, 2017,~~26, 2021 decreased $398 million compared to the same period in ~~2016 primarily~~2020. The decrease in cash used for investing activities is due to ~~an increase~~the receipt of ~~$43~~the first two installment payments totaling $231 million in ~~capital expenditures.~~the first nine months of 2021 from the sale of our ownership interest in the Advanced Military Maintenance, Repair and Overhaul Center (AMMROC) joint venture. Capital expenditures ~~amounted to $670~~totaled $915 million and ~~$627 million~~$1.0 billion during the nine months ended September ~~24, 2017~~26, 2021 and September ~~25, 2016.~~27, 2020. The majority of our capital expenditures were for equipment and facilities infrastructure that generally are incurred to support new and existing programs across all of our business segments. We also incur capital expenditures for information technology to support programs and general enterprise information technology infrastructure, inclusive of costs for the development or purchase of internal-use software. ~~In addition, the prior year included cash proceeds related to the sale of property during the nine months ended September 25, 2016.~~

Financing Activities

Net cash used for financing activities was ~~$3.2~~$4.8 billion during the nine months ended September ~~24, 2017,~~26, 2021, compared to ~~$2.1~~$3.3 billion during the same period in 2016. Net cash used for financing activities during the nine months ended September 24, 2017 was primarily driven by dividend payments and share repurchases. Net cash used for financing activities during the nine months ended September 25, 2016 was primarily driven by dividend payments, share repurchases and repayments2020.

Table of ~~long-term debt according to their scheduled maturities, partially offset by the proceeds from the one-time special cash payment from the divestiture of our former IS&GS business.~~Contents

During the nine months ended September ~~24, 2017~~26, 2021 and September ~~25, 2016,~~27, 2020, we paid dividends totaling ~~$1.6~~$2.2 billion ($~~5.46~~7.80 per share) and ~~$1.5~~$2.0 billion ($~~4.95~~7.20 per share). ~~In addition, we paid $1.5 billion and $1.3~~

We repurchased 5.6 million shares of our common stock for $2.0 billion during the nine months ended September ~~24, 2017 and September 25, 2016~~26, 2021, compared to ~~repurchase 5.4 million and 5.7~~3.0 million shares of our common stock ~~respectively.~~

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for $1.1 billion during the nine months ended September 27, 2020.

In September ~~2016,~~2021, we repaid $500 million of long-term notes with a fixed interest rate of ~~2.13% according to their scheduled maturities. In May 2016, we repaid $452 million of long-term notes with a fixed interest rate of 7.65%~~3.35% according to their scheduled maturities.

~~Cash~~In May 2020, we received net cash proceeds of $1.1 billion from issuance of senior unsecured notes. In June 2020, we used the net proceeds from the ~~issuance~~offering plus cash on hand to redeem $750 million of ~~our common stock~~notes due in ~~connection with employee stock option exercises during the nine months ended September 24, 2017~~2020 and ~~September 25, 2016 totaled $62~~$400 million ~~and $75 million, respectively. Those exercises resulted~~of notes due in ~~the issuance of 0.7 million and 1.0 million shares of our common stock, respectively.~~2021, each at their redemption price.

Capital Resources

At September ~~24, 2017,~~26, 2021, we held cash and cash equivalents of ~~$2.9~~$2.7 billion ~~of which approximately $594 million~~that was ~~held outside of the U.S. by our foreign subsidiaries. Although those balances are~~ generally available to fund ordinary business operations without significant legal, regulatory, or other ~~restrictions,~~restrictions.

At September 26, 2021, we had a ~~significant portion~~$3.0 billion revolving credit facility (the Revolving Credit Facility) with various banks with an expiration date of August 24, 2026 that is ~~not immediately~~ available for general corporate purposes including supporting commercial paper borrowings. We entered into this Revolving Credit Facility effective August 24, 2021 and concurrently terminated our existing $2.5 billion revolving credit facility. We may request and the banks may grant, at their discretion, an increase in the borrowing capacity under the Revolving Credit Facility of up to ~~fund U.S. operations unless repatriated. Our intention is to permanently reinvest earnings from our foreign subsidiaries. While we do not intend to do so, if this cash had been repatriated~~an additional $500 million. There were no borrowings outstanding under the Revolving Credit Facility at September ~~24, 2017,~~26, 2021.

We have agreements in place with financial institutions to provide for the issuance of commercial paper. The outstanding balance of commercial paper can fluctuate daily and the amount outstanding during the period may be greater than or less than the amount reported at the end of ~~additional U.S. federal income tax that would be due after considering foreign tax credits would~~the period. There were no commercial paper borrowings outstanding as of September 26, 2021 and December 31, 2020. We may, as conditions warrant, from time to time issue commercial paper backed by our Revolving Credit Facility to manage the timing of cash flows. However, as described under Item 1A, Risk Factors of our 2020 Form 10-K, depending on market conditions, commercial paper may not be ~~significant.~~available on favorable terms or at all.

Our outstanding debt, net of unamortized discounts and issuance costs was ~~$14.3~~$11.7 billion as of September ~~24, 2017~~26, 2021 and ~~mainly~~ is in the form of publicly-issued notes that bear interest at fixed rates. In September 2021, we repaid $500 million of long-term notes with a fixed interest rate of 3.35% according to their scheduled maturities. As of September ~~24, 2017,~~26, 2021, we were in compliance with all covenants contained in our debt and credit agreements. ~~Except for~~Other than the ~~increase~~$500 million debt redemption in ~~our outstanding principal amount as a result of~~September 2021 and the ~~debt exchange described above,~~new Revolving Credit Facility in August 2021, there were no material changes during the quarter or nine months ended September ~~24, 2017~~26, 2021 to our contractual commitments as presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our ~~2016~~2020 Form 10-K that were outside the ordinary course of our business.

At September 24, 2017, we had a $2.5 billion revolving credit facility (the 5-year Facility) with various banks that is available for general corporate purposes and expires on October 9, 2021. The undrawn portion of the 5-year Facility is also available to serve as a backup facility for the issuance of commercial paper. Effective October 9, 2017, we extended the expiration date of the 5-year Facility from October 9, 2021 to October 9, 2022. We may request and the banks may grant, at their discretion, an increase in the borrowing capacity under the 5-year Facility of up to an additional $500 million. There were no borrowings outstanding under the 5-year Facility as of September 24, 2017.

We have agreements in place with financial institutions to provide for the issuance of commercial paper. There were no commercial paper borrowings outstanding as of September 24, 2017. However, we may as conditions warrant issue commercial paper backed by our credit facility to manage the timing of our cash flows.

