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. YESx☒ 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 RegulationS-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). YESx☒ NO¨☐

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

Large Accelerated Filerx☒ 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 Rule12b-2 of the Exchange Act). YES¨☐NOx☒

There were ~~292,977,354~~287,990,865 shares of our common stock, $1 par value per share, outstanding as of ~~September~~June 25, ~~2016.~~2017.


	Quarters Ended				Nine Months Ended				Quarters Ended				Six Months Ended
	September 25, 2016		September 27, 2015		September 25, 2016		September 27, 2015		June 25, 2017		June 26, 2016		June 25, 2017		June 26, 2016
Net sales
Products	$	10,062	$	8,593	$	28,629	$	25,066	$	10,828	$	9,815	$	20,341	$	18,567
Services		1,489		1,467		4,867		3,950		1,857		1,762		3,401		3,378
Total net sales		11,551		10,060		33,496		29,016		12,685		11,577		23,742		21,945

Cost of sales
Products		(9,027)		(7,668)		(25,787)		(22,238)		(9,751)		(8,873)		(18,438)		(16,760)
Services		(1,313)		(1,248)		(4,321)		(3,347)		(1,658)		(1,571)		(3,034)		(3,008)
Severance charges		—		(15)		(80)		(15)		—		—		—		(80)
Other unallocated, net		173		(32)		401		(61)		149		97		308		228
Total cost of sales		(10,167)		(8,963)		(29,787)		(25,661)		(11,260)		(10,347)		(21,164)		(19,620)
Gross profit		1,384		1,097		3,709		3,355		1,425		1,230		2,578		2,325
Other income, net		204		95		412		257		60		145		56		208
Operating profit		1,588		1,192		4,121		3,612		1,485		1,375		2,634		2,533
Interest expense		(162)		(104)		(492)		(301)		(160)		(165)		(315)		(330)
Other non-operating income, net		1		1		2		6
Othernon-operating (expense) income, net										(2)		—		(1)		1
Earnings from continuing operations before income taxes		1,427		1,089		3,631		3,317		1,323		1,210		2,318		2,204
Income tax expense		(338)		(333)		(837)		(1,008)		(381)		(311)		(613)		(499)
Net earnings from continuing operations		1,089		756		2,794		2,309		942		899		1,705		1,705
Net earnings from discontinued operations		1,306		109		1,520		363		—		122		—		214
Net earnings	$	2,395	$	865	$	4,314	$	2,672	$	942	$	1,021	$	1,705	$	1,919

Earnings per common share
Basic
Continuing operations	$	3.64	$	2.45	$	9.25	$	7.41	$	3.27	$	2.97	$	5.90	$	5.61
Discontinued operations		4.38		0.35		5.03		1.16		—		0.40		—		0.71
Basic earnings per common share	$	8.02	$	2.80	$	14.28	$	8.57	$	3.27	$	3.37	$	5.90	$	6.32
Diluted
Continuing operations	$	3.61	$	2.42	$	9.13	$	7.30	$	3.23	$	2.93	$	5.84	$	5.54
Discontinued operations		4.32		0.35		4.97		1.15		—		0.39		—		0.69
Diluted earnings per common share	$	7.93	$	2.77	$	14.10	$	8.45	$	3.23	$	3.32	$	5.84	$	6.23

Cash dividends paid per common share	$	1.65	$	1.50	$	4.95	$	4.50	$	1.82	$	1.65	$	3.64	$	3.30

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


	Quarters Ended				Nine Months Ended				Quarters Ended				Six Months Ended
	September 25, 2016		September 27, 2015		September 25, 2016		September 27, 2015		June 25, 2017		June 26, 2016		June 25, 2017		June 26, 2016
Net earnings	$	2,395	$	865	$	4,314	$	2,672	$	942	$	1,021	$	1,705	$	1,919
Other comprehensive income (loss), net of tax
Other comprehensive income, net of tax
Postretirement benefit plans
Recognition of previously deferred postretirement benefit plan amounts		175		212		521		637
Reclassifications from divestiture of IS&GS business segment		(134)		—		(134)		—
Amounts reclassified from accumulated other comprehensive loss										200		173		402		346
Other comprehensive gain recognized during the period										—		—		3		—
Other, net		72		(77)		66		(88)		55		(23)		60		(6)
Other comprehensive income, net of tax		113		135		453		549		255		150		465		340
Comprehensive income	$	2,508	$	1,000	$	4,767	$	3,221	$	1,197	$	1,171	$	2,170	$	2,259

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


	September 25, 2016		December 31, 2015		June 25, 2017		December 31, 2016
					(unaudited)
Assets
Current assets
Cash and cash equivalents	$	2,895	$	1,090	$	2,452	$	1,837
Receivables, net		8,955		7,254		8,762		8,202
Inventories, net		4,852		4,819		4,941		4,670
Other current assets		408		441		411		399
Assets of discontinued operations		—		969
Total current assets		17,110		14,573		16,566		15,108

Property, plant and equipment, net		5,369		5,389		5,532		5,549
Goodwill		10,791		10,695		10,780		10,764
Intangible assets, net		4,205		4,022		3,944		4,093
Deferred income taxes		5,850		6,068		6,332		6,625
Other noncurrent assets		5,414		5,396		5,557		5,667
Assets of discontinued operations		—		3,161
Total assets	$	48,739	$	49,304	$	48,711	$	47,806

Liabilities and equity
Current liabilities
Accounts payable	$	2,840	$	1,745	$	2,554	$	1,653
Customer advances and amounts in excess of costs incurred		6,830		6,703		6,460		6,776
Salaries, benefits and payroll taxes		1,856		1,707		1,796		1,764
Current maturities of long-term debt		—		956
Other current liabilities		2,899		1,859		2,831		2,349
Liabilities of discontinued operations		—		948
Total current liabilities		14,425		13,918		13,641		12,542

Long-term debt, net		14,304		14,305		14,283		14,282
Accrued pension liabilities		11,859		11,807		13,960		13,855
Other postretirement benefit liabilities		1,083		1,070		859		862
Other noncurrent liabilities		4,638		4,902		4,619		4,659
Liabilities of discontinued operations		—		205
Total liabilities		46,309		46,207		47,362		46,200

Stockholders’ equity
Common stock, $1 par value per share		291		303		286		289
Additional paid-in capital		—		—		—		—
Retained earnings		13,023		14,238		12,616		13,324
Accumulated other comprehensive loss		(10,991)		(11,444)		(11,637)		(12,102)
Total stockholders’ equity		2,323		3,097		1,265		1,511
Noncontrolling interests in subsidiary		107		—		84		95
Total equity		2,430		3,097		1,349		1,606
Total liabilities and equity	$	48,739	$	49,304	$	48,711	$	47,806

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


	Nine Months Ended				Six Months Ended
	September 25, 2016		September 27, 2015		June 25, 2017		June 26, 2016
Operating activities
Net earnings	$	4,314	$	2,672		$ 1,705		$ 1,919
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization		888		726		581		593
Stock-based compensation		124		118		101		97
Severance charges		99		35		—		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		(1,537)		(861)		(560)		(1,214)
Inventories, net		(235)		(359)		(271)		(233)
Accounts payable		1,033		637		940		806
Customer advances and amounts in excess of costs incurred		57		(421)		(316)		239
Postretirement benefit plans		787		868		685		515
Income taxes		37		126		3		237
Other, net		231		196		342		82
Net cash provided by operating activities		4,460		3,737		3,210		3,140

Investing activities
Capital expenditures		(627)		(500)		(448)		(386)
Other, net		76		89		9		59
Net cash used for investing activities		(551)		(411)		(439)		(327)

Financing activities
Special cash payment from divestiture of IS&GS business segment		1,800		—
Issuance of long-term debt, net of related costs		—		2,213
Repayments of long-term debt		(952)		—
Repurchases of common stock		(1,280)		(2,364)		(1,000)		(1,002)
Dividends paid		(1,518)		(1,427)		(1,069)		(1,034)
Repayments of long-term debt						—		(452)
Proceeds from stock option exercises		75		126		44		53
Other, net		(229)		(20)		(131)		(199)
Net cash used for financing activities		(2,104)		(1,472)		(2,156)		(2,634)
Net change in cash and cash equivalents		1,805		1,854		615		179
Cash and cash equivalents at beginning of period		1,090		1,446		1,837		1,090
Cash and cash equivalents at end of period	$	2,895	$	3,300		$ 2,452		$ 1,269

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


																												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																													—			—			1,705			—			1,705			—		1,705
Other comprehensive income, net of tax																													—			—			—			465			465			—		465
Repurchases of common stock																													(4	)		(168	)		(828	)		—			(1,000	)		—		(1,000)
Dividends declared																													—			—			(1,585	)		—			(1,585	)		—		(1,585)
Stock-based awards and ESOP activity																													1			168			—			—			169			—		169
Net decrease in noncontrolling interests in subsidiary																													—			—			—			—			—			(11)		(11)
Balance at June 25, 2017																													$ 286			$ —			$ 12,616			$ (11,637	)		$ 1,265			$ 84		$ 1,349
	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, 2015		$	303			$	—			$	14,238			$	(11,444	)		$	3,097			$	—		$	3,097			$ 303			$ —			$ 14,238			$ (11,444	)		$ 3,097			$ —		$ 3,097
Net earnings			—				—				4,314				—				4,314				—			4,314			—			—			1,919			—			1,919			—		1,919
Other comprehensive income, net of tax			—				—				—				453				453				—			453			—			—			—			340			340			—		340
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	)		(5	)		(159	)		(838	)		—			(1,002	)		—		(1,002)
Dividends declared			—				—				(2,056	)			—				(2,056	)			—			(2,056	)		—			—			(1,519	)		—			(1,519	)		—		(1,519)
Stock-based awards, ESOP activity and other			3				272				17				—				292				—			292
Increase in noncontrolling interests in subsidiary			—				—				—				—				—				107			107
Balance at September 25, 2016		$	291			$	—			$	13,023			$	(10,991	)		$	2,323			$	107		$	2,430

Balance at December 31, 2014		$	314			$	—			$	14,956			$	(11,870	)		$	3,400			$	—		$	3,400
Net earnings			—				—				2,672				—				2,672				—			2,672
Other comprehensive income, net of tax			—				—				—				549				549				—			549
Repurchases of common stock			(12	)			(478	)			(1,874	)			—				(2,364	)			—			(2,364	)
Dividends declared			—				—				(1,926	)			—				(1,926	)			—			(1,926	)
Stock-based awards and ESOP activity and other			4				478				—				—				482				—			482
Balance at September 27, 2015		$	306			$	—			$	13,828			$	(11,321	)		$	2,813			$	—		$	2,813
Stock-based awards and ESOP activity																													3			159			—			—			162			—		162
Balance at June 26, 2016																													$ 301			$ —			$ 13,800			$ (11,104	)		$ 2,997			$ —		$ 2,997

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

We prepared these consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information, the instructions to Form10-Q and Article 10 of U.S. Securities and Exchange Commission (SEC) RegulationS-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 Form10-K for the year ended December 31, ~~2015 (2015~~2016 (2016 Form10-K) filed with the ~~SEC, except for certain aspects of employee share-based payments, which were amended with the adoption of ASU No. 2016-09,~~~~Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~~~(See Note 10).~~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, postretirement benefit plans, environmental receivables and liabilities, evaluation of goodwill and other assets for impairment, ~~acquisitions and divestitures,~~ income taxes including deferred tax assets, fair value measurements and contingencies. The consolidated financial statements include the accounts of subsidiaries we control and variable interest entities if we are the primary beneficiary. We eliminate intercompany balances and transactions in consolidation.

We close our books and records on the last Sunday of the calendar quarter, which was on ~~September~~June 25 for the ~~third~~second quarter of ~~2016~~2017 and ~~September 27~~June 26 for the ~~third~~second quarter of ~~2015,~~2016, to align our financial closing with our business processes. The consolidated financial statements and tables of financial information included ~~in these consolidated financial statements~~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 completed the previously announced divestiture of the Information Systems & Global Solutions (IS&GS) business segment, which merged with Leidos Holdings, Inc. (Leidos) in a Reverse Morris Trust transaction (the “Transactions”). The Transactions were the culmination of the strategic review of our government information technology infrastructure services business and our technical services business performed in 2015 to explore whether these businesses could achieve greater growth and create more value for customers and stockholders outside of Lockheed Martin. As a result of the divestiture, the operating results of the IS&GS business segment have been classified as discontinued operations in the consolidated statements of earnings for all periods presented and the assets and liabilities of the IS&GS business segment have been classified as assets and liabilities of discontinued operations in the consolidated balance sheet as of December 31, 2015. However, the cash flows of the IS&GS business segment have not been reclassified in our consolidated statements of cash flows as we retained the cash as part of the Transactions. Refer to “Note 3 – Acquisitions and Divestitures” for additional information about the divestiture of the IS&GS business segment.

On August 24, 2016, our ownership interest in the AWE Management Limited (AWE) venture, which operates the United Kingdom’s nuclear deterrent program, increased by 18%. As a result of the increase in ownership interest, we now hold a 51% controlling interest in AWE and are required to consolidate the AWE venture in our consolidated financial statements. Accordingly, the operating results and cash flows of AWE have been included in our consolidated statements of earnings and consolidated statements of cash flows since August 24, 2016, the date we obtained a controlling interest, and the assets and liabilities of AWE are included in the consolidated balance sheet as of September 25, 2016. Previously, we accounted for our investment in AWE using the equity method of accounting. Refer to “Note 3 – Acquisitions and Divestitures” for additional information about the change in ownership of AWE.

During the third quarter of 2016, the business segment formerly known as Mission Systems and Training (MST) was renamed Rotary and Missions Systems (RMS) to better reflect a broader range of products and capabilities subsequent to the acquisition of Sikorsky Aircraft Corporation (Sikorsky) in November 2015 and the realignment of certain programs from the former IS&GS business segment to RMS in the fourth quarter of 2015. While RMS was renamed to more accurately reflect the expanded portfolio, there was no additional change to the composition of the portfolio in connection with the name change. The information for this segment for all periods included in these consolidated financial statements has been labeled using the new name.

On November 6, 2015, we completed the acquisition of Sikorsky for $9.0 billion, net of cash acquired, and aligned Sikorsky under our RMS business segment. The operating results and cash flows of Sikorsky have been included in our consolidated statements of earnings and consolidated statements of cash flows since the November 6, 2015 acquisition date. Additionally, the assets and liabilities of Sikorsky are included in our consolidated balance sheets as of September 25, 2016 and December 31, 2015. Refer to “Note 3 – Acquisitions and Divestitures” for additional information about the acquisition of Sikorsky and related preliminary purchase accounting.