On occasion, our customers may seek deferred payment terms to purchase our products. In connection with these transactions, we may enter into arrangements for the non-recourse sale of customer receivables to unrelated third–party financial institutions. For accounting purposes, these transactions are treated as a sale of receivables and the sale proceeds from the financial institutions are reflected in our operating cash flows on the statement of cash flows. During the quarter and nine months ended September 24, 2017, we sold approximately $146 million~~and$511 million of customer receivables. There were no gains or losses related to sales of these receivables.~~

Our total equity was $2.2 billion at September 24, 2017, an increase of $569 million from December 31, 2016. The increase was primarily attributable to net earnings of $2.6 billion, $605 million in postretirement benefit plan expense and gains, and $283 million in stock-based awards and employee stock ownership plan (ESOP) activity. These increases were partially offset by dividends declared of $1.6 billion and the repurchase of 5.4 million shares for $1.5 billion. 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. Due to the volume of repurchases made under our share repurchase program, additional paid-in capital was reduced to zero, with the remainder of the excess purchase price over par value of $1.2 billion recorded as a reduction of retained earnings during the nine months ended September 24, 2017.

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OTHER MATTERS

Status of the F-35 Program

The F-35 program primarily consists of ~~development contracts,~~ production contracts, sustainment activities, and ~~sustainment activities. The~~new development contracts are being performed concurrent with the production contracts. Concurrent performance of development and production contracts is used for complex programs to test aircraft, shorten the time to field systems, and achieve overall cost savings. We expect the System Development and Demonstration portion of the development contracts will be substantially complete in 2017, with less significant efforts continuing into 2019.efforts. Production of the aircraft is expected to continue for many years given the U.S. Government’s current inventory objective of ~~2,443~~2,456 aircraft for the U.S. Air Force, U.S. Marine Corps, and U.S. Navy; commitments from our ~~eight~~seven international ~~partners~~partner countries and ~~three~~six international customers; as well as expressions of interest from other countries. During the second quarter of 2021, Switzerland's Federal Council announced its decision to purchase the F-35A Conventional Takeoff and Landing (CTOL) aircraft along with sustainment and training services, as part of their Air 2030 modernization program.

~~Operationally,~~During the U.S. Government continues to complete various tests, including ship trials, mission system evaluations and weapons testing, and the F-35 aircraft fleet recently surpassed 108,000 flight hours. Progress also continues on the production of aircraft. In January 2017, the program achieved a major milestone when the U.S. Navy received its first F-35C carrier variant at NAS Lemoore, California, asquarter ended September 26, 2021, we continue to advance towards the U.S. Navy declaring the F-35C carrier variant ready for combat. The U.S. Marine Corps completed the deployment of 10 F-35B variants now permanently assigned to Marine Corps Air Station Iwakuni, Japan. In June 2017, the first Japanese assembled F-35A variant was unveiled at the Final Assembly and Check Out (FACO) facility in Nagoya, Japan. This aircraft, delivered in September, marks the first of nearly 40 jets that will be produced for the Japanese Ministry of Defense at this location. Similarly, in May 2017, the first F-35B variant to be assembled outside the U.S. was rolled out at the Italian FACO facility, which has already delivered multiple F-35A variants and is slated to produce over 100 aircraft in total. As of September 24, 2017, we have delivered 24436 production aircraft to our U.S. and international ~~partners,~~partner countries, and weinternational customers, resulting in total deliveries of 701 production aircraft. We have ~~257~~282 production aircraft in backlog, including orders from our international ~~partners.~~partner customers and countries.

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In response to COVID-19 F-35 supplier delays and in conjunction with the F-35 Joint Program Office, we tapered our production rate in 2020. In 2021, we continue to be impacted by COVID-19 but expect the production rate to improve from its 2020 levels and deliver 133-139 aircraft in 2021. As agreed with the F-35 Joint Program Office in September 2021, we anticipate delivering 151-153 aircraft in 2022 and 156 aircraft in 2023 and stabilizing at that rate for future years of the program. See the discussion in Business Overview - COVID-19.

Given the size and complexity of the F-35 program, we anticipate that there will be continual reviews related to aircraft performance, program schedule, cost, and requirements as part of the DoD, Congressional, and international ~~partners’~~partner countries’ oversight and budgeting processes. Current program challenges include, but are not limited to supplier and partner performance, software development, receiving funding for contracts on a timely basis, the level of cost associated with life cycle operations, ~~and~~ sustainment and warranties, ~~receiving funding for production contracts on a timely basis,~~and executing future flight tests and supporting the resulting findings ~~resulting~~ from testing and operating the aircraft.

Contingencies

See “Note ~~7 –~~8 - Legal Proceedings and Contingencies” included in our Notes to Consolidated Financial Statements for information regarding our contingent obligations, including off-balance sheet arrangements.

Critical Accounting Policies

~~Other than updating our actuarial assumptions used to measure our qualified defined benefit pension obligation and the adoption of ASU No. 2017-04,~~ ~~Intangibles-Goodwill and Other (Topic 350),~~ ~~disclosed in "Note 10 – Other" included in our Notes to Consolidated Financial Statements (under the caption “Recent Accounting Pronouncements”), there~~There have been no significant changes to the critical accounting policies we disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~2016 Annual Report on~~2020 Form ~~10-K.~~

~~Postretirement Benefit Plans~~

~~We measure our net obligations~~10-K, except for an update related to our postretirement benefit plans ~~annually at year end,~~to describe changes to our funding requirements and the amount of pension costs recoverable under contracts with the U.S. Government as a result of the American Rescue Plan Act of 2021 in our Form 10-Q for the quarter ended March 28, 2021. Additionally, as set forth below, we have updated our defined benefit plan disclosures to reflect the impact of the purchase of group annuity contracts on August 3, 2021.

Postretirement Benefit Plans

Overview

On August 3, 2021, we purchased group annuity contracts to transfer $4.9 billion of gross defined benefit pension obligations and related plan assets to an insurance company for approximately 18,000 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 by us. This transaction has 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 pension settlement charge of $1.7 billion ($1.3 billion, or $4.72 per share, after tax) for the affected defined benefit pension plans (the Affected Plans) in the quarter ended September 26, 2021, which ~~are largely dependent upon several key economic~~represents the accelerated recognition of actuarial losses that were included in the accumulated other comprehensive loss account within stockholders’ equity.

As a result of this transaction, we were required to remeasure the benefit obligations and assets related to the Affected Plans as of the August 3, 2021 close date (the Remeasurement Date). The remeasurement reflects the use of updated actuarial ~~assumptions. If we assume a~~assumptions, primarily the discount rate, ~~at the end of 2017 of 3.875% (a 25 basis point decrease from the end of 2016), a 9.00%~~and actual return on plan assets described in ~~2017 (a 150 basis point increase from the expected rate~~further detail below.

Actuarial Assumptions

The benefit obligations and assets of ~~return~~our postretirement benefit plans are measured at the end of ~~2016)~~each year, or more frequently, upon the occurrence of certain events such as a significant plan amendment, settlement or curtailment. The amounts we record are measured using actuarial valuations, which are dependent upon key assumptions such as discount rates, the expected long-term rate of return on plan assets, participant longevity, and ~~all other assumptions are held constant, we expect the net 2018 FAS/CAS pension adjustment to be approximately $860 million. With these~~employee turnover. The assumptions we ~~expect~~make affect both the ~~amount~~calculation of the ~~qualified defined~~ benefit obligations as of the measurement date and the calculation of FAS pension ~~plan obligation~~expense in subsequent periods.