During the fourth quarter of 2015, we realigned certain programs among our business segments. The amounts, discussion and presentation of our business segments for all periods presented in these consolidated financial statements reflect the program realignment.

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 ~~2015~~2016 Form10-K.

On August 16, 2016, we completed the divestiture of our Information Systems & Global Solutions (IS&GS) business, which merged with a subsidiary of Leidos Holdings, Inc. (Leidos) in a Reverse Morris Trust transaction. Accordingly, the operating results of the IS&GS business for the quarter and six months ended June 26, 2016 have been classified as discontinued operations in the consolidated statements of earnings. However, the cash flows of the IS&GS business for the six months ended June 26, 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) venture, which operates the United Kingdom’s nuclear deterrent program, from 33% to 51%. At which time, we began consolidating AWE. Consequently, our operating results for the quarter and six months ended June 25, 2017 include 100% of AWE’s sales and 51% of their 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, our operating results for the quarter and six months ended June 26, 2016 do not include any sales generated by AWE and only 33% of AWE’s net earnings.

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


	Quarters Ended		Nine Months Ended		Quarters Ended				Six Months Ended
	September 25, 2016	September 27, 2015	September 25, 2016	September 27, 2015	June 25, 2017		June 26, 2016		June 25, 2017		June 26, 2016
Weighted average common shares outstanding for basic computations	298.5	308.4	302.0	311.9		288.5		303.1		289.2		303.8
Weighted average dilutive effect of equity awards	3.6	4.3	3.9	4.4		2.7		4.0		2.8		4.1
Weighted average common shares outstanding for diluted computations	302.1	312.7	305.9	316.3		291.2		307.1		292.0		307.9

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 ~~share~~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~~six months ended ~~September~~June 25, ~~2016~~2017 or

On November 6, 2015, we completed the acquisition of Sikorsky from United Technologies Corporation (UTC) for $9.0 billion, net of cash acquired. Sikorsky is a global company primarily engaged in the research, design, development, manufacture and support of military and commercial helicopters. Sikorsky’s products include military helicopters such as the H-60 Black Hawk, MH-60R Seahawk, CH-53K, H-92, and commercial helicopters such as the S-76 and S-92. The acquisition enables us to extend our core business into the military and commercial rotary wing segments, allowing us to strengthen our position in the aerospace and defense industry. Further, this acquisition expands our presence in commercial and international markets. Sikorsky has been aligned under our RMS business segment.

To fund the $9.0 billion acquisition price, we utilized $6.0 billion of proceeds borrowed under our 364-day revolving credit facility (the 364-day Facility), $2.0 billion of cash on hand and $1.0 billion from the issuance of commercial paper. In the fourth quarter of 2015, we repaid all outstanding borrowings under the 364-day Facility with the proceeds from the issuance of $7.0 billion of fixed interest-rate long-term notes in a public offering (the November 2015 Notes). In the fourth quarter of 2015, we also repaid the $1.0 billion in commercial paper borrowings.

~~Preliminary Allocation of Purchase Price to Assets Acquired and Liabilities Assumed~~

We accounted for the acquisition of Sikorsky as a business combination, which requires us to record the assets acquired and liabilities assumed at fair value. The amount by which the purchase price exceeds the fair value of the net assets acquired is recorded as goodwill. We commenced the appraisals necessary to assess the fair values of the tangible and intangible assets acquired and liabilities assumed and the amount of goodwill to be recognized as of the acquisition date. The amounts recorded for certain assets and liabilities are preliminary in nature and are subject to adjustment as additional information is obtained about the facts and circumstances that existed as of the acquisition date. The final determination of the fair values of certain assets and liabilities will be completed within the measurement period of up to one year from the acquisition date, as permitted under GAAP. The size and breadth of the Sikorsky acquisition will necessitate the need to use the full one year measurement period to adequately analyze and assess a number of the factors used in establishing the asset and liability fair values as of the acquisition date including contractual and operational factors underlying the customer programs intangible assets, the trademarks intangible asset, customer contractual obligations, inventories, receivables and customer advances, and the assumptions underpinning certain program and legal reserves. The final values may also result in changes to amortization expense related to intangible assets. The refinements made during the quarter and nine months ended September 25, 2016 did not have a material effect on the acquired assets and liabilities assumed or on net earnings, however, any potential adjustments made could be material in relation to the values presented in the table below.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date, including the refinements described in the previous paragraph (in millions):

Intangible assets related to customer programs were recognized for each major helicopter and aftermarket program and represent the aggregate value associated with the customer relationships, contracts, technology and tradenames underlying the associated program. These intangible assets are being amortized on a straight-line basis over a weighted-average useful life of approximately 15 years. The useful life is based on the period of expected cash flows used to measure the fair value of each of the intangible assets.

Customer contractual obligations represent liabilities on certain development programs where the expected costs exceed the expected sales under contract. We measured these liabilities based on the price to transfer the obligation to a market participant at the measurement date, assuming that the liability will remain outstanding in the marketplace. Based on the estimated net cash outflows of the developmental programs plus a reasonable contracting profit margin required to transfer the contracts to market participants, we recorded assumed liabilities of $507 million. These liabilities will be liquidated in accordance with the underlying economic pattern of the contractual obligations, as reflected by the estimated future net cash outflows incurred on the associated contracts. From the acquisition date through the period ended September 25, 2016, we recognized approximately $100 million in sales related to customer contractual obligations. Estimated liquidation of the customer contractual obligations is approximated as follows: $30 million remaining in 2016, $110 million in 2017, $70 million in 2018, $70 million in 2019, $60 million in 2020, $10 million in 2021 and $57 million thereafter.

The fair values of the assets acquired and liabilities assumed were determined using income, market and cost valuation methodologies. The fair value measurements were estimated using significant inputs that are not observable in the market and thus represent a Level 3 measurement as defined in Accounting Standards Codification (ASC) 820,~~Fair Value Measurement.~~ The income approach was primarily used to value the customer programs and trademarks intangible assets. The income approach indicates value for an asset or liability based on the present value of cash flows projected to be generated over the remaining economic life of the asset or liability being measured. Both the amount and the duration of the cash flows are considered from a market participant perspective. Our estimates of market participant net cash flows considered historical and projected pricing, remaining developmental effort, operational performance including company-specific synergies, aftermarket retention, product life cycles, material and labor pricing, and other relevant customer, contractual and market factors. Where appropriate, the net cash flows are adjusted to reflect the uncertainties associated with the underlying assumptions, as well as the risk profile of the net cash flows utilized in the valuation. The adjusted future cash flows are then discounted to present value using an appropriate discount rate. Projected cash flow is discounted at a required rate of return that reflects the relative risk of achieving the cash flows and the time value of money. The market approach is a valuation technique that uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities, or a group of assets and liabilities. Valuation techniques consistent with the market approach often use market multiples derived from a set of comparables. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used, as appropriate, for property, plant and equipment. The cost to replace a given asset reflects the estimated reproduction or replacement cost, less an allowance for loss in value due to depreciation.

The preliminary purchase price allocation resulted in the recognition of $2.9 billion of goodwill, all of which is expected to be amortizable for tax purposes. All of the goodwill was assigned to our RMS business segment. The goodwill recognized is attributable to expected revenue synergies generated by the integration of our products and technologies with those of Sikorsky, cost synergies resulting from the consolidation or elimination of certain functions, and intangible assets that do not qualify for separate recognition, such as the assembled workforce of Sikorsky.

Determining the fair value of assets acquired and liabilities assumed requires the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates and discount rates. The cash flows employed in the discounted cash flow analyses are based on our best estimate of future sales, earnings and cash flows after considering factors such as general market conditions, customer budgets, existing firm orders, expected future orders, contracts with suppliers, labor agreements, changes in working capital, long-term business plans and recent operating performance. Use of different estimates and judgments could yield different results.

Sikorsky’s financial results have been included in our consolidated financial results for the periods subsequent to the November 6, 2015 acquisition date. The following table presents summarized unaudited pro forma financial information as if Sikorsky had been included in our financial results for the quarter and nine months ended September 27, 2015 (in millions):

The unaudited supplemental pro forma financial data above have been calculated after applying our accounting policies and adjusting the historical results of Sikorsky with pro forma adjustments, net of tax, that assume the acquisition occurred on January 1, 2014. Significant pro forma adjustments include the recognition of additional amortization expense related to acquired intangible assets (based on our preliminary purchase accounting estimates) and additional interest expense related to the debt used to finance the majority of the Sikorsky purchase price. These adjustments assume the Sikorsky acquisition and debt issued to finance most of the purchase price occurred on January 1, 2014. The adjustments include amortization expense of about $40 million and about $115 million (net of about $20 million and $60 million of tax expense) and interest expense of about $45 million and about $130 million (net of about $20 million and $65 million of tax expense) for the quarter and nine months ended September 27, 2015, respectively.

The unaudited supplemental pro forma financial information does not reflect the realization of any expected ongoing revenue or cost synergies relating to the integration of the two companies. Further, the pro forma data should not be considered indicative of the results that would have occurred if the acquisition, related financing and the associated notes issuance and repayment of the 364-day credit facility had been consummated on January 1, 2014, nor are they indicative of future results.

On August 24, 2016, our ownership interest in the AWE venture increased by 18% in exchange for our assuming a more significant role in managing the operations of the venture. AWE operates the United Kingdom’s nuclear deterrent program and generated sales of about $1.5 billion and net earnings of about $85 million in 2015. As a result of the increase in ownership, we now own a 51% interest in AWE and control its operations and board of directors. Consequently, we are required to consolidate AWE, which has been aligned under our Space Systems business segment. Previously, we accounted for our investment in AWE using the equity method of accounting.

We accounted for this transaction as a “step acquisition” (as defined by U.S. GAAP), which requires us to consolidate and record the assets and liabilities of AWE at fair value. Accordingly, we recorded intangible assets of $243 million related to customer relationships, $32 million of net liabilities, and noncontrolling interests of $107 million. The intangible assets are being amortized over a period of eight years in accordance with the underlying pattern of economic benefit reflected by the future net cash flows. In the quarter ended September 25, 2016, we recognized a non cash net gain of $104 million associated with obtaining a controlling interest in 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 tax related items at our corporate office. The gain represents the fair value of our 51% interest in AWE, less the carrying value of our previously held investment in AWE and deferred taxes. The gain was recorded in “other income, net” in the consolidated statements of earnings. The fair value of AWE, our controlling interest, and the noncontrolling interests were determined using the income approach.

On August 16, 2016, we completed the ~~previously announced~~ divestiture of ~~the~~our IS&GS business, ~~segment,~~ which merged with a subsidiary of Leidos, in a Reverse Morris Trust transaction (the ~~“Transactions”~~“Transaction”). The ~~Transactions were~~Transaction was completed in amulti-step process pursuant to which we initially contributed the IS&GS business to Abacus Innovations Corporation (Abacus), a ~~wholly owned~~wholly-owned subsidiary of Lockheed Martin created to facilitate the ~~Transactions,~~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 ~~all, some or none of their~~ shares of Lockheed Martin common stock for shares of Abacus common stock. At the conclusion of the exchange offer, all ~~76,958,918~~ 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 ~~tendered~~exchanged and accepted ~~in the exchange~~ were retired, ~~and reduced~~reducing the number of shares of our common stock outstanding by approximately ~~three percent.~~3%. Following the exchange offer, Abacus merged with a subsidiary of Leidos, with Abacus continuing as the surviving corporation and a ~~wholly owned~~wholly-owned subsidiary of Leidos. As part of the merger, each share of Abacus common stock was automatically converted into one share of Leidos common stock. We did not receive any shares of Leidos common stock as part of the Transactions and do not hold any shares of Leidos or Abacus common stock following the Transactions. Both the exchange offer and merger qualified as tax-free transactions to Lockheed Martin and its stockholders, except to the extent that cash was paid to Lockheed Martin stockholders in lieu of fractional shares.

In connection with the Transactions, Abacus borrowed an aggregate principal amount of approximately $1.84 billion under term loan facilities with third party financial institutions, the proceeds of which were used to make a one-time special cash payment of $1.80 billion to Lockheed Martin and to pay associated borrowing fees and expenses. The special cash payment must be used to repay debt, pay dividends or repurchase stock. The obligations under the term loan facilities were assumed by Leidos as part of the Transactions.

As a result of the ~~Transactions,~~Transaction, we recognized a net gain of approximately $1.2 ~~billion.~~billion in the third quarter of 2016. The net gain represents the $2.5 billion fair value of the shares of Lockheed Martin common stock ~~tendered~~exchanged and retired as part of the exchange offer, plus ~~the~~a $1.8 billionone-time special cash payment received from Abacus, less the net book value of the IS&GS business ~~segment~~ of about

~~$3.0~~ $3.0 billion at August 16, 2016 and other adjustments of about $100 million. The final gain is subject to certainpost-closing adjustments, including final working capital, indemnification, and tax adjustments, which we expect to complete in ~~the fourth quarter of 2016 or the first quarter of~~ 2017.

We classified the operating results of the IS&GS business segment as discontinued operations in our financial statements in accordance with GAAP, as the divestiture of this business represented a strategic shift that had a major effect on our operations and financial results. However, the cash flows of the IS&GS business segment have not been reclassified in our consolidated statements of cash flows as we retained this cash as part of the Transactions.

The ~~carrying amounts of major classes~~operating results of the IS&GS business ~~segment assets and liabilities that were classified as assets and liabilities of discontinued operations as of December 31, 2015 are as follows (in millions):~~

~~The operating results of IS&GS~~ that have been reflected within net earnings from discontinued operations are as follows (in millions):

The selected financial information (such as, depreciation and amortization, capital expenditures, and other non-cash items) of IS&GS included in our consolidated statements of cash flows were not significant.

The operating ~~profit reflected above does not represent~~results of the IS&GS business ~~segment historical operating profit,~~reported as discontinued operations for the quarter and six months ended June 26, 2016 are different than the results previously reported for the IS&GS business segment. Results reported within net earnings from discontinued operations only include ~~certain~~ costs that were directly attributable to the IS&GS business and exclude certain corporate overhead costs that were previously allocated to ~~IS&GS for each period. For instance, certain corporate overhead costs and certain defined benefit pension costs that were historically allocated to and included in the operating results of~~ the IS&GS ~~business segment have been~~business. As a result, we reclassified $30 million and ~~included in the results~~$65 million of ~~our continuing operations because we will continue to incur these costs subsequent to the divestiture of the IS&GS business segment.~~

~~Certain~~ corporate overhead costs incurred ~~by us~~during the quarter and ~~previously allocated to the IS&GS business segment were reclassified~~six months ended June 26, 2016 from the IS&GS business ~~segment~~ to other unallocated, net in our consolidated ~~statement~~statements of earnings. These overhead costs related to expenses for senior management, legal, human resources, finance, accounting, treasury, tax, information technology, communications, ethics and compliance, corporate employee benefits, incentives and stock-based compensation, shared services processing and administration and depreciation for corporate fixed assets, and were not directly attributable to the IS&GS business segment. During the quarter and nine months ended September 25, 2016 we reclassified $17 million and $82 million of corporate overhead costs to other unallocated, net. During the quarter and nine months ended September 27, 2015 we reclassified $40 million and $133 million of corporate overhead costs to other unallocated, net.