As described above, we remeasured the benefit obligations and assets related to ~~be recorded at~~ the ~~end~~Affected Plans as of ~~2017~~the August 3, 2021 close date. When calculating the benefit obligations related to the Affected Plans, we utilized a discount rate of 2.75% as of the Remeasurement Date, compared to 2.50% as of December 31, 2020. The increase ~~resulting~~in the discount resulted in a ~~non-cash, after-tax~~ decrease ~~in equity~~ of approximately $1.3 ~~billion.~~

billion in the projected benefit obligations.

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A change of plus or minus 25 basis points to the assumed discount rate of 3.875%, with all other assumptions held constant, would result in an incremental non-cash, after-tax increase or decrease to equity at the end of 2017 of approximately $1.0 billion, with a corresponding incremental increase or decrease of approximately $115 million to the estimated net 2018 FAS/CAS pension adjustment discussed above.

~~A change of plus or minus 100 basis points to the 2017~~The actual return on plan assets ~~with all other~~for the period January 1, 2021 through August 3, 2021 for the Affected Plans was approximately 8.00%, or $3.2 billion, which was approximately $1.6 billion higher (the incremental return) than our expected return on plan assets of approximately 4.00%, or $1.6 billion (the proportional effect, or approximately seven twelfths, of our previously expected 7.00% annual long-term rate of return on plan assets assumption), for the period January 1, 2021 through August 3, 2021. The incremental return of $1.6 billion on plan assets was recognized in the remeasurement of the assets related to the Affected Plans.

When calculating FAS pension expense for periods subsequent to the Remeasurement Date, we lowered our expected long-term rate of return on plan assets from 7.00% utilized as of December 31, 2020 to 6.50% as of the Remeasurement Date, which reflects recent changes in our asset allocation targets.

Longevity assumptions ~~held constant, would result in an incremental non-cash, after-tax increase or decrease~~are used to ~~equity~~estimate the life expectancy of plan participants during which they are expected to receive benefit payments. The longevity assumptions utilized to calculate the benefit obligations at the ~~end~~Remeasurement Date were unchanged from December 31, 2020.

The plan remeasurements resulted in a decrease of $2.9 billion to our net unfunded pension obligations (which includes the ~~2017~~change in benefit obligation primarily related to the higher discount rate utilized in the remeasurement of ~~approximately $200 million,~~$1.3 billion and the incremental return on plan assets recognized in remeasurement of $1.6 billion) with a corresponding increase of $2.3 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 2021. However, deferred net actuarial gains or losses in stockholders’ equity are adjusted annually when the funded status of our postretirement benefit plans are measured, which will result in additional changes to our FAS pension income or expense in future periods.

The purchase of the group annuity contracts and the remeasurement did not have an impact on our CAS pension cost and did not significantly impact our total FAS pension expense or net FAS/CAS pension adjustment for the quarter ended September 26, 2021 or expected full year 2021, except for the noncash pension settlement charge. The increase in the discount rate, incremental ~~increase or decrease~~return on plan assets, and settlement charge reduced FAS pension expense in future periods, which was offset by the impact of the lower expected long-term rate of return on plan assets.

Funding Considerations

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.

Contributions to our defined benefit pension plans are recovered over time through the pricing of our products and services on U.S. Government contracts, including FMS, and are recognized in our cost of sales and net sales. CAS govern the extent to which our pension costs are allocable to and recoverable under contracts with the U.S. Government, including FMS. Pension cost recoveries under CAS occur in different periods from when pension contributions are made under the Pension Protection Act of 2006.

As previously disclosed, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eased funding requirements for single-employer defined benefit pension plans under the ERISA, as amended, by restarting and extending the amortization of funding shortfalls and extending and enhancing interest rate stabilization percentages, among many other stimulus measures. These changes have the effect of lowering our minimum funding requirements and CAS pension costs from what they otherwise would have been had the measures not been enacted. As permitted under the law, we will adopt the funding amortization change by 2020 and the interest rate stabilization in 2022.

We made no contributions to our qualified defined benefit pension plans during the quarters and nine months ended September 26, 2021.

Trends

We now expect FAS pension expense of approximately ~~$20~~ $1.4 billion in 2021, inclusive of the noncash pension settlement charge of $1.7 billion (pretax) described above, compared to our prior estimate of FAS pension income of $265

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million in 2021. Excluding the noncash pension settlement charge, our adjusted FAS pension income will be approximately $265 million in 2021, which is consistent with our prior 2021 FAS pension income estimate.

Our CAS cost was not impacted by the purchase of the group annuity contracts or the remeasurement of the benefit pension obligations and related assets related to the ~~estimated net 2018~~Affected Plans described above. Therefore, we continue to expect our CAS pension cost will be approximately $2.1 billion in 2021, which is consistent with our prior 2021 CAS pension cost estimate.

We now expect FAS/CAS pension ~~benefit discussed above.~~

income of approximately $665 million in 2021, inclusive of the noncash pension settlement charge of $1.7 billion (pretax) described above, compared to our prior estimate of FAS/CAS pension income of $2.3 billion in 2021. Excluding the noncash pension settlement charge, our adjusted FAS/CAS pension income will be approximately $2.3 billion in 2021, which is consistent with our prior 2021 FAS/CAS pension income estimate.

We ~~expect~~do not plan to make contributions ~~of $1.6 billion~~ to our qualified defined benefit pension plans in ~~2018. We anticipate recovering approximately $2.5 billion of CAS pension cost~~2021, consistent with our 2021 financial outlook provided in ~~2018.~~July 2021.

Accounting for postretirement benefit plans under GAAP requires that the amounts we record are computed using actuarial valuations. These valuations utilize many assumptions, including those we make regardingFor 2022 financial markets and other economic conditions and longevity. Changes in those annual assumptions can impact our total equity at any given year end, and the amount of expense we record for our postretirement benefits plans in the following year. We will finalize the postretirement benefit plan assumptions and determine the 2017 actual return on plan assets on December 31, 2017. The final assumptions and the actual investment returns for 2017 may differ materially from those discussed above. Please refertrending information related to our ~~critical accounting policies under the caption “Postretirement Benefit Plans”~~qualified defined benefit pension plans, see “2022 Financial Trends” in ~~our 2016 Annual Report on Form 10-K for a more detailed discussion~~Management’s Discussion and Analysis of ~~the significant assumptions we must make, in addition to information regarding our ability to recover our pension costs in the pricing~~Financial Condition and Results of ~~our contracts.~~Operations.

Goodwill and Intangible Assets

As disclosed in "Note 10 – Other" included in our Notes to Consolidated Financial Statements (under the caption “Recent Accounting Pronouncements”), at the beginning of the quarter ended September 24, 2017, we adopted ASU No. 2017-04, ~~Intangibles-Goodwill and Other (Topic 350),~~ ~~which eliminates the requirement to compare the implied fair~~The carrying value of reporting unit goodwill with the carrying amount of that goodwill (commonly referred to as Step 2) from the current goodwill impairment test. We elected to adopt the new standard at the beginning of the third quarter of 2017 because it significantly simplifies the evaluation of goodwill for impairment and we have updated our ~~critical accounting policy for goodwill to reflect the adoption of the new standard.~~

The assets and liabilities of acquired businesses are recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying identifiable net assets of acquired businesses.

~~Our~~ goodwill balance was $10.8 billion at ~~both~~ September ~~24, 2017 and December 31, 2016. We perform an impairment test~~26, 2021, including $2.7 billion of ~~our~~ goodwill at least annually in the fourth quarter or more frequently whenever events or changes in circumstances indicate the carrying value of goodwill may be impaired. Such events or changes in circumstances may include a significant deterioration in overall economic conditions, changes in the business climate of our industry, a decline in our market capitalization, operating performance indicators, competition, reorganizations of our business, U.S. Government budget restrictions or the disposal of all or a portion of a reporting unit. Our goodwill has been allocated to and is tested for impairment at a level referred to as the reporting unit, which is our business segment level or a level below the business segment. The level at which we test goodwill for impairment requires us to determine whether the operations below the business segment constitute a self-sustaining business for which discrete financial information is available and segment management regularly reviews the operating results.

We may use both qualitative and quantitative approaches when testing goodwill for impairment. For selected reporting units where we use the qualitative approach, we perform a qualitative evaluation of events and circumstances impacting the reporting unit to determine the likelihood of goodwill impairment. Based on that qualitative evaluation, if we determine it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, no further evaluation is necessary. Otherwise we perform a quantitative impairment test. We perform quantitative tests for most reporting units at least once every three years. However, for certain reporting units we may perform a quantitative impairment test every year.

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During the quantitative impairment test we compare the fair value of a reporting unit to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the carrying value of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment loss is recognized in an amount equal to that excess. We generally estimate the fair value of each reporting unit using a combination of a discounted cash flow (DCF) analysis and market-based valuation methodologies such as comparable public company trading values and values observed in recent business acquisitions. Determining fair value requires the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates, discount rates and relevant comparable public company earnings multiples and relevant transaction multiples. The cash flows employed in the DCF analysis are based on our best estimate of future sales, earnings and cash flows after considering factors such as general market conditions, U.S. Government budgets, existing firm orders, expected future orders, contracts with suppliers, labor agreements, changes in working capital, long term business plans and recent operating performance. The discount rates utilized in the DCF analysis are based on the respective reporting unit’s weighted average cost of capital, which takes into account the relative weights of each component of capital structure (equity and debt) and represents the expected cost of new capital, adjusted as appropriate to consider the risk inherent in future cash flows of the respective reporting unit. The carrying value of each reporting unit includes the assets and liabilities employed in its operations, goodwill and allocations of amounts held at the business segment and corporate levels.

~~The carrying value of~~ our Sikorsky reporting ~~unit included goodwill of $2.7 billion as of September 24, 2017.~~unit. In ~~our most recent annual goodwill impairment analysis, which was performed in~~ the fourth quarter of ~~2016,~~2020, we performed our annual impairment test for goodwill, and the results of that test indicated no impairment existed. As of the date of our 2020 annual impairment test, we estimated that the fair value of our Sikorsky reporting unit exceeded its carrying value for goodwill by a margin of approximately ~~10%~~30%. We ~~acquired~~will perform our next annual goodwill impairment test during the fourth quarter of 2021 and will perform a quantitative assessment of the fair value of our Sikorsky ~~in November 2015 and recorded the assets acquired and liabilities assumed at fair value. Due to the acquisition and valuation, the carrying value and~~reporting unit.

The fair value of our Sikorsky reporting unit ~~are currently closely aligned. Therefore, any business deterioration,~~can be significantly impacted by its performance, the amount and timing of expected future cash flows, contract ~~cancellations or~~ terminations, ~~or negative~~ changes in expected future orders, general market ~~factors could cause our sales, earnings and cash flows to decline below current projections. Similarly, market factors utilized in the impairment analysis,~~pressures, including ~~long-term~~U.S. Government budgetary constraints, discount rates, long term growth rates, ~~discount rates~~ and ~~relevant comparable public company earnings multiples~~changes in U.S. (federal or state) or foreign tax laws and ~~transaction multiples, could negatively impact the fair value of our reporting units.~~regulations, or their interpretation and application, including those with retroactive effect, along with other significant judgments. Based on our assessment of these circumstances, we have determined that goodwill at our Sikorsky reporting unit is at risk for impairment should there be a deterioration of projected cash flows ~~negative changes in market factors or a significant increase in the carrying value~~ of the reporting unit.

~~Impairment assessments inherently involve management judgments regarding~~We do not currently anticipate any material impairments on our assets as a ~~number~~result of ~~assumptions such as those described above. Due to the many variables inherent in the estimation of a reporting unit’s fair value and the relative size~~COVID-19. See Item 1A, Risk Factors of our ~~recorded goodwill, differences in assumptions could have~~2020 Form 10-K for a ~~material effect~~discussion of the potential impacts of COVID-19 on ~~the estimated fair value of one or more of our reporting units and could result in a goodwill impairment charge in a future period.~~

~~Intangible assets~~

The carrying value of our Sikorsky indefinite-lived trademark intangible asset was $887 million as of September 24, 2017. In our most recent annual impairment analysis, which was performed in the fourth quarter of 2016, we estimated that the fair value of ~~this intangible asset approximated its carrying value and no impairment existed. Additionally,~~ our Sikorsky business has finite-lived customer program intangible assets and inventories with carrying values of $2.7 billion and $2.1 billion as of September 24, 2017. The carrying value and fair value of Sikorsky’s intangible assets and inventories are currently closely aligned due to the recent acquisition of Sikorsky. Therefore, any business deterioration, contract cancellations or terminations, or negative changes in market factors could cause our sales to decline below current projections. Based on our assessment of these circumstances, we have determined that our Sikorsky intangible assets and inventories are at risk for impairment should there be any business deterioration, contract cancellations or terminations, or negative changes in market factors.assets.

Recent Accounting Pronouncements

See “Note ~~10 – Other”~~12 - Recent Accounting Pronouncements” included in our Notes to Consolidated Financial Statements ~~(under the caption “Recent Accounting Pronouncements”)~~ for information related to new accounting standards.

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

As disclosed in ~~Item~~“Item 7A, ~~“Quantitative~~Quantitative and Qualitative Disclosures About Market Risk” of our ~~Annual Report on~~2020 Form 10-K, ~~for the year ended December 31, 2016,~~ 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 ~~other~~ exposures to market risk have not changed materially since December 31, ~~2016.~~2020. See “Note ~~8 –~~9 - Fair Value Measurements” included in our Notes to Consolidated Financial Statements for additional discussion.