Additionally, we retained all assets and obligations related to the pension benefits earned by former IS&GS business salaried employees ~~who historically participated in our defined benefit pension plans. As a result,~~through the date of divestiture. Therefore, thenon-service portion of net pension costs ~~(interest~~(e.g., interest cost, actuarial gains and losses and expected return on plan assets) for these plans ~~was~~have been reclassified from the operating results of the IS&GS business segment and reported as a reduction to the FAS/CAS pension adjustment. These net costs ~~were $11~~totaled $21 million and ~~$54~~$43 million induring the quarter and ~~nine~~six months ended ~~September 25, 2016 and $17 million and $53 million in the quarter and nine months ended September 27, 2015.~~June 26, 2016. The service portion of pension costs related to the IS&GS business’s salaried employees that transferred to Leidos ~~remains~~continue to be included in the operating results of the IS&GS business ~~segment~~ classified as discontinued operations because such costs will no longer be incurred by ~~us subsequent~~us.

As noted in the exchange offer materials distributed in connection with the Transaction, Lockheed Martin retained certain liabilities, including liabilities associated with 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 ~~divestiture of~~ IS~~&GS. These costs were not material~~&GS businesses’ involvement in the Mission Support Alliance, LLC (MSA) joint venture that manages and operates the Hanford Nuclear site for the ~~quarter~~Department of Energy. The DOJ has issued a number of Civil Investigative Demands to MSA, Lockheed Martin and ~~nine months ended September 25, 2016 or~~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 ~~quarter~~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 ~~nine months ended September 27, 2015.~~Leidos have allocated liabilities between themselves.

~~Significant severance charges~~Financial information related to the IS&GS ~~business segment were historically recorded at~~business’s cash flows, such as depreciation and amortization, capital expenditures, and othernon-cash items included in our consolidated statement of cash flows for the Lockheed Martin corporate office. These charges have been reclassified into the operating results of the IS&GS business segment, classified as discontinued operations, and excluded from the operating results of our continuing operations. The amount of severance charges reclassified were $19 million in the ninesix months ended ~~September 25,~~June 26, 2016 ~~and $20 million in the quarter and nine months ended September 27, 2015.~~

During the second quarter of 2016, we completed the sale of Lockheed Martin Commercial Flight Training (LMCFT), which was classified as held for sale in the fourth quarter of 2015. LMCFT’s financial results arewere not material and there was no significant impact on our consolidated financial results as a result of completing the sale of LMCFT. Accordingly, LMCFT’s financial results are not classified in discontinued operations.significant.

~~Changes in the carrying amount of goodwill by segment were as follows (in millions):~~

Acquired finite-lived intangible assets are amortized to expense over the following estimated useful lives: customer programs from nine to 20 years, customer relationships from four to 10 years, other finite-lived intangible assets from two to 10 years. During the quarter and nine months ended September 25, 2016, we continued to obtain information and refine the appraisals of the fair values of intangible assets related to the Sikorsky acquisition. For further details on changes in intangible asset values refer to “Note 3NOTE 4 – ~~Acquisitions and Divestitures”.~~

Amortization expense from continuing operations for acquired finite-lived intangible assets was $82 million and $203 million for the quarter and nine months ended September 25, 2016 and $7 million and $22 million for the quarter and nine months ended September 27, 2015. Estimated future amortization expense is as follows: $58 million remaining in 2016; $258 million in 2017; $248 million in 2018; $246 million in 2019; $242 million in 2020; $238 million in 2021 and $2.0 billion thereafter. Our estimates of amortization expense for~~finite-lived~~ ~~intangible assets are subject to change, pending the final determination of the fair value of intangible assets acquired in connection with the Sikorsky acquisition (See Note 3).~~

We operate in four business segments: Aeronautics, Missiles and Fire Control (MFC), ~~RMS~~Rotary and Mission Systems (RMS) and Space Systems. 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 of our business segments exclude intersegment sales as these activities are eliminated in consolidation.

Operating profit of our business segments includes our share of earnings or losses from equity method investees as the operating activities of the equity method investees are closely aligned with the operations of our business segments. United Launch Alliance (ULA), which is part of our Space Systems business segment, is our primary equity method investee. Operating profit of our business segments excludes the FAS/CAS pension adjustment described below; expense for stock-based compensation; the effects of items not considered part of management’s evaluation of segment operating performance, such as charges related to goodwill impairments and significant severance actions; gains or losses from ~~divestitures not reflected in discontinued operations;~~significant divestitures; the effects of certain legal settlements; corporate costs not allocated to our business segments; and other miscellaneous corporate activities. These items are included in the reconciling item ~~“Unallocated~~“unallocated items” between operating profit from our business segments and our consolidated operating profit. See ~~Note~~“Note 10 – 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.

pricing of our products and services on U.S. Government contracts and, therefore, the CAS pension cost is recognized in each of our business segments’ net sales and cost of sales. Since our consolidated financial statements must present pension expense calculated in accordance with the financial accounting standards (FAS) requirements under GAAP, which we refer to as FAS pension expense, the FAS/CAS pension adjustment increases or decreases the CAS pension cost recorded in our business segments’ results of operations to equal the FAS pension expense.

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


	Quarters Ended				Nine Months Ended				Quarters Ended				Six Months Ended
	September 25, 2016		September 27, 2015		September 25, 2016		September 27, 2015		June 25, 2017		June 26, 2016		June 25, 2017		June 26, 2016
Net sales
Aeronautics	$	4,188	$	3,921	$	12,362	$	11,186	$	5,225	$	4,375	$	9,331	$	8,174
Missiles and Fire Control		1,737		1,769		4,851		4,801		1,637		1,680		3,126		3,114
Rotary and Mission Systems		3,346		2,162		9,653		6,306		3,410		3,303		6,511		6,307
Space Systems		2,280		2,208		6,630		6,723		2,413		2,219		4,774		4,350
Total net sales	$	11,551	$	10,060	$	33,496	$	29,016	$	12,685	$	11,577	$	23,742	$	21,945

Operating profit
Aeronautics	$	437	$	418	$	1,335	$	1,233	$	550	$	478	$	986	$	898
Missiles and Fire Control		289		316		763		895		268		253		487		474
Rotary and Mission Systems		247		245		678		687		254		202		362		431
Space Systems		450		265		1,034		883		256		340		544		584
Total business segment operating profit		1,423		1,244		3,810		3,698		1,328		1,273		2,379		2,387
Unallocated items
FAS pension expense^(a)		(256)		(280)		(758)		(841)
Less: CAS pension cost^(a)		482		382		1,430		1,146
FAS/CAS pension adjustment^(a)		226		102		672		305
FAS/CAS pension adjustment
FAS pension expense										(343)		(251)		(688)		(502)
Less: CAS pension cost										562		473		1,124		948
FAS/CAS pension adjustment										219		222		436		446
Stock-based compensation		(28)		(27)		(124)		(112)		(57)		(52)		(101)		(96)
Severance charges		—		(15)		(80)		(15)		—		—		—		(80)
Other, net		(33)		(112)		(157)		(264)
Other, net^{(a) (b)}										(5)		(68)		(80)		(124)
Total unallocated items		165		(52)		311		(86)		157		102		255		146
Total consolidated operating profit	$	1,588	$	1,192	$	4,121	$	3,612	$	1,485	$	1,375	$	2,634	$	2,533

Intersegment sales
Aeronautics	$	30	$	22	$	105	$	68	$	33	$	39	$	65	$	75
Missiles and Fire Control		81		86		225		241		85		69		149		144
Rotary and Mission Systems		469		364		1,382		1,066		547		466		986		913
Space Systems		21		39		90		108		19		36		45		69
Total intersegment sales	$	601	$	511	$	1,802	$	1,483	$	684	$	610	$	1,245	$	1,201


	September 25, 2016		December 31, 2015		June 25, 2017		December 31, 2016
Assets
Aeronautics	$	8,012	$	6,618	$	7,631	$	7,896
Missiles and Fire Control		3,950		4,027		4,463		4,000
Rotary and Mission Systems		18,978		19,187		18,496		18,367
Space Systems		5,396		4,861		5,529		5,250
Total business segment assets		36,336		34,693		36,119		35,513
Assets of discontinued operations		—		4,130
Corporate assets^(a)		12,403		10,481		12,592		12,293
Total assets	$	48,739	$	49,304	$	48,711	$	47,806

Our Aeronautics business segment includes our largest program, theF-35 Lightning II Joint Strike Fighter, an international multi-role, multi-variant, stealth fighter aircraft. Net sales for theF-35 program represented approximately ~~23%~~25% of our total consolidated net sales ~~from continuing operations~~ for both the quarter and ~~nine~~six months ended

~~September~~ June 25, ~~2016~~2017 and 23% of our total consolidated net sales ~~from continuing operations~~ for both the quarter and ~~nine~~six months ended ~~September 27, 2015.~~June 26, 2016.


	September 25, 2016		December 31, 2015		June 25, 2017		December 31, 2016
Work-in-process, primarily related to long-term contracts and programs in progress	$	8,668	$	8,081		$ 7,844		$ 7,864
Spare parts, used aircraft and general stock materials						790		833
Other inventories						695		719
Total inventories						9,329		9,416
Less: customer advances and progress payments		(5,284)		(5,032)		(4,388)		(4,746)
		3,384		3,049
Other inventories		1,468		1,770
Total inventories, net	$	4,852	$	4,819		$ 4,941		$ 4,670

Our pretax net periodic benefit cost related to our qualified defined benefit pension plans and retiree medical and life insurance plans ~~which are reflected in net earnings from continuing operations,~~ consisted of the following (in millions):


	Quarters Ended				Nine Months Ended				Quarters Ended				Six Months Ended
	September 25, 2016		September 27, 2015		September 25, 2016		September 27, 2015		June 25, 2017		June 26, 2016		June 25, 2017		June 26, 2016
Qualified defined benefit pension plans
Service cost	$	208	$	207	$	615	$	623	$	205	$	204	$	410	$	407
Interest cost		465		448		1,396		1,343		453		466		905		931
Expected return on plan assets		(667)		(683)		(2,000)		(2,050)		(602)		(666)		(1,204)		(1,333)
Recognized net actuarial losses		340		399		1,019		1,199		377		339		753		679
Amortization of prior service (credits) costs		(90)		(91)		(272)		(274)
Amortization of prior service credits										(90)		(92)		(176)		(182)
Total net periodic benefit cost	$	256	$	280	$	758	$	841	$	343	$	251	$	688	$	502
Retiree medical and life insurance plans
Service cost	$	6	$	6	$	18	$	16	$	5	$	6	$	10	$	12
Interest cost		30		28		89		83		25		29		51		59
Expected return on plan assets		(34)		(37)		(103)		(111)		(32)		(35)		(64)		(69)
Recognized net actuarial losses		8		10		25		32		5		9		10		17
Amortization of prior service costs		5		1		16		3		4		6		7		11
Total net periodic benefit cost	$	15	$	8	$	45	$	23	$	7	$	15	$	14	$	30

The recognized net actuarial losses and the amortization of net prior service (credits) costs in the table above, as well as similar amounts related to our other postretirement benefit plans and prior service credits related to IS&GS, which were reclassified to discontinued operations during 2016 ($1113 million and ~~$32~~$27 million during the quarter and ~~nine~~six months ended ~~September~~June 25, ~~2016~~2017 and ~~$16~~$5 million and ~~$44~~$10 million for the quarter and ~~nine~~six months ended ~~September 27, 2015)~~June 26, 2016), include amounts that were reclassified from accumulated other comprehensive loss (AOCL) and recorded as a component of net periodic benefit cost for the periods presented. These costs totaled ~~$175~~$309 million ~~(net~~($200 million, net of ~~$96~~tax) and $621 million ($402 million, net of ~~tax expense) and $521 million (net of $285 million of tax expense) for~~tax) during the quarter and ~~nine~~six months ended ~~September~~June 25, ~~2016~~2017 and ~~$212~~$267 million ~~(net~~($173 million, net of ~~$117~~tax) and $535 million ($346 million, net of ~~tax expense) and $637 million (net of $349 million of tax expense) for~~tax) during the quarter and ~~nine~~six months ended ~~September 27, 2015,~~June 26, 2016, which were recorded on our consolidated statements of comprehensive income as an increase to other comprehensive income.

As a result of the divestiture and classification of the IS&GS business segment as discontinued operations, we reclassified certain pension costs that were historically allocated to and included in the operations of the IS&GS business segment. For further details on changes in the pension costs refer to “Note 3 – Acquisitions and Divestitures”.

The 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 of 2006 (PPA), and in a manner consistent with CAS and Internal Revenue Code rules. There were no material contributions to our ~~legacy~~ qualified defined benefit pension plans during the quarters and ~~nine~~six months ended ~~September~~June 25, ~~2016~~2017 and ~~September 27, 2015, other than insignificant contributions to the pension plan~~June 26, 2016. Currently, we ~~established related to the Sikorsky acquisition. We~~ do not plan to make material contributions to our ~~legacy~~ pension plans in ~~2016 or~~ 2017, ~~other than insignificant contributions to the Sikorsky pension plan,~~ because none are required using current assumptions, including anticipated investment returns on plan assets.

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, including liabilities retained from, or indemnities provided in connection with, divested businesses.~~owned. These types of matters could result in fines, penalties, compensatory or treble damages ornon-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~~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. Among the factors that we consider in this assessment are the nature of existing legal proceedings and claims, the asserted or possible damages or loss contingency (if estimable), the progress of the case, existing law and precedent, the opinions or views of legal counsel and other advisers, our experience in similar cases and the experience of other companies, the facts available to us at the time of assessment and how we intend to respond to the proceeding or claim. Our assessment of these factors may change over time as individual proceedings or claims progress.