ITEM 4. ~~Controls and Procedures~~

~~Evaluation of Disclosure~~ Controls and Procedures

We performed an evaluation of the effectiveness of our disclosure controls and procedures as of September ~~24, 2017.~~26, 2021. The evaluation was performed with the participation of senior management of each business segment and key corporate functions, under the supervision of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were not effective due to the existence of a previously reported material weakness in internal control over financial reporting at Sikorsky Aircraft Corporation (Sikorsky). We acquired Sikorsky on November 6, 2015. Sikorsky operates as a business unit in our Rotaryoperating and Mission Systems business segment. The material weakness was identified and discussed in “Part II – Item 9A – Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2016.

Notwithstanding the identified material weakness, management, including our CEO (principal executive officer) and CFO (principal financial officer), believes the consolidated financial statements included in this Form 10-Q fairly represent in all material respects our financial condition, results of operations and cash flows for the periods presented in accordance with U.S. GAAP.

~~Description of Material Weakness~~

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system is designed to provide reasonable assurance to our management and Board of Directors regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes.

Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2016. This assessment was based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013 framework). Based on this assessment, because of the effect of the material weakness at Sikorsky, as described in the following paragraph, management concluded that a material weakness existed in Lockheed Martin’s internal control over financial reporting and as a result, management determined that Lockheed Martin’s internal control over financial reporting was not effective as of December 31, 2016. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements could occur but will not be prevented or detected on a timely basis.

Sikorsky was acquired on November 6, 2015 and generated about 10% of our total net sales for the year ended December 31, 2016. Prior to 2016, Sikorsky was not included in the assessment of the effectiveness of our internal control over financial reporting as the U.S. Securities and Exchange Commission (SEC) rules provide companies one year to assess controls at an acquired entity. Accordingly, during 2016, we performed our first comprehensive assessment of the design and operating effectiveness of internal controls at Sikorsky and determined that Sikorsky’s internal control over financial reporting was ineffective as of December 31, 2016. Specifically, Sikorsky did not adequately identify, design and implement appropriate process-level controls for its accounting processes, including Sikorsky’s contract accounting and sales recognition processes, inventory accounting process and payroll process, and appropriate information technology controls for its information technology systems. There were no material errors in our financial results or balances identified as a result of the control deficiencies, and there was no restatement of prior period financial statements and no change in previously released financial results were required as the result of these control deficiencies.

September 26, 2021.

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~~Remediation Efforts to Address Material Weakness~~

Our management continues to improve controls at Sikorsky in order to remediate the material weakness in Lockheed Martin’s internal control over financial reporting. During the first nine months of 2017, we implemented several actions at Sikorsky, including increasing the number of individuals responsible for implementing and monitoring controls; training individuals responsible for designing, executing, testing and monitoring controls; expanding the scope of the internal controls program to include additional information technology systems; adding new process-level and information technology controls; modifying existing controls; and enhancing documentation that evidences that controls are performed. These actions are ongoing and we will continue to make additional improvements during the remainder of 2017. During the second quarter of 2017, we began testing the design of process-level and information technology controls, which was substantially completed by the end of the third quarter of 2017. During the third quarter of 2017, we also began testing the operating effectiveness of process-level and information technology controls and we expect all testing to be complete as of December 31, 2017. Such controls must be in place and operating effectively for a sufficient period of time in order to validate the full remediation of the material weakness. We continue to expect that the remediation of this material weakness will be completed as of December 31, 2017.

~~Changes in Internal Control Over Financial Reporting~~

~~Other than the remediation efforts identified above to address the material weakness, there~~There were no changes in our internal control over financial reporting ~~identified in connection with the evaluation required by Rules 13a - 15(d) and 15d - 15(d) of the Exchange Act that occurred~~ during the quarter ended September ~~24, 2017~~26, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Forward-Looking Statements

This Form 10-Q contains statements that, to the extent they are not recitations of historical fact, constitute forward-looking statements within the meaning of the federal securities laws, and are based on our current expectations and assumptions. The words “believe,” “estimate,” “anticipate,” “project,” “intend,” “expect,” “plan,” “outlook,” “scheduled,” “forecast” and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks and uncertainties. Actual results may differ materially due to factors such as:

•the impact of COVID-19 or future epidemics on our business, including potential supply chain disruptions, facility closures, work stoppages, program delays, payment policies and regulations, our ability to recover our costs under contracts and the impacts of implementation of vaccine mandates on our workforce and business;

•budget uncertainty, the risk of future budget cuts, the debt ceiling and the potential for government shutdowns and changing funding and acquisition priorities;

•our reliance on contracts with the U.S. Government, ~~all of~~ which are ~~conditioned upon the availability of~~dependent on U.S. Government funding and can be terminated ~~by the U.S. Government~~ for convenience, and our ability to negotiate favorable contract terms;

budget uncertainty, any failure to further raise the debt ceiling, and the potential for a government shutdown; affordability initiatives; the implementation of automatic sequestration under the Budget Control Act of 2011 or Congressional actions intended to replace sequestration;

•risks related to the development, production, sustainment, performance, schedule, cost and requirements of complex and technologically advanced programs including our largest, the F-35 program;

•planned production rates and orders for significant programs; compliance with stringent performance and reliability standards; materials availability;

•performance and financial viability of key suppliers, teammates, joint ventures and partners, subcontractors and customers;

•economic, industry, business and political conditions ~~(domestic and international)~~ including their effects on governmental ~~policy;~~policy and government actions that disrupt our supply chain or prevent the sale or delivery of our products (such as delays in approvals for exports requiring Congressional notification);

•trade policies or sanctions (including potential Chinese sanctions on us or our suppliers, teammates or partners; U.S. Government sanctions on Turkey and its removal from the F-35 program and potential U.S. Government actions to restrict sales to the Kingdom of Saudi Arabia and the United Arab Emirates);

•our success expanding into and doing business in adjacent markets and ~~internationally;~~internationally and the differing risks posed by international sales, including those involving commercial relationships with unfamiliar customers and different cultures; that in some instances our ability to recover investments is dependent upon the successful operation of ventures that we do not control; and sales;

•changes in foreign national priorities and foreign government ~~budgets;~~budgets and planned orders;

•the competitive environment for our products and services, including increased pricing pressures, aggressive pricing in the absence of cost realism evaluation criteria, competition from ~~outside the aerospace~~emerging competitors including startups and non-traditional defense ~~industry,~~contractors, and ~~increased~~ bid protests;

~~planned production rates for significant programs; compliance with stringent performance and reliability standards; materials availability;~~

~~the performance and financial viability of key suppliers, teammates, ventures, venture partners, subcontractors and customers;~~

•the timing and customer acceptance of product ~~deliveries;~~deliveries and performance milestones;

•our ability to ~~continue to innovate and~~ develop new technologies and products, including emerging digital and network technologies and capabilities;

•our ability to attract and retain ~~key personnel and transfer knowledge to new personnel;~~a highly skilled workforce; the impact of work stoppages or other labor disruptions;