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

As a result of our acquisition of Sikorsky Aircraft Corporation (Sikorsky), we assumed the defense of and any potential liability for the following civil False Claims Act lawsuit. In October 2014, the U.S. Government filed a complaint in intervention in the U.S. District Court for the Eastern District of Wisconsin ~~alleging~~in a lawsuit brought by qui tam relator Mary Patzer, a former Derco employee. The Government alleged that Sikorsky and two of its wholly-owned subsidiaries, Derco Aerospace (Derco) and Sikorsky Support Services, Inc. (SSSI), violated the civil False Claims Act in connection with a contract that the U.S. Navy awarded to SSSI in June 2006 to support the Navy’sT-34 andT-44 fixed-wing turboprop training aircraft. SSSI subcontracted with Derco primarily to procure and manage the spare parts for the training aircraft. The Government alleges that SSSI overbilled the Navy on the contract because Derco ~~added~~used prohibited cost-plus-percentage-of-cost pricing to add profit and overhead costs toas a percentage of the price of the spare parts that Derco procured and then sold to SSSI. The Government also claims that SSSI submitted false Certificates of Final Indirect Costs in the years 2006 through 2012.

The Government’s complaint asserts numerous claims for violations of the False Claims Act, breach of contract and unjust enrichment.

On March 16, 2017, 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 byqui tamrelator 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 purported violations of the Anti-Kickback Act based on Derco’s allowing SSSI to take a chargeback against Derco’s monthly invoice in exchange for the “highly favorable” pricing arrangement. The Government has indicated that it intends to amend its complaint in Patzer to add claims under the False Claims Act and Anti-Kickback Act related to the chargeback.

The Government currently seeks damages in ~~excess~~these lawsuits of ~~$45~~approximately $52 million, subject to trebling, plus statutory penalties. We believe that we have legal and factual defenses to the ~~government’s~~Government’s 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 Government prevails in this matter and proves damages at ~~the high end of the range sought~~or near $52 million and is successful in having ~~these~~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.

On April 24, 2009, we filed a declaratory judgment action against the New York Metropolitan Transportation Authority and its Capital Construction Company (collectively, the MTA) asking the U.S. District Court for the Southern District of New York to find that the MTA is in material breach of our agreement based on the MTA’s failure to provide access to sites where work must be performed and the customer-furnished equipment necessary to complete the contract. The MTA filed an answer and counterclaim alleging that we breached the contract and subsequently terminated the contract for alleged default. The primary damages sought by the MTA are the cost to complete the contract and potentialre-procurement costs. While we are unable to estimate the cost of another contractor ~~completing~~to complete the contract and the costs ofre-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. At this time, we are awaiting a decision from the District Court. Although this matter relates to our former IS&GS business, we retained the litigation when we divested the IS&GS ~~business segment, we retained it when IS&GS was divested.~~

We are involved in ~~environmental~~ proceedings and potential proceedings relating to soil, sediment, surface water and groundwater contamination, disposal of hazardous waste and other environmental matters at several of our current or former facilities orand 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 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 ~~continuously~~continually evaluate the recoverability of our environmental receivables by assessing, among other factors, U.S. Government regulations, our U.S. Government business base and contract mix, ~~and~~ our history of receiving reimbursement of such ~~costs.~~costs, and efforts by some U.S. Government representatives to limit such reimbursement. We include the portion of those environmental costs expected to be allocated to ournon-U.S. Government contracts, or that is determined to not be recoverable under U.S. Government contracts, in our cost of sales at the time the liability is established.

At ~~both September~~June 25, ~~2016~~2017 and December 31, ~~2015,~~2016, the aggregate amount of liabilities recorded relative to environmental matters was $975 million and $1.0 billion, most of which are recorded in other noncurrent liabilities on our ~~Balance Sheets.~~consolidated balance sheets. We have recorded receivables totaling ~~$896~~$839 million and ~~$858~~$870 million at ~~September~~June 25, ~~2016~~2017 and December 31, ~~2015,~~2016, most of which are recorded in other noncurrent assets on our ~~Balance Sheets,~~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.

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 are 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 record a liability when it is probable that a loss has occurred 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 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 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 also ~~are pursuing~~pursue claims for recovery of costs incurred or contribution to site cleanup costs against other PRPs, including the U.S. Government, and are conducting remediation activities under various consent decrees, orders, and ~~orders~~agreements relating to soil, groundwater, sediment or surface water contamination at certain sites of former or current operations. Under ~~an agreement~~agreements related to ~~our Burbank~~certain sites in California and ~~Glendale, California, sites,~~New York, the U.S. Government reimburses us an amount equal to ~~approximately 50%~~a percentage, specific to each site, of expenditures for certain remediation activities in ~~its~~the U.S. Government’s capacity as a PRP under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).

~~On July 1, 2014, a regulation became effective~~In addition to the proceedings and potential proceedings discussed above, the current standard in California ~~setting~~for the maximum level of the contaminant hexavalent chromium in drinking water atis 10 parts per billion (ppb). ~~In May 2014,~~This standard is being challenged by the California Manufacturers and Technology Association ~~filed a suit alleging the 10 ppb threshold is~~(CMTA) as being lower than is required to protect public health and thus imposes unjustified costs on the regulated community. On August 25, 2016, the California Superior Court issued a tentative ruling in favor of the CMTA petition and held a hearing on August 26, 2016. Although we cannot predict the outcome of this suit, it is likely that the tentative ruling will be finalized and the standard will be remanded to the responsible agency for reconsideration.health. If the ~~new~~ standard remains at 10 ppb, ~~or is higher,~~ it will not have a material impact on our existing remediation costs in California. The U.S. Environmental Protection Agency (U.S. EPA) is considering whether to regulate hexavalent chromium.

In addition, California is reevaluating its existing drinking water standard ~~with respect to a second contaminant,~~of 6 ppb for perchlorate, and the U.S. ~~Environmental Protection Agency (U.S. EPA)~~EPA is ~~also considering whether~~taking steps to regulate perchlorate ~~and hexavalent chromium~~ in drinking water. In February 2016, the Natural Resources Defense Council filed suit in federal court in New York against the U.S. EPA to compel the U.S. EPA to set an enforceable drinking water standard for perchlorate. If a substantially lower ~~standard is~~standards are adopted, in either California or at the federal level for perchlorate or ~~if the U.S. EPA were to adopt a standard~~ for hexavalent chromium, ~~lower than 10 ppb,~~ 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 ournon-U.S. Government contracts or that is determined 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 have entered into standby letters of credit and surety bonds ~~and third-party guarantees with~~issued on our behalf by financial institutions, and ~~other~~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 ~~ventures in which we participate,~~ venture ~~partners or businesses we previously owned.~~partners. We had total outstanding letters of credit, surety bonds and third-party guarantees aggregating ~~$3.8~~$3.7 billion at ~~September~~both June 25, ~~2016~~2017 and December 31, ~~2015. We~~2016. Third-party guarantees do not ~~consider~~include guarantees of subsidiaries and other consolidated ~~entities to be third-party guarantees and they are not included in this amount.~~

At ~~September~~June 25, ~~2016~~2017 and December 31, ~~2015,~~2016, third-party guarantees totaled ~~$694~~$715 million and ~~$678~~$709 million, of which approximately ~~55%~~60% and ~~79%~~56% related to guarantees of contractual performance of ventures to which we currently are or previously were a party. Of the total third-party guarantees, at September 25, 2016, approximately $278 million, or 40%, related to the contractual performance of our former IS&GS business under the terms of guarantees that existed prior to the divestiture of this business. These guarantees are not included in the amounts of third-party guarantees at December 31, 2015 because the IS&GS business was a consolidated entity prior to its divestiture in the third quarter of 2016. We are currently negotiating the termination of the pre-existing guarantees with the related beneficiaries. The termination of these guarantees may be conditioned upon the replacement of the guarantees by guarantees to be issued by Leidos.

~~The amounts of third-party guarantees represent~~This amount represents our estimate of the maximum amount we would expect to incur upon the contractualnon-performance of the venture ~~the venture partners or divested businesses.~~partners. In addition, we generally have cross-indemnities in place that may enable us to recover amounts that may be paid on behalf of a venture partner or divested business. We believe our current and former venture partners and divested businesses will be able to perform their obligations, as they have done through September 25, 2016, and that it will not be necessary to make significant payments under the third-party guarantees with respect to the non-performance of the venture partners or divested businesses.partner. In determining our exposures, we evaluate the reputation, ~~performance on contractual obligations,~~ technical capabilities and credit quality of our current and former venture ~~partners and divested businesses.~~partners. There were no material amounts recorded in our consolidated financial statements related to third-party guarantees.

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~~June 25, ~~2016,~~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~~June 25, ~~2016,~~2017, and that it will not be necessary to make payments under the cross-indemnities or guarantees.

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


	September 25, 2016						December 31, 2015						June 25, 2017						December 31, 2016
	Total		Level 1		Level 2		Total		Level 1		Level 2		Total		Level 1		Level 2		Total		Level 1		Level 2
Assets
Equity securities	$	77	$	77	$	—	$	89	$	89	$	—	$	48	$	48	$	—	$	79	$	79	$	—
Mutual funds		748		748		—		745		745		—		862		862		—		856		856		—
U.S. Government securities		127		—		127		119		—		119		108		—		108		113		—		113
Other securities		150		—		150		147		—		147		182		—		182		151		—		151
Derivatives		90		—		90		15		—		15		29		—		29		27		—		27
Liabilities
Derivatives		87		—		87		35		—		35		87		—		87		85		—		85
Assets measured at NAV
Other commingled funds														18						—

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 ournon-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 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 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 and interest rate swap contracts, 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~~six months ended ~~September~~June 25, ~~2016.~~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. 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 the amount of interest paid. 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 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 at ~~September~~both June 25, ~~2016~~2017 and December 31, ~~2015~~2016 was ~~$1.0~~$1.2 billion and ~~$1.5 billion.~~the fair value was not significant. The aggregate notional amount of our outstanding foreign currency hedges at ~~September~~June 25, ~~2016~~2017 and December 31, ~~2015~~2016 was ~~$4.3~~$4.6 billion and ~~$4.1 billion.~~$4.0 billion and the fair value was not significant. Derivative instruments did not have a material impact on net earnings and comprehensive income during the quarters and ~~nine~~six months ~~periods~~ ended ~~September~~June 25, ~~2016~~2017 and ~~September 27, 2015.~~June 26, 2016. Substantially all of our derivatives are designated for hedge accounting.

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 ~~$17.1~~$16.7 billion and ~~$16.5~~$16.2 billion at ~~September~~June 25, ~~2016~~2017 and December 31, ~~2015 and the~~2016. The outstanding principal amount was $15.3 billion, ~~and $16.2 billion at September 25, 2016 and December 31, 2015,~~ excluding unamortized discounts and ~~deferred financing~~issuance costs of $1.0 billion at both ~~September~~June 25, ~~2016~~2017 and December 31, ~~2015.~~2016. The estimated fair values of our outstanding debt were determined based on quoted prices for similar instruments in active markets (Level 2).

During the six months ended June 25, 2017, we repurchased 3.8 million shares of our common stock for $1.0 billion. The total remaining authorization for future common share repurchases under our share repurchase program was $2.5 billion as of June 25, 2017. 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 additionalpaid-in capital. If additionalpaid-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, additionalpaid-in capital was reduced to zero, with the remainder of the excess purchase price over par value of $828 million and $838 million recorded as a reduction of retained earnings during the six months ended June 25, 2017 and June 26, 2016, respectively.

We declared cash dividends totaling $1.1 billion ($3.64 per share) and $1.6 billion ($5.46 per share) during the quarter and six months ended June 25, 2017. The 2017 dividend amounts include the declaration of our 2017 third quarter dividend of $1.82 per share, which totaled $528 million. We declared cash dividends totaling $1.0 billion ($3.30 per share) and $1.5 billion ($4.95 per share) during the quarter and six months ended June 26, 2016. The 2016 dividend amounts include the declaration of our 2016 third quarter dividend of $1.65 per share, which totaled $503 million.

During the six months ended June 25, 2017, we granted certain employees approximately 0.5 million RSUs with a grant date fair value of $254.53 per RSU. The grant date fair value of these RSUs is equal to the closing market price of our common stock on the grant date less a discount to reflect the delay in payment of dividend-equivalent cash payments that 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 than the vesting period if the employee is retirement eligible on the date of grant or will become retirement eligible before the end of the vesting period.

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

Accounting for contracts using thepercentage-of-completion method requires judgment relative to assessing risks, 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 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 theinception-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.

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 the technical, schedule and cost aspects of the contract, which decreases the estimated total costs to 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.

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 using thepercentage-of-completion method of accounting. Increases in the profit booking rates, typically referred to as risk retirements, usually relate to revisions in the estimated total costs 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 and a reduction in the profit booking rate. Increases or decreases in profit booking rates are recognized in the current period and reflect theinception-to-date effect of such changes. Segment operating profit and margins may also be impacted favorably or unfavorably by other items. Favorable items may include the positive resolution of contractual matters, cost recoveries on restructuring charges, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual matters; restructuring charges, except for significant severance actions, which are excluded from segment operating results; reserves for disputes; asset impairments; and losses on sales of certain assets.

As previously disclosed, we have a program 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 the program,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 June 25, 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.

We have certain commercial satellite programs at our Space Systems business segment, where we have experienced performance issues 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 and have recorded cumulative losses of approximately $260 million as of June 25, 2017, including approximately $90 million during the six months ended June 25, 2017. While the loss reflects our estimated total losses on the programs, we will 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.

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 ~~from continuing operations~~ by approximately ~~$405~~$485 million and ~~$1.1 billion~~$775 million in the quarter and ~~nine~~six months ended ~~September~~June 25, ~~2016~~2017 and ~~$390~~$355 million and ~~$1.3 billion~~$715 million in the quarter and ~~nine~~six months ended ~~September 27, 2015.~~June 26, 2016. These adjustments increased net earnings by approximately ~~$265~~$315 million ($~~0.88~~1.08 per share) and ~~$730~~$504 million ($~~2.39~~1.73 per share) in the quarter and ~~nine~~six months ended ~~September~~June 25, ~~2016~~2017 and ~~$255~~$231 million ($~~0.82~~0.75 per share) and ~~$865~~$465 million ($~~2.73~~1.51 per share) in the quarter and ~~nine~~six months ended ~~September 27, 2015.~~

~~In October 2016, our $2.5 billion revolving credit facility (the 5-year Facility) was amended to extend its expiration date by one year from October 9, 2020 to October 9, 2021.~~

~~In September 2016, 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% according to 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.

On February 20, 2015, we issued $2.25 billion of notes (the February 2015 Notes) in a registered public offering. The February 2015 Notes consist of $750 million maturing in 2025 with a fixed interest rate of 2.90%, $500 million maturing in 2035 with a fixed interest rate of 3.60% and $1.0 billion maturing in 2045 with a fixed interest rate of 3.80%.June 26, 2016.