~~the impact of~~ •cyber or other security threats or other disruptions tofaced by us or our ~~businesses;~~suppliers;

•our ability to implement and continue, and the timing and impact of, capitalization changes such as share ~~repurchase activity~~repurchases and ~~payment of dividends, pension funding as well as the pace and effect of any such capitalization changes;~~dividend payments;

•our ability to recover ~~certain~~ costs under U.S. Government contracts, our mix of fixed-price and ~~changes~~cost-reimbursable contracts and the impacts of cost overruns and significant increases in ~~contract mix;~~inflation;

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•the accuracy of our estimates and ~~projections and~~ projections;

•the ~~potential~~ impact of ~~changes in U.S. or foreign tax laws;~~

pension risk transfers, including potential noncash settlement charges; timing and estimates regarding pension funding and movements in interest rates and other changes that may affect pension plan assumptions, stockholders’ equity, the level of the FAS/CAS ~~adjustment and~~adjustment; actual returns on pension plan ~~assets;~~assets and the impact of pension related legislation;

•the successful operation of joint ventures that we do not control;

•realizing the anticipated benefits of acquisitions or divestitures, investments, joint ventures, teaming arrangements or internal reorganizations, and market volatility in the fair value of investments in our Lockheed Martin Ventures Fund that are marked to market;

•risks related to our proposed acquisition of Aerojet Rocketdyne, including the failure to obtain, delays in obtaining or adverse conditions contained in any required regulatory approvals and our ability to successfully and timely integrate the business and realize synergies and other expected benefits of the transaction;

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•our efforts to increase the efficiency of our operations and improve the affordability of our products and services;

•the ~~ability to realize synergies and other expected benefits of the Sikorsky acquisition; remediation of the material weakness in internal control over financial reporting related to Sikorsky;~~

risk of an impairment of ~~goodwill, investments or other long-term~~our assets, including the potential impairment of goodwill ~~intangible assets and inventory~~ recorded as a result of the ~~Sikorsky~~ acquisition ~~if Sikorsky does not perform as expected, has a deterioration of projected cash flows, negative changes in market factors, including oil and gas trends, or a significant increase in carrying value~~ of the ~~reporting unit;~~Sikorsky business;

~~risks related to~~ •the ~~achievement of the intended benefits~~availability and ~~tax treatment of the divestiture of our former IS&GS business;~~

~~the~~ adequacy of our insurance and indemnities;

~~the effect~~•our ability to benefit fully from or adequately protect our intellectual property rights;

•procurement and other regulations and policies affecting our industry, export of ~~changes in (or the interpretation of): legislation, regulation or policy, including those applicable to procurement (including competition from fewer and larger prime contractors),~~our products, cost allowability or recovery, preferred contract type, and performance and progress payments policy, including a reversal or modification to the DoD’s increase to the progress payment rate in response to COVID-19;

•changes in accounting, ~~taxation,~~U.S. or ~~export;~~foreign tax, export or other laws, regulations, and policies and their interpretation or application; and

•the outcome of legal proceedings, bid protests, environmental remediation efforts, audits, government investigations or government allegations that we have failed to comply with law, other contingencies and U.S. Government identification of deficiencies in our business systems.

These are only some of the factors that may affect the forward-looking statements contained in this Form 10-Q. For a discussion identifying additional important factors that could cause actual results to ~~vary~~differ materially from those anticipated in the forward-looking statements, see our filings with the U.S. Securities and Exchange Commission (SEC) including, but not limited to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2020 and subsequent Quarterly Reports on Form 10-Q. Our filings may be accessed through the Investor Relations page of our website, www.lockheedmartin.com/investor, or through the website maintained by the SEC at www.sec.gov.

Our actual financial results likely will be different from those projected due to the inherent nature of projections. Given these uncertainties, forward-looking statements should not be relied on in making investment decisions. The forward-looking statements contained in this Form 10-Q speak only as of the date of its filing. Except where required by applicable law, we expressly disclaim a duty to provide updates to forward-looking statements after the date of this Form 10-Q to reflect subsequent events, changed circumstances, changes in expectations, or the estimates and assumptions associated with them. The forward-looking statements in this Form 10-Q are intended to be subject to the safe harbor protection provided by the federal securities laws.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

We are a party ~~to or have property subject~~ to litigation and other proceedings that arise in the ordinary course of our business, including matters arising under provisions relating to the protection of the 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 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 in any particular interim reporting period. We cannot predict the outcome of legal or other proceedings with certainty. These matters include the proceedings summarized in “Note ~~7 –~~8 - Legal Proceedings and Contingencies” included in our Notes to Consolidated Financial Statements and “Note 1415 – Legal Proceedings, Commitments and Contingencies” in our Annual Report on Form 10-K for the year ended December 31, ~~2016 (2016~~2020 (2020 Form 10-K) filed with the U.S. Securities and Exchange Commission.

We are subject to federal, state, local and foreign requirements for the protection of the environment, including those for discharge of hazardous ~~substances~~materials and remediation of contaminated sites. ~~As a result,~~Due in part to the complexity and pervasiveness of these requirements, we are a party to or have ~~our~~ property subject to various lawsuits, or proceedings ~~involving environmental protection matters. Due in part to their complexity and pervasiveness, such requirements have resulted in us being involved with related legal proceedings, claims~~ and remediation obligations. The extent of our financial exposure cannot in all cases be reasonably estimated at this time. For information regarding ~~these~~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 “Note ~~7 –~~8 - Legal Proceedings and Contingencies” included in our Notes to Consolidated Financial Statements. See also “Critical Accounting Policies – Environmental Matters” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Note 1415 – Legal Proceedings, Commitments and Contingencies”, each in our ~~2016~~2020 Form 10-K, for a description of previously reported matters.

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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.

ITEM 1A. Risk Factors

While we attempt to identify, manage and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. “Item 1A. Risk Factors” of our ~~2016~~2020 Form 10-K describes some of the risks and uncertainties associated with our business, including U.S. Government funding, as further described in the “Industry Considerations” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q. These risks and uncertainties have the potential to materially affect our business, results of operations, financial condition, cash flows, projected results and future prospects. WeExcept for the risk factors discussed below, we do not believe that there have been any material changes to the risk factors disclosed in our ~~2016~~2020 Form 10-K.

U.S. Government sanctions on Turkey could adversely impact our results of operations and cash flows.

As a result of Turkey accepting delivery of the Russian S-400 air and missile defense system, the U.S. Government removed Turkey from the F-35 program in 2019 and in December 2020 imposed sanctions on Turkey’s defense procurement agency (SSB) and certain of the agency’s officers under the Countering America’s Adversaries Through Sanctions Act (CAATSA). The primary sanction imposed was a restriction on all new U.S. export licenses and authorizations for any goods or technology transferred to the SSB. This sanction does not apply to current, valid export licenses and authorizations, however, it does apply to any modifications or extensions thereof. We expect the U.S. Government to continue to engage Turkey on these issues, but we have no indication that the sanctions will be removed, that additional sanctions will not be imposed or that Turkey will not issue reciprocal sanctions.

Turkish suppliers continue to produce component parts for the F-35 program, some of which are single-sourced. We have made significant progress transitioning to non-Turkish suppliers, but due to the procedure to qualify new parts and suppliers, this collaborative process between DoD and Lockheed Martin is ongoing. During 2020, the DoD publicly confirmed that Turkish suppliers would be permitted to provide certain components for the F-35 through 2022. Efforts to date to re-establish our replacement capacity have significantly reduced our risk, but final resolution on a limited number of remaining components could affect F-35 deliveries, and any accelerated work stoppage would impact cost. We will continue to follow official U.S. Government guidance as it relates to completed Turkish aircraft and the export and import of component parts from the Turkish supply chain. The effects on the F-35 program of the U.S. Government sanctions on the SSB and Turkey’s removal from the F-35 program do not appear to be significant at this time. However, unforeseen actions could impact the timing of orders, disrupt the production of aircraft, delay delivery of aircraft, disrupt delivery of sustainment components produced in Turkey and impact funding on the F-35 program to include the result of any reprogramming of funds that may be necessary to mitigate the impact of alternate sources for component parts made in Turkey. While, in the case of the F-35 program, we expect that these costs ultimately would be recovered from the U.S. Government, the availability or timing of any recovery could adversely affect our cash flows and results of operations.

We have a number of contracts with Turkish industry for the Turkish Utility Helicopter Program (TUHP), which anticipates the co-production program with Turkish industry for production of T70 helicopters for use in Turkey, as well as the related provision of Turkish goods and services under buy-back or offset obligations, to include the future sales of helicopters built in Turkey for sale globally. Although existing export licenses should not be subject to the current sanctions, we continue to expect pending and future export licensing applications and any required modifications, extensions or changes in scope to the existing licenses, where SSB is a party to the underlying transaction to be denied, adversely affecting our ability to perform the affected contracts. For example, since April 2021, we have received multiple denials from the U.S. Department of State for export, import and manufacturing licenses pertaining to TUHP. These denials prevent us from performing certain significant obligations under contracts for the TUHP, which has and will affect our sales and impact our ability to recover certain costs. As a result of the denials we have provided force majeure notices under the affected contracts and these contracts may be restructured or terminated, which could result in a further

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reduction in sales, the imposition of penalties or assessment of damages, and increased unrecoverable costs. In addition, we have other programs where we work with Turkish industry, including for domestic U.S. Black Hawk® helicopter production, that rely on components from Turkish suppliers. While these commercial relationships are not affected by the current sanctions, they could be adversely affected by the imposition of additional sanctions.

Although the existing sanctions adversely affect our participation in TUHP as described above, they are not currently expected to have a material effect on our overall business, however, they may result in the loss of future sales opportunities to Turkey, and any future sanctions by the U.S. Government or reciprocal actions by Turkey or Turkish industry could result in further restrictions on exports or imports, reductions in backlog, return of advance payments, costs to develop alternate supply sources, restrictions on payments, force majeure events or contract restructurings or terminations. Such activity also could result in claims from our customers and suppliers, which may include both the amount established in any settlement agreements, the costs of evaluating settlement proposals and the costs of negotiating settlement agreements. These effects could have a material impact on our operating results, financial position and cash flows.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no sales of unregistered equity securities during the quarter ended September ~~24, 2017.~~26, 2021.

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 September ~~24, 2017.~~26, 2021.



Period (a)	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)	Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs (b)
					(in millions)
June 28, 2021 – July 25, 2021	1,643	$	380.77	—	$	1,511
July 26, 2021 – August 29, 2021 (c)	832,745	$	374.46	828,615	$	1,011
August 30, 2021 – September 26, 2021 (c)	582,120	$	—	582,120	$	6,011
Total(c)(d)	1,416,508	$	376.26	1,410,735

(a)We close our books and records on the last Sunday of each month to align our financial closing with our business processes, except for the month of December, as our fiscal year ends on December 31. As a result, our fiscal months often differ from the calendar months. For example, September 26, 2021 was the last day of our September 2021 fiscal month.

(b)In 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. From time to time, our Board of Directors authorizes increases to our share repurchase program. The total remaining authorization for future common share repurchases under our share repurchase program was $6.0 billion as of September 26, 2021, including a $5.0 billion increase to the program authorized by our Board of Directors on September 23, 2021. Under the program, management has discretion to determine the dollar amount of shares to be repurchased and the timing of any repurchases in compliance with applicable law and regulation. This includes purchases pursuant to Rule 10b5-1 plans, including accelerated share repurchases. The program does not have an expiration date.

(c)During the third quarter of 2021, we entered into an accelerated share repurchase (ASR) agreement to repurchase $500 million of our common stock. Under the terms of the ASR agreement, we paid $500 million and received an initial delivery of 828,615 shares of our common stock in August 2021. Upon final settlement of the ASR agreement in September 2021, we received an additional 582,120 shares of our common stock based on the average price paid per share of $354.43, calculated with reference to the volume-weighted average price (VWAP) of our common stock over the term of the agreement, less a negotiated discount.Average Price Paid Per Share in the table above does not include ASR shares.

(d)During the quarter ended September 26, 2021, the total number of shares purchased included 5,773 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 program.

Period ^(a)

Total Number
of Shares
Purchased

Average
Price Paid
Per Share

Total Number of
Shares
Purchased as
Part of Publicly
Announced Plans
or Programs ^(b)

Amount
Available for
Future Share
Repurchases
Under the
Plans or
Programs ^(b)
(in millions)
June 26, 2017 – July 30, 2017 779,459
$ 285.34
779,459
$ 2,282
July 31, 2017 – August 27, 2017 526,241
$ 300.68
526,000
$ 2,123
August 28, 2017 – September 24, 2017 393,706
$ 303.61
393,400
$ 2,004
Total 1,699,406
^(c)
$ 294.32
1,698,859

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ITEM 6. Exhibits


^(a) Exhibit No.			We close our books and records on the last Sunday of each month to align our financial closing with our business processes, except for the month of December, as our fiscal year ends on December 31. As a result, our fiscal months often differ from the calendar months. For example, September 24, 2017 was the last day of our September 2017 fiscal month.			Description


^(b)	In 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. From time to time, our Board of Directors authorizes increases to our share repurchase program. The total remaining authorization for future common share repurchases under our share repurchase program was $2.0 billion as of September 24, 2017. On September 28, 2017, subsequent to the end of our third quarter, our Board of Directors authorized a $2.0 billion increase to the program, which is not reflected in the table above as it occurred after the end of the fiscal quarter. Under the program, management has discretion to determine the dollar amount of shares to be repurchased and the timing of any repurchases in compliance with applicable law and regulation. This includes purchases pursuant to Rule 10b5-1 plans. The program does not have an expiration date.