During the first quarter of 2016, we recorded severance charges totaling approximately $80 million related to our Aeronautics 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 ~~will receive~~ receivedlump-sum severance payments primarily based on years of ~~service, the majority~~service. As of ~~which are expected to be paid by~~ the end of ~~2016. As of September 25, 2016, we have paid $56 million in severance payments associated with these actions, of which $31 million was paid in the quarter ended September 25, 2016. During~~ the first quarter of ~~2016,~~2017, we ~~also recorded~~substantially paid the severance ~~charges totaling $19 million related to our former IS&GS business segment which are recorded in net earnings from discontinued operations in our consolidated statement of earnings.~~cost associated with these actions.

During the ~~third and fourth quarters of 2015, we~~six months ended June 25, 2017, equity earnings included a charge recorded severance charges totaling $82 million, of which $67 million related to our RMS business segment and $15 million related to businesses that were reported in our former IS&GS business segment prior to our fourth quarter 2015 program realignment. The charges consisted of severance costs associated with the planned elimination of certain positions through either voluntary or involuntary actions. Upon separation, terminated employees will receive lump-sum severance payments primarily based on years of service, the majority of which are expected to be paid over the next several quarters. As of September 25, 2016, we have paid $45 million in severance payments associated with these actions, of which $25 million was paid in the first quarter ~~ended September 25, 2016. Additionally during the third and fourth quarters~~ of ~~2015, we recorded severance charges totaling $20~~approximately $64 million ~~related to~~($40 million or $0.14 per share, after tax), which represented our ~~former IS&GS business segment which are recorded in net earnings from discontinued operations in our consolidated statements~~portion of ~~earnings.~~

~~In connection with the Sikorsky acquisition, we assumed obligations~~a noncash asset impairment related to certain ~~restructuring actions committed~~long-lived assets held by our equity method investee, Advanced Military Maintenance, Repair and Overhaul Center LLC (AMMROC). We are continuing to ~~by Sikorsky in June 2015. Net~~monitor this investment. It is possible that we may have to record our portion of ~~amounts we anticipate~~additional charges should their business continue to ~~recover through the pricing of~~experience performance issues, which could adversely affect our ~~products~~business, financial condition and services to our customers, we also expect to incur an additional $40 million of costs in 2016 related to these actions. During the nine months ended September 25, 2016, we incurred about $35 million of costs and the remaining $5 million are expected to be incurred during the fourth quarter of 2016.

We expect to recover a substantial amount of the restructuring charges through the pricing of our products and services to the U.S. Government and other customers in future periods, with the impact included in the respective business segment’s results of operations.

Our effective income tax rates for earnings from continuing operations were 23.7% and 23.1% for the quarter and nine months ended September 25, 2016, and 30.6% and 30.4% for the quarter and nine months ended September 27, 2015. The rates for both periods benefited from tax deductions for U.S. manufacturing activities and for dividends paid to our defined contribution plans with an employee stock ownership plan feature. The rates in the quarter and nine months ended September 25, 2016 also benefited from the research and development tax credit, which was permanently extended and reinstated in the fourth quarter of 2015 and from the nontaxable gain recorded in connection with the increase in AWE ownership.

The rate in the quarter and nine months ended September 25, 2016 also benefited from additional tax benefits related to employee share-based payment awards, which are now recorded as income tax benefit or expense in earnings effective with the adoption of an accounting standard update during the quarter ended June 26, 2016. We early adopted the accounting

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 ~~second quarter~~non-recourse sale of ~~2016~~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 ~~therefore required to report~~reflected in our operating cash flows on the ~~impacts as though the accounting standard update had been adopted on January 1, 2016. Accordingly, we recognized additional income tax benefits~~statement of ~~$22 million and $137 million during~~cash flows. During both the quarter and ~~nine~~six months ended ~~September~~June 25, ~~2016. The adjustments for the third quarter included only the quarterly impacts, whereas the adjustments for the first nine months~~2017, we sold approximately $365 million of ~~2016 include the second and third quarter impacts and the reclassification~~customer receivables. There were no gains or losses related to sales of these receivables.

Our effective income tax ~~benefits of $104 million originally recognized in additional paid-in capital~~rates were 28.8% and ~~cash flows from financing activities in the first quarter of 2016.~~

~~Exchange and Retirement of Common Stock Related to Divestiture of IS&GS Business Segment~~

On August 16, 2016, as part of the previously announced divestiture of the IS&GS business segment and merger of this business with Leidos in a Reverse Morris Trust transaction, we completed an exchange offer that resulted in a reduction of our common stock outstanding by approximately 9.4 million shares (approximately three percent).

~~During the nine months ended September 25, 2016, we repurchased 5.7 million shares of our common stock~~26.4% for $1.3 billion. On September 22, 2016, we increased our share repurchase program by $2.0 billion. Inclusive of this increase, the total remaining authorization for future common share repurchases under our share repurchase program was $4.3 billion as of September 25, 2016. 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.

~~We declared cash dividends totaling $537 million ($1.82 per share) and $2.0 billion ($6.77 per share) during~~ the quarter and ~~nine~~six months ended ~~September~~June 25, 2016. The 2016 dividend amounts include the declaration of our 2016 fourth quarter dividend of $1.82 per share, which totaled $537 million. On September 22, 2016 we increased our quarterly dividend rate by 10% or $0.17 per share to $1.82 per share. We declared cash dividends totaling $507 million ($1.65 per share)2017, and ~~$1.9 billion ($6.15 per share) during~~25.7% and 22.6% for the quarter and ~~nine~~six months ended ~~September 27, 2015.~~June 26, 2016. The ~~2015 dividend amounts include~~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 ~~declaration of our 2015 fourth quarter dividend of ($1.65 per share), which totaled $507 million.~~

During the quarter ended September 25, 2016, there were no significant grants of restricted stock units (RSUs). During the nine months ended September 25, 2016, we granted certain employees approximately 0.7 million RSUs with a grant-date fair value of $206.69 per RSU. The grant-date fair value of these RSUs is equal to the closing market price of our common stock on the grant date less a discount to reflect the delay in payment of dividend-equivalent cash payments that 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 than the vesting period if the employee is retirement eligible on the date of grant or will become retirement eligible before the end of the vesting period.

~~Changes in the balance of AOCL, net of~~research and development tax ~~consisted of the following (in millions):~~credit.

In May 2014, the ~~Financial Accounting Standards Board (FASB)~~FASB issued Accounting Standards Update (ASU)No. 2014-09,Revenue from Contracts with Customers,, as amended (~~Topic 606~~ (Topic 606)~~): that~~ (the ASU), which will change the way we recognize revenue and significantly expand the disclosure requirements for revenue arrangements. ~~In July 2015, the FASB approved a one-year deferral of the~~The ASU is effective ~~date of the ASU to 2018~~ for public companies by 2018, with an option that would permit companies to early adopt the ASU in 2017. This ASU may be adopted either retrospectively or on a modified retrospective basis whereby the ASU would be applied to new contracts and existing contracts with remaining performance obligations as of the effective date, with a cumulative catch-up adjustment recorded to beginning retained earnings at the effective date for existing contracts with remaining performance obligations.

We are currently evaluating the effect the ASU is expected to have on our consolidated financial statements and related disclosures. As the ASU will supersede substantially all existing revenue guidance affecting us under GAAP, it could impact revenue and cost recognition on thousands of contracts across all our business segments, in addition to our business processes and our information technology systems. As a result, our evaluation of the effect of the ASU will extend over future periods. We will adopt the requirements of the new standard effective January 1, 2018 ~~and we anticipate~~ using the full retrospective transition method, whereby the ASU will be applied to each prior year presented and the cumulative effect of applying the ASU will be recognized at January 1, 2016, the beginning of the earliest year presented.

As the ASU supersedes substantially all existing revenue guidance affecting us under current GAAP, it will impact revenue and cost recognition across all of our business segments, as well as our business processes and our information technology systems.

We commenced our evaluation of the impact of the ASU 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 the ASU and assess the internal control structure in order to adopt the ASU on January 1, 2018. We have periodically briefed our Audit Committee on our progress made towards adoption. Based on our progress to date, we anticipate being able to estimate the impacts of adopting the ASU on our 2016 operating results in the third quarter of 2017.

We recognize the majority of our revenue using thepercentage-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 thepercentage-of-completioncost-to-cost method to measure progress. For example, we use this method at our Aeronautics business segment for theF-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 record revenue and profit using thepercentage-of-completionunits-of-delivery method as the basis for measuring progress on the contract. For example, we use this method in Aeronautics for theC-130J andC-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 to the U.S. Government, revenue is generally recorded using thepercentage-of-completioncost-to-costmethod.

Under the ASU, 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 expect to recognize revenue over time for substantially all of our contracts using a method similar to our currentpercentage-of-completioncost-to-cost method. Accordingly, adoption of the ASU will primarily impact our contracts where revenue is currently recognized using thepercentage-of-completion

units-of-delivery method. As a result, we anticipate recognizing revenue earlier in the performance period as we incur costs, as opposed to when units are delivered. This change will impact our balance sheet presentation with an expected 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 theunits-of-delivery method to thecost-to-cost method for recognizing revenue and profits. Backlog will also be impacted upon our adoption to reflect this change and the disclosure requirements of the ASU.

In March 2017, the FASB issued ASU2017-07,Compensation-Retirement Benefits (Topic 715), which amends the requirements in Accounting Standards Codification (ASC) 715 related to the income statement presentation of the components of net periodic benefit cost for our defined benefit pension and other postretirement plans. The new standard requires that we disaggregate the current service cost component from the other components of net periodic benefit cost and present it with other compensation costs (currently included within cost of sales) within operating profit. All other components of net periodic benefit cost (e.g., interest cost, actuarial gains and losses and expected return on plan assets) are to be presented outside of operating profit. In addition, only the service cost component of net periodic benefit cost is eligible for capitalization in assets. The new standard is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. We are currently evaluating the expected impact to related disclosures, including the FAS/CAS adjustment. We plan to adopt the requirements of the new standard January 1, 2018 using a retrospective transition method to adopt the requirement for separate presentation in the income statement of service cost and other components, and a prospective transition method to adopt the requirement to limit capitalization to the service cost component. We do not expect there to be an impact to our consolidated net sales, consolidated net earnings, or cash flows as a result of adopting this standard.

In January 2017, the FASB issued ASUNo. 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 will continue to perform our quantitative and qualitative goodwill impairment test by comparing 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 are currently evaluating when we will adopt the ASU and the expected impact to related disclosures.

In February 2016, the FASB issued ASUNo. 2016-02,Leases (Topic 842) (~~Topic 842~~~~): that increases transparency and comparability among organizations by requiring~~, 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 ASU is effective January 1, 2019 for public companies, with early adoption permitted. The ASU will be applied using a modified retrospective approach to the beginning of the earliest period presented in the financial statements. We are ~~currently evaluating when we will adopt the ASU and~~continuing to evaluate the expected impact to our consolidated financial statements and related disclosures.

~~On March 30, 2016, the FASB issued ASU No. 2016-09,~~~~Compensation - Stock Compensation (Topic 718): Improvements~~ We plan to ~~Employee Share-Based Payment Accounting~~, which changed the accounting for certain aspects of employee share-based payments. The ASU requires companies to recognize additional tax benefits or expenses related to the vesting or settlement of employee share-based awards (the difference between the actual tax benefit and the tax benefit initially recognized for financial reporting purposes) as income tax benefit or expense in earnings, rather than in additional paid-in capital, in the reporting period in which they occur. The ASU also requires companies to classify cash flows resulting from employee share-based payments, including the additional tax benefits or expenses related to the vesting or settlement of share-based awards, as cash flows from operating activities rather than financing activities. Although this change will reduce some of the administrative complexities of tracking share-based awards, it will increase the volatility of our income tax expense and cash flows from operations. The new standard is effective for annual reporting periods beginning after December 15, 2016, with early adoption permitted. We early adoptedadopt the ASU ~~during the second quarter of 2016 and are therefore required to report the impacts as though the ASU had been adopted on~~effective January 1, 2016. Accordingly, we recognized additional income tax benefits as an increase to earnings of $22 million ($0.07 per share) and $137 million ($0.45 per share) during the quarter and nine months ended September 25, 2016. Additionally, we recognized additional income tax benefits as an increase to operating cash flows of $137 million during the nine months ended September 25, 2016. The adjustments for the third quarter included only the quarterly impacts, whereas the adjustments for the first nine months of 2016 include the second and third quarter impacts and the reclassification of income tax benefits of $104 million originally recognized in additional paid-in capital and cash flows from financing activities in the first quarter of 2016. The new accounting standard did not impact any periods prior to January 1, 2016, as we applied the changes in the ASU on a prospective basis.

~~In September 2015, the FASB issued ASU No. 2015-16~~~~, Business Combinations~~ (~~Topic 805~~): that simplifies the accounting for adjustments made to preliminary amounts recognized in a business combination by eliminating the requirement to retrospectively account for those adjustments. Instead, adjustments will be recognized in the period in which the adjustments are determined, including the effect on earnings of any amounts that would have been recorded in previous periods if the accounting had been completed at the acquisition date. We adopted the ASU on January 1, 2016 and are prospectively applying the ASU to business combination adjustments identified after the date of adoption.

~~In November 2015, the FASB issued ASU No. 2015-17,~~~~Income Taxes~~ (~~Topic 740~~): that simplifies the presentation of deferred income taxes and requires that deferred tax assets and liabilities, as well as any related valuation allowance, be classified as noncurrent in our consolidated balance sheets. We applied the provisions of the ASU retrospectively and reclassified approximately $1.6 billion from current to noncurrent assets and approximately $140 million from current to noncurrent liabilities in our consolidated balance sheet as of December 31, 2015.2019.

We have reviewed the consolidated balance sheet of Lockheed Martin Corporation as of ~~September~~June 25, ~~2016,~~2017, and the related consolidated statements of earnings and comprehensive income for the quarters and ~~nine~~six months ended ~~September~~June 25, ~~2016~~2017 and ~~September 27, 2015,~~June 26, 2016, and the consolidated statements of cash flows and equity for the ~~nine~~six months ended ~~September~~June 25, ~~2016~~2017 and ~~September 27, 2015.~~June 26, 2016. These financial statements are the responsibility of the Corporation’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information 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), 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, ~~2015,~~2016, and the related consolidated statements of earnings, comprehensive income, cash flows, and ~~stockholders’~~ 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 ~~24, 2016. As discussed in Note 1 to~~9, 2017. In our opinion, the Corporation’s unaudited interim consolidated financial statements, the Corporation completed the divestiture of its Information Systems & Global Solutions (IS&GS) business segment on August 16, 2016. As a result, the Corporation reclassified the assets and liabilities of the IS&GS business segment to discontinued operations in the December 31, 2015 consolidated balance sheet. We have not audited and reported on the revised December 31, 2015accompanying consolidated balance sheet ~~reflecting~~as of December 31, 2016, is fairly stated, in all material respects, in relation to the ~~reclassification of the IS&GS business segment’s assets and liabilities to discontinued operations.~~consolidated balance sheet from which it has been derived.