^(c)

During the quarter ended September 24, 2017, the total number of shares purchased included 547 shares that were transferred to us by employees in satisfaction of tax withholding obligations associated with the vesting of restricted stock units and performance stock units. These purchases were made pursuant to a separate authorization by our Board of Directors and are not included within the program.

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~~ITEM 6. Exhibits~~



~~Exhibit No.~~		~~Description~~

~~4.1~~		Indenture dated as of September 7, 2017 between Lockheed Martin Corporation and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 99.1 of Lockheed Martin's Current Report on Form 8-K filed with the SEC on September 7, 2017).

~~10.1~~		~~Non-Employee Director Compensation Summary~~.

~~10.2~~		~~Amendment to Lockheed Martin Corporation 2009 Directors Equity Plan, effective January 1, 2018.~~

~~10.3~~


10.1		~~Extension~~Revolving Credit Agreement dated as of ~~October 9, 2017 by and~~August 24, 2021, among Lockheed Martin Corporation, the lenders listed therein, and Bank of America, N.A., as administrative agent (incorporated by reference to ~~Exhibit 10.1 to~~ Lockheed ~~Martin's~~Martin Corporation’s Current Report on Form 8-K filed with the SEC on ~~October 10, 2017)~~August 24, 2021).

1215		~~Computation of Ratio of Earnings to Fixed Charges~~

15	Acknowledgment of ~~Ernst & Young LLP,~~ Independent Registered Public Accounting Firm

31.1		Certification of ~~Marillyn A. Hewson~~James D. Taiclet pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of ~~Bruce L. Tanner~~John W. Mollard pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Certification of ~~Marillyn A. Hewson~~James D. Taiclet and ~~Bruce L. Tanner~~John W. Mollard pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document contained in Exhibit 101

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



						Lockheed Martin Corporation
						(Registrant)

Date: October 26, ~~2017~~2021						By: /s/ Brian P. Colan
						Brian P. Colan
						Vice President and Controller
						(Duly Authorized Officer and Chief Accounting Officer)



	Quarters Ended						Nine Months Ended
	September 24, 2017			September 25, 2016			September 24, 2017			September 25, 2016
Net sales
Products	$	10,496		$	10,062		$	30,837		$	28,629
Services	1,673			1,489			5,074			4,867
Total net sales	12,169			11,551			35,911			33,496
Cost of sales
Products	(9,481		)	(9,027		)	(27,919		)	(25,787		)
Services	(1,513		)	(1,313		)	(4,547		)	(4,321		)
Severance charges	—			—			—			(80		)
Other unallocated, net	176			173			484			401
Total cost of sales	(10,818		)	(10,167		)	(31,982		)	(29,787		)
Gross profit	1,351			1,384			3,929			3,709
Other income, net	77			204			133			412
Operating profit	1,428			1,588			4,062			4,121
Interest expense	(162		)	(162		)	(477		)	(492		)
Other non-operating (expense) income, net	(7		)	1			(8		)	2
Earnings from continuing operations before income taxes	1,259			1,427			3,577			3,631
Income tax expense	(320		)	(338		)	(933		)	(837		)
Net earnings from continuing operations	939			1,089			2,644			2,794
Net earnings from discontinued operations	—			1,306			—			1,520
Net earnings	$	939		$	2,395		$	2,644		$	4,314
Earnings per common share
Basic
Continuing operations	$	3.27		$	3.64		$	9.16		$	9.25
Discontinued operations	—			4.38			—			5.03
Basic earnings per common share	$	3.27		$	8.02		$	9.16		$	14.28
Diluted
Continuing operations	$	3.24		$	3.61		$	9.08		$	9.13
Discontinued operations	—			4.32			—			4.97
Diluted earnings per common share	$	3.24		$	7.93		$	9.08		$	14.10
Cash dividends paid per common share	$	1.82		$	1.65		$	5.46		$	4.95



	September 24, 2017			December 31, 2016
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	2,941		$	1,837
Receivables, net	9,021			8,202
Inventories, net	4,803			4,670
Other current assets	443			399
Total current assets	17,208			15,108
Property, plant and equipment, net	5,511			5,549
Goodwill	10,812			10,764
Intangible assets, net	3,877			4,093
Deferred income taxes	5,970			6,625
Other noncurrent assets	5,568			5,667
Total assets	$	48,946		$	47,806
Liabilities and equity
Current liabilities
Accounts payable	$	2,848		$	1,653
Customer advances and amounts in excess of costs incurred	6,195			6,776
Salaries, benefits and payroll taxes	1,895			1,764
Other current liabilities	2,146			2,349
Total current liabilities	13,084			12,542
Long-term debt, net	14,268			14,282
Accrued pension liabilities	13,998			13,855
Other postretirement benefit liabilities	858			862
Other noncurrent liabilities	4,563			4,659
Total liabilities	46,771			46,200
Stockholders’ equity
Common stock, $1 par value per share	285			289
Additional paid-in capital	—			—
Retained earnings	13,173			13,324
Accumulated other comprehensive loss	(11,360		)	(12,102		)
Total stockholders’ equity	2,098			1,511
Noncontrolling interests in subsidiary	77			95
Total equity	2,175			1,606
Total liabilities and equity	$	48,946		$	47,806



	Quarter Ended			Nine Months Ended
Net sales	$	739		$	3,410
Cost of sales	(635		)	(2,953		)
Severance charges	—			(19		)
Gross profit	104			438
Other income, net	19			16
Operating profit	123			454
Earnings from discontinued operations before income taxes	123			454
Income tax expense	(51		)	(168		)
Net gain on divestiture of discontinued operations	1,234			1,234
Net earnings from discontinued operations	$	1,306		$	1,520



	September 24, 2017			December 31, 2016
Work-in-process, primarily related to long-term contracts and programs in progress	$	7,720		$	7,864
Spare parts, used aircraft and general stock materials	798			833
Other inventories	767			719
Total inventories	9,285			9,416
Less: customer advances and progress payments	(4,482		)	(4,746		)
Total inventories, net	$	4,803		$	4,670



	September 24, 2017						December 31, 2016
	Total		Level 1		Level 2		Total		Level 1		Level 2
Assets
Equity securities	$	47	$	47	$	—	$	79	$	79	$	—
Mutual funds	858		858		—		856		856		—
U.S. Government securities	110		—		110		113		—		113
Other securities	176		—		176		151		—		151
Derivatives	28		—		28		27		—		27
Liabilities
Derivatives	105		—		105		85		—		85
Assets measured at NAV
Other commingled funds	18						—



Period ^(a)	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ^(b)	Amount Available for Future Share Repurchases Under the Plans or Programs ^(b)
						(in millions)
June 26, 2017 – July 30, 2017	779,459		$	285.34	779,459	$	2,282
July 31, 2017 – August 27, 2017	526,241		$	300.68	526,000	$	2,123
August 28, 2017 – September 24, 2017	393,706		$	303.61	393,400	$	2,004
Total	1,699,406	^(c)	$	294.32	1,698,859