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

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 ~~information~~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 ~~2015, 77%~~2016, 71% of our ~~$40.5~~$47.2 billion in net sales were from the U.S. Government, either as a prime contractor or as a subcontractor (including ~~62%~~59% from the Department of Defense (DoD)), ~~22%~~27% were from international customers (including foreign military sales (FMS) contracted through the U.S. Government) and 1%2% 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.

On August 16, 2016, we completed the ~~previously announced~~ divestiture of ~~our~~the Information Systems & Global Solutions (IS&GS) business, ~~segment,~~ which merged with a subsidiary of Leidos Holdings, Inc. (Leidos) in a Reverse Morris Trust transaction (the “Transactions”). The Transactions were the culmination of the strategic review of our government information technology infrastructure services business and our technical services business performed in 2015 to explore whether these businesses could achieve greater growth and create more value for customers and stockholders outside of Lockheed Martin. As a result of the divestiture,transaction. Accordingly, the operating results of the IS&GS business ~~segment~~ have been classified as discontinued operations in the consolidated statements of earnings for all periods presented, and the assets and liabilities of the IS&GS business segment have been classified as assets and liabilities of discontinued operations in the consolidated balance sheet as of December 31, 2015.earnings. However, the cash flows of the IS&GS business ~~segment~~for the quarter ended June 26, 2016 have not been reclassified in ~~the~~our consolidated statements of cash ~~flows. Refer to~~flows as we retained the cash as part of the transaction. See “Note 3 – ~~Acquisitions and Divestitures”~~Divestiture” included in our Notes to Consolidated Financial Statements for additional information about the divestiture of the IS&GS ~~business segment.~~business.

On August 24, 2016, we increased our ownership interest in the AWE Management Limited (AWE) venture, which operates the United Kingdom’s nuclear deterrent program ~~increased by 18%. As a result of the increase in ownership interest, we now hold a 51% controlling interest in AWE~~ and are required to consolidate the AWE venture in our consolidated financial statements. Accordingly, the operating results and cash flows of AWE have been included in our consolidated statements of earnings and consolidated statements of cash flows since August 24, 2016, the date we obtained a controlling interest, and the assets and liabilities of AWE are included in the consolidated balance sheet as of September 25, 2016. AWE has beenis aligned under our Space Systems business ~~segment. Previously,~~segment, from 33% to 51%. At which time, we began consolidating AWE. Consequently, our operating results for the quarter and six months ended June 25, 2017 include 100% of AWE’s sales and 51% of their operating profit. Prior to increasing our ownership interest, we accounted for our investment in AWE using the equity method of accounting. ~~Refer to “Note 3 – Acquisitions~~Under the equity method, we recognized only 33% of AWE’s earnings or losses and ~~Divestitures” for additional information about the change in ownership of AWE.~~

During the third quarter of 2016, the business segment formerly known as Mission Systems and Training (MST) was renamed Rotary and Missions Systems (RMS) to better reflect a broader range of products and capabilities subsequent to the acquisition of Sikorsky Aircraft Corporation (Sikorsky) in November 2015 and the realignment of certain programs from the former IS&GS business segment to RMS in the fourth quarter of 2015. While RMS was renamed to more accurately reflect the expanded portfolio, there was no ~~additional change to the composition of the portfolio in connection with the name change. The information for this segment for all periods presented has been labeled using the new name.~~

~~In connection with the divestiture of the IS&GS business segment, we adjusted~~sales. Accordingly, our ~~2016 outlook for sales, operating profit and operating margin to exclude the~~ operating results for the quarter and six months ended June 26, 2016 do not include any sales generated by AWE and only 33% of ~~the IS&GS business segment. Based on the adjusted 2016 outlook, we~~AWE’s net earnings.

We continue to expect ~~2016~~2017 net sales will increase in the ~~low-double~~mid-single digit percentage range ~~as compared to 2015~~from 2016 levels. The projected growth is driven by increased production and sustainment volume on the ~~addition of Sikorsky and~~F-35 program at Aeronautics as well as increased volume ~~expected on the F-35 program,~~at MFC and RMS, partially offset by a slight decrease in volume ~~declines~~ at Space Systems. Operating profit margin is expected to decline from 2016 levels primarily driven by a charge recorded in the first quarter of 2017 related to a program to design, integrate, and install an air missile defense command, control, communications, computers – intelligence (C4I) systems, for an international customer, higher volume on theF-35 program, which is dilutive to our overall profit margin, contract mix at MFC, ~~business segment. We~~lower AWE earnings as a result of thenon-cash gain recognized in 2016 related to the consolidation of AWE, amortization of AWE intangible assets in 2017 and lower equity earnings at Space Systems. Accordingly, we expect ~~2016~~2017 segment operating profit margin will ~~be slightly higher than 2015 levels. Our cash~~decline from ~~operations is likely to be impacted by a delay in collections on the F-35 program, with any delay in~~our 2016 customer payments on the F-35 program increasing our cash from operations in 2017. Depending on the timing of F-35 collections, 2016 cash from operations will be greater than or equal to $5.0 billion or greater than or equal to $5.7 billion.

We expect our 2017 net sales to increase by approximately 7% as compared to 2016 with most of the increase coming from Aeronautics’ growth driven by F-35 production and sustainment and Missiles and Fire Control growth, driven by higher air and missile defense sales. RMS and Space Systems about offset each other next year with slight growth in RMS offset by lower sales in Space Systems as additional AWE volume for a full year in 2017 compared to a partial 2016 is more than offset by lower volume in our government satellite business as well as the absence of any commercial launch activity next year. We expect segment operating margin to ~~range between 10.0% to 10.5%, with the reduction from the~~

~~2016 levels driven primarily by a full year of consolidated AWE sales in~~just above 10%. Our outlook for 2017 without the benefit of the gain in 2016, lower ULA equity earnings due to the mix and volume of launch vehicles expected in 2017, as well as the end of the $40 million annual deferred gain in 2016, and the significant volume increase in F-35 sales at a lower margin rate than the average for the corporation. Depending on the timing of F-35 collections, 2017 cash from operations will be greater than or equal to $5.0 billion or greater than or equal to $5.7 billion. The preliminary outlook assumes the U.S. Government continues to support and fund our key programs, consistent with the ~~continuing resolution funding measure through December 9, 2016, and that Congress approves budget legislation for~~ government fiscal year 2017 ~~soon.~~budget, and does not shutdown. Changes in circumstances may require us to revise our assumptions, which could materially change our current estimate of 2017 net sales and operating ~~margins~~profit margin. For additional information related to trends in net sales and ~~cash flows.~~

We expect the 2017 FAS/CAS pension benefit to be approximately $800 million assuming a 3.625% discount rate, a 75 basis point decrease from the end of 2015, and a 5.0% return on plan assets in 2016, and updated longevity assumptions released on October 20, 2016 by the Society of Actuaries, among other assumptions. We do not expect to make contributions to our legacy qualified defined benefit pension plans in 2017. 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 $125 million to the estimated 2017 FAS/CAS pension benefit. We will finalize the postretirement benefit plan assumptions and determine the 2016 actual return on plan assets on December 31, 2016. The final assumptions and actual investment return for 2016 may differ materially from those discussed above.

On October 20, 2016, the Society of Actuaries published revised longevity assumptions that are used to estimate the life expectancy of plan participants during which they are expected to receive benefit payments. Actuarial studies have recently been updated and would have the resultant impact of decreasing the total number of benefit payments to plan participants. These actuarial studies have not yet been reflected or incorporated in the postretirement benefit plan obligation recognized at September 25, 2016 or the FAS expense and CAS cost for 2016. The new longevity assumptions, which we expect to adoptoperating profit at our ~~December 31, 2016 measurement date, currently are expected to decrease~~business segments, see the ~~amount~~“Business Segment Results of ~~our postretirement benefit plan obligation and increase our 2017 net earnings.~~Operations” discussion below.

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 Annual Report on Form10-K for the year ended December 31, ~~2015 (2015~~2016 (2016 Form10-K).

~~The U.S. Government has not yet~~In May 2017, Congress passed ~~an annual budget for government~~the fiscal year ~~(GFY) 2017. Accordingly,~~2017 Omnibus Appropriations Bill, which funds the U.S. Government through September 30, 2017. The bill provides funding of $607 billion for the U.S. DoD, including a base budget of $524 billion and Overseas Contingency Operations (OCO) / Global War on Terror (GWOT) funding of $83 billion. The fiscal year 2017 funding level for the DoD is ~~currently operating under a short-term continuing resolution~~about $26 billion higher than the funding ~~measure through December 9, 2016. Under this continuing resolution, partial-year funding at amounts consistent with appropriated levels~~level for fiscal year ~~2016 are available,~~2016.

In May 2017, the President also submitted a budget proposal for fiscal year 2018 to Congress. The proposal includes funding of $639 billion for the DoD, comprising a base budget of $574 billion and OCO / GWOT funding of $65 billion. The fiscal year 2018 funding level for the DoD is about $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. Congress must approve or revise the President’s fiscal year 2018 budget proposals through enactment of appropriations bills and other policy legislation, which would then require final Presidential approval. It is uncertain when or if an annual appropriations bill will be enacted for fiscal year 2018 and whether it will be at the levels proposed by the President.

U.S. defense spending through fiscal year 2021 remains subject to certain restrictions, but new spending initiatives are not authorized. Our key programs continue to be supported and funded despite the continuing resolution financing mechanism. However, during periods covered by continuing resolutions, or until regular annual appropriation bills are passed, we may experience delays in procurement of products and services due to lack of funding and those delays may affect our results of operations, financial position and cash flows.

~~The President and both houses of Congress have proposed budget plans for GFY 2017 that are broadly divergent in how they would be implemented, but set overall national defense~~statutory spending limits ~~at amounts consistent with~~established by the ~~current limit imposed~~Budget Control Act. The spending limits were modified for fiscal years 2013 through 2017 by the American Taxpayer Relief Act of 2012, the Bipartisan Budget Act of 2013 and the Bipartisan Budget Act of 2015. ~~Significant differences remain in~~However, these acts did not provide relief to the ~~various proposed budgets’~~spending limits beyond fiscal year 2017. If Congress approves the President’s budget proposal or other appropriation legislation with funding ~~sources~~levels that exceed the spending limits, automaticacross-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 ~~potential use~~risk of ~~overseas continuing operations funds for additional DoD-based budget. While~~future sequestration cuts remain unless the Budget Control Act is repealed or significantly modified. The investments and acquisitions we ~~cannot predict budget resolution timing,~~have made in recent years have sought to align our businesses with what we believe are ~~hopeful~~the most critical national priorities and mission areas. However, the possibility remains that ~~congressional deliberations can~~our programs could be ~~concluded~~materially reduced, extended, or terminated as ~~soon as possible. A substantial delay would require an extension~~a result of the U.S. Government’s continuing ~~resolution~~assessment of priorities, changes in government priorities, the implementation of sequestration (particularly in those circumstances where sequestration is implementedacross-the-board without regard to ~~enable continuation~~national priorities), or other budget cuts in lieu of ~~government operations beyond December 9, 2016. While we think it~~sequestration.

In March 2017, the outstanding debt of the U.S. reached the debt borrowing limit, known as the debt ceiling. To avoid exceeding the debt ceiling, the U.S. Department of Treasury began employing measures to finance the U.S. Government. Congress will need to raise the debt limit in order for the U.S. Government to continue borrowing money before these measures are exhausted. If the debt ceiling is ~~unlikely, a continuing resolution~~not raised, the U.S. Government may not be able to pay for expenditures or fulfill its funding obligations and ~~its associated budget constraints~~there could be ~~extended for~~significant disruption to all discretionary programs. Although we believe that key defense, intelligence and homeland security programs would receive priority, the full fiscal year 2017 should the varying budget positions remain unresolved. In the event of a full year continuing resolution, we would anticipate some level of impact against our 2017 orders and associated backlog level, but minimal impact to sales, earnings, and cash flows in 2017 as a large portion of our backlog work is already funded from prior fiscal years,effect on individual programs or ~~we could face a government shutdown of unknown duration.~~

We anticipate there will continue to be a significant amount of debate and negotiations within the U.S. Government over defense spending ~~for GFY 2017~~ and ~~beyond. The current continuing resolution ends after~~ the ~~2016 Presidential election and during the lame duck session of congress, in which resolution of differences may be more difficult.~~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.

Since 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, the results of operations of a particular period, orperiod-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 ~~from continuing~~of operations were as follows (in millions, except per share data):


	Quarters Ended				Nine Months Ended				Quarters Ended				Six Months Ended
	September 25, 2016		September 27, 2015		September 25, 2016		September 27, 2015		June 25, 2017		June 26, 2016		June 25, 2017		June 26, 2016
Net sales	$	11,551	$	10,060	$	33,496	$	29,016	$	12,685	$	11,577	$	23,742	$	21,945
Cost of sales		(10,167)		(8,963)		(29,787)		(25,661)		(11,260)		(10,347)		(21,164)		(19,620)
Gross profit		1,384		1,097		3,709		3,355		1,425		1,230		2,578		2,325
Other income, net		204		95		412		257		60		145		56		208
Operating profit		1,588		1,192		4,121		3,612		1,485		1,375		2,634		2,533
Interest expense		(162)		(104)		(492)		(301)		(160)		(165)		(315)		(330)
Other non-operating income, net		1		1		2		6
Othernon-operating (expense) income, net										(2)		—		(1)		1
Earnings from continuing operations before income taxes		1,427		1,089		3,631		3,317		1,323		1,210		2,318		2,204
Income tax expense		(338)		(333)		(837)		(1,008)		(381)		(311)		(613)		(499)
Net earnings from continuing operations		1,089		756		2,794		2,309		942		899		1,705		1,705
Net earnings from discontinued operations		1,306		109		1,520		363		—		122		—		214
Net earnings	$	2,395	$	865	$	4,314	$	2,672	$	942	$	1,021	$	1,705	$	1,919
Diluted earnings per common share from continuing operations	$	3.61	$	2.42	$	9.13	$	7.30
Diluted earnings per common share from discontinued operations	$	4.32	$	0.35	$	4.97	$	1.15
Diluted earnings per common share	$	7.93	$	2.77	$	14.10	$	8.45
Continuing operations									$	3.23	$	2.93	$	5.84	$	5.54
Discontinued operations										—		0.39		—		0.69
Total diluted earnings per common share									$	3.23	$	3.32	$	5.84	$	6.23

Certain amounts reported in other income, net, primarily 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.

We generate sales from the delivery of products and services to our customers. ~~Product sales are generated in our Aeronautics, MFC, RMS and Space Systems business segments and most of our service sales are generated in our Aeronautics and RMS business segments.~~ Our consolidated net sales ~~from continuing operations~~ were as follows (in millions):

Substantially all of our contracts are accounted for using thepercentage-of-completion method. Under thepercentage-of-completion method, we record net sales on contracts 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 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 thepercentage-of-completion method.

~~Our product~~Product sales ~~represented 87% of our total net sales~~increased $1.0 billion, or 10%, during the quarter ended ~~September~~June 25, ~~2016 and 85% of total net sales during the quarter ended September 27, 2015. Product sales increased $1.5 billion, or 17.1%, in the quarter ended September 25, 2016~~2017 compared to the same period in ~~2015,~~2016, primarily due to increased product sales of about ~~$1.1 billion at RMS, about $270~~$720 million at Aeronautics, ~~and~~ about ~~$145~~$210 million at Space ~~Systems.~~Systems and about $185 million at RMS. The increase in product sales at Aeronautics was primarily attributable to higher sales for theF-35 program due to increased production volume, higher sales for theC-130 program due to aircraft configuration mix, and increased deliveries for theC-5 program. Higher product sales at Space Systems were primarily attributable to sales from AWE, which we began consolidating in the third quarter of 2016, partially offset by a decrease in government satellite programs (primarily Advanced Extremely High Frequency (AEHF) and Mobile User Objective Systems (MUOS)) due to lower volume. The increase in product sales at RMS was primarily attributable to certain adjustments recorded in 2016 required to account for the November 6, 2015 acquisition of Sikorsky and higher sales ~~from Sikorsky which was acquired in the fourth quarter of 2015.~~

~~The increase at Aeronautics was primarily attributable to the F-35 program~~for C4ISR & Undersea Systems & Sensors (C4USS) programs due to increased volume on aircraft production. The increase in product sales at Space Systems was primarily attributable to net sales from AWE following the consolidation of this business in the third quarter of 2016.higher volume.

~~Our product sales represented 85% of our total net sales during the nine months ended September 25, 2016 and 86% of our sales during the nine months ended September 27, 2015.~~

Product sales increased ~~$3.6~~$1.8 billion, or ~~14.2%~~10%, induring the ~~nine~~six months ended ~~September~~June 25, ~~2016~~2017 compared to the same period in ~~2015, primarily~~2016, due to increased product sales of about ~~$2.7~~$1.0 billion at ~~RMS~~Aeronautics, about $440 million at Space Systems and about ~~$900~~$360 million at ~~Aeronautics.~~RMS. The increase in product sales at Aeronautics was primarily attributable to higher sales for theF-35 program due to increased production volume, higher sales for the C-130 program due to aircraft configuration mix, and higher volume on aircraft modernization for theF-16 program. Higher product sales at Space Systems were primarily attributable to sales from AWE, which we began consolidating in the third quarter of 2016, partially offset by a decrease in government satellite programs (primarily AEHF and MUOS) and the Orion program due to lower volume. The increase in product sales at RMS was primarily attributable to ~~sales from~~certain adjustments recorded in 2016 required to account for the November 6, 2015 acquisition of Sikorsky, which was acquired in the fourth quarter of 2015. The increase at Aeronautics was primarily attributable to the F-35 program due to increased volume and the C-130 program due to increased aircraft deliveries, partially offset by ~~decreased aircraft deliveries on the C-5 program.~~fewer government helicopter deliveries.

~~Our~~Service sales increased $95 million, or 5%, and $23 million, or 1%, during the quarter and six months ended June 25, 2017 compared to the same periods in 2016. The increase in service ~~sales represented 13% of our total net~~ sales during the quarter ended ~~September~~June 25, ~~2016 and 15% of total net sales during the quarter ended September 27, 2015. Service sales increased $22 million, or 1.5%, in the quarter ended September 25, 2016 compared to the same period in 2015,~~2017 was primarily due to increased sales of about $130 million at Aeronautics and about $60 million at MFC, partially offset by lower service sales of about $80 million at RMS, partially offset by decreased service sales of about $70 million at Space Systems. The increase at RMS was primarily attributable to sales from Sikorsky which was acquired in the fourth quarter of 2015, partially offset by decreased sales for sustainment and maintenance (Littoral Combat Ship (LCS)) and for command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR) and government cyber programs. The decrease at Space Systems was primarily attributable to reduced sales for Strategic and Defensive Missile Systems (S&DMS) programs.

Our service sales represented 15% of our total net sales during the nine months ended September 25, 2016 and 14% of our total net sales during the nine months ended September 27, 2015. Service sales increased $917 million, or 23.2%, in the nine months ended September 25, 2016 compared to the same period in 2015, primarily due to an increase in service sales of about $630 million at RMS and about $275 million at Aeronautics.RMS. The increase in service sales ~~at RMS~~during the six months ended June 25, 2017 was primarily ~~attributable~~due to increased sales ~~from Sikorsky which was acquired in the fourth quarter~~ of ~~2015. The increase in~~about $120 million at Aeronautics and increased sales of $75 million at MFC, partially offset by lower service sales of about $155 million at RMS. Increased service sales at Aeronautics ~~was~~were primarily attributable to higher sustainment activities (primarily the F-35 program). Higher service sales at MFC were primarily attributable to the achievement of contract milestones on an international program and increased sustainment activities ~~for the F-35 program~~due to higher volume (primarily Patriot Advanced Capability (PAC-3)). Lower service sales at RMS were primarily attributable to contract timing of service revenues (primarily cyber, ships, and ~~the F-22 program, which were partially offset by lower sustainment activities on the C-130 program.~~

~~Management’s Discussion~~advanced technologies (CSAT) and ~~Analysis of Financial Condition~~

Cost of sales, ~~from continuing operations,~~ for both products and services, consist of materials, labor, subcontracting costs, 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. Our consolidated cost of sales ~~from continuing operations~~ were as follows (in millions):


	Quarters Ended						Nine Months Ended
	September 25,			September 27,			September 25,			September 27,			Quarters Ended				Six Months Ended
	2016			2015			2016			2015			June 25, 2017		June 26, 2016		June 25, 2017		June 26, 2016
Cost of sales – products	$	(9,027	)	$	(7,668	)	$	(25,787	)	$	(22,238	)		$ (9,751)		$ (8,873)		$ (18,438)		$ (16,760)
% of product sales		89.7	%		89.2	%		90.1	%		88.7	%		90.1%		90.4%		90.6%		90.3%
Cost of sales – services		(1,313	)		(1,248	)		(4,321	)		(3,347	)		(1,658)		(1,571)		(3,034)		(3,008)
% of service sales		88.2	%		85.1	%		88.8	%		84.7	%		89.3%		89.2%		89.2%		89.0%
Severance charges		—			(15	)		(80	)		(15	)		—		—		—		(80)
Other unallocated, net		173			(32	)		401			(61	)		149		97		308		228
Total cost of sales	$	(10,167	)	$	(8,963	)	$	(29,787	)	$	(25,661	)		$ (11,260)		$ (10,347)		$ (21,164)		$ (19,620)

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. We have not identified any developing trends in cost of sales for products and services that would have a material impact on our future operations.

Product costs increased ~~$1.4 billion,~~$878 million, or ~~17.7%~~10%, during the quarter ended ~~September~~June 25, ~~2016~~2017 compared to the same period in ~~2015,~~2016, primarily due to increased product costs of about ~~$1.1 billion at RMS, $205~~$645 million at Aeronautics and ~~$81~~about $200 million at Space Systems. ~~The increase at RMS was primarily attributable to operating costs generated by Sikorsky, which was acquired in the fourth quarter of 2015.~~ The increase at Aeronautics was primarily attributable to increased volume on aircraft production for theF-35 program, higher cost for the ~~F-35~~C-130 program due to aircraft configuration mix, and increased deliveries for theC-5 program. ~~The increase~~ Higher product costs at Space Systems ~~was~~were primarily attributable to costs ~~from~~generated by AWE, ~~following the consolidation of this business~~which we began consolidating in the third quarter of ~~2016.~~2016, partially offset by a decrease in government satellite programs (primarily AEHF and MUOS) due to lower volume.

Product costs increased ~~$3.6~~$1.7 billion, or ~~16.0%~~10%, during the ~~nine~~six months ended ~~September~~June 25, ~~2016~~2017 compared to the same period in ~~2015,~~2016, primarily due to increased product costs of about ~~$2.7 billion~~$890 million at Aeronautics, about $440 million at RMS, and about ~~$770~~$400 million at ~~Aeronautics. The increase at RMS was primarily attributable to operating costs generated by Sikorsky, which was acquired in the fourth quarter of 2015.~~Space Systems. The increase at Aeronautics was primarily attributable to increased volume on aircraft production for theF-35 program, ~~and increased aircraft deliveries on~~higher cost for the C-130 program ~~which~~due to aircraft configuration mix, and higher volume on aircraft modernization for theF-16 program. Higher product costs at RMS were primarily attributable to certain adjustments recorded in 2016 required to account for the November 6, 2015 acquisition of Sikorsky and C4USS programs due to a net $90 million increase in charges for performance matters on theEADGE-T contract, partially offset by ~~decreased aircraft deliveries for~~fewer government helicopter deliveries. The increase at Space Systems was primarily due to costs generated by AWE, which we began consolidating in the ~~C-5 program.~~third quarter of 2016, partially offset by a decrease in government satellite programs (primarily AEHF and MUOS) and the Orion program due to lower volume.

Service costs increased ~~$65~~$87 million, or ~~5.2%~~6%, and $26 million, or 1%, during the quarter and six months ended ~~September~~June 25, ~~2016~~2017 compared to the same ~~period~~periods in ~~2015,~~2016. The increase in service costs during the quarter ended June 25, 2017 was primarily due to increased service costs of about $125 million at Aeronautics and about $45 million at MFC. These increases were partially offset by lower service costs of about $75 million at ~~RMS and about $35 million at Aeronautics, partially offset by a decrease of about $65 million at Space Systems.~~RMS. The increase ~~at RMS was primarily attributable to operating~~in service costs generated by Sikorsky, which was acquired in the fourth quarter of 2015, partially offset by decreased costs for sustainment and maintenance (LCS) and for C4ISR and government cyber programs. The increase at Aeronautics was primarily attributable to increased sustainment for the F-35 program. The decrease at Space Systems was primarily attributable to reduced costs for S&DMS programs.

~~Service costs increased $974 million, or 29.1%,~~ during the ~~nine~~six months ended ~~September~~June 25, ~~2016 compared to the same period in 2015,~~2017 was primarily due to increased service costs of about ~~$630~~$145 million at ~~RMS~~Aeronautics and about ~~$300~~$50 million at ~~Aeronautics. The increase~~MFC, partially offset by lower service costs of about $170 million at ~~RMS was primarily attributable to operating costs generated by Sikorsky, which was acquired in the fourth quarter of 2015.~~RMS. The increase at Aeronautics was primarily ~~attributable~~due to increased sustainment activities (primarily the F-35 program) and higher cost for the ~~F-35~~C-130 program due to timing of expenses for sustainment programs. Higher service costs at MFC were primarily due to increased sustainment activities due to higher volume (primarily PAC-3). The decrease at RMS was primarily due to contract timing of service costs (primarily CSAT and ~~the F-22 program.~~

During the first quarter of 2016, we recorded severance charges totaling approximately $80 million related to our Aeronautics 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 ~~will receive~~ receivedlump-sum severance payments primarily based on years of ~~service, the majority~~service. As of ~~which are expected to be paid by~~ the end of ~~2016. As of September 25, 2016, we have paid $56 million in severance payments associated with these actions, of which $31 million was paid in the quarter ended September 25, 2016. During~~ the first quarter of ~~2016,~~2017, we ~~also recorded~~substantially paid the severance ~~charges totaling $19 million related to our former IS&GS business segment which are included in net earnings from discontinued operations in our consolidated statement of earnings.~~

During the third and fourth quarters of 2015, we recorded severance charges totaling $82 million, of which $67 million related to our RMS business segment and $15 million related to businesses that were reported in our former IS&GS business segment prior to our fourth quarter 2015 program realignment. The charges consisted of severance costs associated with the planned elimination of certain positions through either voluntary or involuntary actions. Upon separation, terminated employees will receive lump-sum severance payments primarily based on years of service, the majority of which are expected to be paid over the next several quarters. As of September 25, 2016, we have paid $45 million in severance paymentscost associated with these actions, of which $25 million was paid in the quarter ended September 25, 2016. Additionally during the third and fourth quarters of 2015, we recorded severance charges totaling $20 million related to our former IS&GS Business segment which are recorded in net earnings from discontinued operations in our consolidated statements of earnings.

In connection with the Sikorsky acquisition, we assumed obligations related to certain restructuring actions committed to by Sikorsky in June 2015. Net of amounts we anticipate to recover through the pricing of our products and services to our customers, we also expect to incur an additional $40 million of costs in 2016 related to these actions. ~~During the nine months ended September 25, 2016, we incurred about $35 million of costs and the remaining $5 million are expected to be incurred during the fourth quarter of 2016.~~

We expect to recover a substantial amount of these charges through the pricing of our products and services to the U.S. Government and other customers. During the quarter and nine months ended September 25, 2016, we recognized recoveries in net sales from continuing operations of about $48 million and $107 million related to severance actions initiated in periods prior to the quarter ended September 25, 2016.

Other unallocated, net primarily includes the FAS/CAS pension adjustment as described in the “Business Segment Results of Operations” section below, stock-based compensation and other corporate costs. These items are not allocated to the business segments and, therefore, are excluded from the cost of sales for products and services. Other unallocated, net was ~~$173~~a net reduction to expense of $149 million and ~~$401~~$308 million ~~of income~~ during the quarter and ~~nine~~six months ended ~~September~~June 25, ~~2016~~2017 compared to ~~$32~~a net reduction to expense of $97 million and ~~$61~~$228 million ~~of expense~~ during the quarter and ~~nine~~six months ended ~~September 27, 2015.~~

June 26, 2016. The ~~income for the quarter and nine months ended September 25, 2016 was~~higher amounts in 2017 were primarily attributable to the increase in the FAS/CAS pension adjustment. The increase in the FAS/CAS pension adjustment was primarily attributable to higher CAS pension costs during the nine months ended September 25, 2016 resulting from the phase-in of CAS harmonization rules, as disclosed in our 2015 Form 10-K.

As a result of the divestiture of the IS&GS business segment, we retained all assets and obligations related to pension benefits earned by IS&GS salaried employees through the closing of the Transactions. Pension costs were historically allocated to and included in the results of operations of the IS&GS business segment. In connection with the reclassification of the IS&GS business segment as discontinued operations, we reclassified the non-service portion of pension costs related to IS&GS salaried employee benefits (interest cost, actuarial gains and losses and expected return on plan assets) from cost of sales (and previously reported in the IS&GS business segment’s operating profit) to other

unallocated, net on our consolidated statements of earnings as corporate expenses because these costs will continue to be incurred by us subsequent to the Transaction. These net costs were $11 million and $54 million in the quarter and nine months ended September 25, 2016 and $17 million and $53 million in the quarter and nine months ended September 27, 2015. The service portion of pension costs related to IS&GS salaried employees that transferred to Leidos remains in the operating results of the IS&GS business segment classified as discontinued operations because such costs will no longer be incurred by us subsequent to the divestiture of IS&GS. These costs were not material for the quarter and nine months ended September 25, 2016 or for the quarter and nine months ended September 27, 2015.

In connection with the divestiture of the IS&GS business segment and reclassification of the IS&GS business segment to discontinued operations for all periods presented in the consolidated financial statements, certain corporate overhead costs ~~incurred by us and previously allocated to~~reclassified during 2016 from the former IS&GS business ~~segment were reclassified from the IS&GS business segment results (which is recorded in net earnings from discontinued operations)~~ to other unallocated, net, partially offset by fluctuations in other costs associated with various corporate items, none of which were individually significant. See “Note 3 – Divestiture” included in our ~~consolidated statement of earnings. These~~Notes to Consolidated Financial Statements for additional information about overhead costs related to expenses for senior management, legal, human resources, finance, accounting, treasury, tax, information technology, communications, ethics and compliance, corporate employee benefits, incentives and stock-based compensation, shared services processing and administration and depreciation for corporate fixed assets, and were not directly attributable to the IS&GS business segment. During the quarter and nine months ended September 25, 2016 we reclassified $17 million and $82 million of corporate overhead costs to other unallocated, net. During the quarter and nine months ended September 27, 2015 we reclassified $40 million and $133 million of corporate overhead costs to other unallocated, net. reclassified.

We allocate certain corporate overhead costs and defined benefit pension costs to our business segments because under U.S. Government contracting regulations such costs are allowable in establishing prices for contracts with the U.S. Government. Although the corporate overhead costs and defined benefit pension costs that were historically allocated to and included in the operating results of the IS&GS business segment have been reclassified to and included in the results of our continuing operations for financial reporting purposes, we will allocate similar costs incurred in future periods to our remaining business segments and expect to recover a substantial amount of these costs through the pricing of our products and services to the U.S. Government and other customers in future periods.

Other income, net primarily includes our share of earnings or losses from equity method ~~investees and gains or losses for acquisitions and divestitures.~~investees. During the quarter and ~~nine~~six months ended ~~September~~June 25, ~~2016,~~2017, other income, net was ~~$204~~$60 million and ~~$412~~$56 million, compared to ~~$95~~$145 million and ~~$257~~$208 million for the quarter and ~~nine~~six months ended ~~September 27, 2015.~~June 26, 2016. The ~~increase~~decrease for the quarter and six months ended June 25, 2017 was primarily attributable to ~~the net gain of $104 million recognized on the step acquisition of AWE and increased~~decreased earnings generated by equity method investees, as discussed in the “Business Segment Results of Operations” section below. In addition, the six months ended June 25, 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 was ~~$162~~$160 million and ~~$492~~$315 million during the quarter and ~~nine~~six months ended ~~September~~June 25, ~~2016,~~2017, compared to ~~$104~~$165 million and ~~$301~~$330 million during the quarter and ~~nine~~six months ended ~~September 27, 2015. The increase was~~June 26, 2016. Lower interest expense resulted primarily ~~due to interest~~ from ~~the issuance~~our scheduled repayment of ~~$7.0 billion~~$952 million of ~~long-term~~ debt ~~in the fourth quarter of 2015, used to fund the acquisition of Sikorsky, and $2.25 billion of long-term debt in February of 2015 (See “Financial Condition – Capital Resources”) below.~~

~~Other non-operating income, net was $1 million and $2 million~~ during ~~quarter and nine months ended September 25,~~ 2016. ~~Other non-operating income, net was $1 million and $6 million during the quarter and nine months ended September 27, 2015.~~

Our effective income tax rates ~~for earnings from continuing operations~~ were ~~23.7%~~28.8% and ~~23.1%~~26.4% for the quarter and ~~nine~~six months ended ~~September~~June 25, ~~2016,~~2017, and ~~30.6%~~25.7% and ~~30.4%~~22.6% for the quarter and ~~nine~~six months ended

~~September 27, 2015.~~ June 26, 2016. The rates for both periods benefited from tax deductions for U.S. manufacturing activities, ~~and for~~ dividends paid to our defined contribution plans with an employee stock ownership plan ~~feature. The rates in the quarter~~feature, tax deductions for employee equity awards, and ~~nine months ended September 25, 2016 also benefited from~~ the research and development tax ~~credit, which was permanently extended and reinstated in the fourth quarter of 2015 and from the nontaxable gain recorded in connection with the increase in AWE ownership.~~

In addition, the rate in the quarter and nine months ended September 25, 2016 benefited from additional tax benefits related to employee share-based payment awards, which are now recorded as income tax benefit or expense in earnings effective with the adoption of an accounting standard update during the quarter ended June 26, 2016. We early adopted the accounting standard update during the second quarter of 2016 and are therefore required to report the impacts as though the accounting standard update had been adopted on January 1, 2016. Accordingly, we recognized additional income tax benefits of $22 million and $137 million during the quarter and nine months ended September 25, 2016. The adjustments for the third quarter included only the quarterly impacts, whereas the adjustments for the first nine months of 2016 include the second and third quarter impacts and the reclassification of income tax benefits of $104 million originally recognized in additional paid-in capital and cash flows from financing activities in the first quarter of 2016.credit.

Future changes in tax law could significantly impact our provision for income taxes, the amount of taxes payable, and our deferred tax asset and liability balances. Recent proposals to lower the U.S. corporate income tax rate would require us to reduce our net deferred tax assets upon enactment of new tax legislation, with a corresponding material,one-time,non-cash increase in income tax expense, but our income tax expense and payments would be materially reduced in subsequent years. Our net deferred tax assets ~~from continuing operations~~ were ~~$5.9~~$6.3 billion and $6.6 billion at ~~September~~June 25, ~~2016~~2017 and ~~$6.1 billion at~~ December 31, ~~2015,~~2016, based on a 35% Federal statutory income tax rate, and primarily relate to our postretirement benefit plans. If legislation reducing the Federal statutory income tax rate to ~~25%~~15% had been enacted at ~~September~~June 25, ~~2016,~~2017, our net deferred tax assets would have been reduced by ~~$1.7~~$3.6 billion and we would have recorded a correspondingone-time,non-cash increase in income tax expense of ~~$1.7~~$3.6 billion. This additional expense would be less if the legislation phased in the tax rate reduction or if the final rate was higher than ~~25%~~15%. 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.

~~Net~~We reported net earnings from continuing operations ~~for~~of $942 million ($3.23 per share) and $1.7 billion ($5.84 per share) during the quarter and ~~nine~~six months ended ~~September~~June 25, ~~2016 were $1.1 billion~~2017, compared to $899 million ($~~3.61~~2.93 per share) and ~~$2.8~~$1.7 billion ($~~9.13~~5.54 per share) ~~compared to $756 million ($2.42 per share) and $2.3 billion ($7.30 per share) for~~during the quarter and ~~nine~~six months ended ~~September 27, 2015.~~June 26, 2016. Both net earnings and earnings per share from continuing operations were affected by the factors mentioned above. Earnings per share also benefited ~~by $.08 per share and $.25 per share for the quarter and nine months ended September 25, 2016. The benefit was driven by the~~from a net decrease of ~~about 10.5~~approximately 15 million shares outstanding from ~~September 27, 2015~~June 26, 2016 to ~~September~~June 25, ~~2016~~2017 as a result of share repurchases and ~~share retirements, which were~~shares retired in connection with the divestiture of our former IS&GS business, partially offset by share issuance under our stock-based awards and certain defined contribution plans.

~~Net~~We reported net earnings from discontinued operations ~~for~~of $122 million ($0.39 per share) and $214 million ($0.69 per share) during the quarter and ~~nine~~six months ended ~~September 25,~~June 26, 2016 ~~were $1.3 billion ($4.32 per share) and $1.5 billion ($4.97 per share) compared~~related to $109 million ($0.35 per share) and $363 million ($1.15 per share) for the quarter and nine months ended September 27, 2015. Net earnings from discontinued operations for the quarter and nine months ended September 25, 2016 included a net gain of approximately $1.2 billion recognized as a result of the divestiture of theour IS&GS business, ~~segment.~~which was divested on August 16, 2016.

Net earnings for the quarter and ~~nine~~six months ended ~~September~~June 25, ~~2016~~2017 were ~~$2.4 billion~~$942 million ($~~7.93~~3.23 per share) and ~~$4.3~~$1.7 billion ($~~14.10~~5.84 per share) compared to ~~$865 million~~$1.0 billion ($~~2.77~~3.32 per share) and ~~$2.7~~$1.9 billion ($~~8.45~~6.23 per share) for the quarter and ~~nine~~six months ended ~~September 27, 2015.~~

We operate in four business segments: Aeronautics, ~~MFC, RMS~~Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space Systems. We organize our business segments based on the nature of the products and services offered. ~~On August 16, 2016, we completed~~Our historical operating results reflect the ~~previously announced divestiture~~reclassification of ~~the~~our former IS&GS business ~~and merged this business with Leidos in a Reverse Morris Trust transaction. We reclassified the financial results of the IS&GS business segment as~~to discontinued operations in our consolidated statements of earnings in accordance with U.S. GAAP as the divestiture of this business represented a strategic shift that had a major effect on our operations and financial results. During the fourth quarter of 2015, we realigned certain programs among our business segments. The amounts, discussion and presentation of our business segments for all periods presented in these consolidated financial statements reflect the program realignment. Additionally, the results of our RMS business segment include the operations of Sikorsky since its November 6, 2015 acquisition date. Accordingly, the results of Sikorsky operations are included in our business segment results of operations for the quarter and nine months ended September 25, 2016 but not for the quarter and nine months ended September 27, 2015.operations.

Net sales of our business segments exclude intersegment sales as these activities are eliminated in consolidation. ~~Operating~~Under the equity method of accounting for nonconsolidated ventures and investments, we include our share of the operating profit related to these ventures in operating profit of our business segments ~~includes our share of earnings or losses from equity method investees~~ as the operating activities of ~~the~~ equity method investees are closely aligned with the operations of our business segments. United Launch Alliance (ULA), which is part of our Space Systems business segment, is our primary equity method investee. Operating profit of our business segments excludes the FAS/CAS pension adjustment described below; expense forstock-based compensation; the effects of items not considered part of management’s evaluation of segment operating performance, such as charges related to goodwill impairments and significant severance ~~actions and certain asset impairments;~~actions; gains or losses from significant divestitures; the effects of certain legal settlements; corporate costs not allocated to our business segments; and other miscellaneous corporate activities. These items are included in the reconciling item “Unallocated items” between operating profit from our business segments and our consolidated operating profit. See ~~Note~~“Note 10 – Other” 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.

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 cost through the pricing of our products and services on U.S. Government contracts and, therefore, the CAS pension cost is recognized in each of our business segments’ net sales and cost of sales. Since our consolidated financial statements must present pension expense calculated in accordance with the financial accounting standards (FAS) requirements under U.S. generally accepted accounting principles (GAAP), which we refer to as FAS pension expense, the FAS/CAS pension adjustment increases or decreases the CAS pension cost recorded in our business segments’ results of operations to equal the FAS pension expense.

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


													Quarters Ended				Six Months Ended

	Quarters Ended						Nine Months Ended						June 25, 2017		June 26, 2016		June 25, 2017		June 26, 2016
	September 25, 2016			September 27, 2015			September 25, 2016			September 27, 2015
Net sales
Aeronautics		$	4,188		$	3,921		$	12,362		$	11,186	$	5,225	$	4,375	$	9,331	$	8,174
Missiles and Fire Control			1,737			1,769			4,851			4,801		1,637		1,680		3,126		3,114
Rotary and Mission Systems			3,346			2,162			9,653			6,306		3,410		3,303		6,511		6,307
Space Systems			2,280			2,208			6,630			6,723		2,413		2,219		4,774		4,350

Total net sales		$	11,551		$	10,060		$	33,496		$	29,016	$	12,685	$	11,577	$	23,742	$	21,945


Operating profit
Aeronautics		$	437		$	418		$	1,335		$	1,233	$	550	$	478	$	986	$	898
Missiles and Fire Control			289			316			763			895		268		253		487		474
Rotary and Mission Systems			247			245			678			687		254		202		362		431
Space Systems			450			265			1,034			883		256		340		544		584

Total business segment operating profit		$	1,423			1,244		$	3,810			3,698		1,328		1,273		2,379		2,387

Unallocated items
FAS/CAS pension adjustment
FAS pension expense ^(a)			(256)			(280)			(758)			(841)
Less: CAS pension cost ^(a)			482			382			1,430			1,146
FAS pension expense														(343)		(251)		(688)		(502)
Less: CAS pension cost														562		473		1,124		948

FAS/CAS pension adjustment			226			102			672			305		219		222		436		446
Stock-based compensation			(28)			(27)			(124)			(112)		(57)		(52)		(101)		(96)
Severance charges			—			(15)			(80)			(15)		—		—		—		(80)
Other, net			(33)			(112)			(157)			(264)
Other, net^{(a) (b)}														(5)		(68)		(80)		(124)

Total unallocated items			165			(52)			311			(86)		157		102		255		146

Total consolidated operating profit		$	1,588		$	1,192		$	4,121		$	3,612	$	1,485	$	1,375	$	2,634	$	2,533

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.

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 awing-box on an aircraft) and for services would align to the type of work being performed (such as ~~training~~help-desk support). Our contracts generally are cost-based, which allows 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. 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.

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 the technical, schedule and cost aspects of the contract, which decreases the estimated total costs to 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.

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.

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 using thepercentage-of-completion method of accounting. Increases in the profit booking rates, typically referred to as risk retirements, usually relate to revisions in the estimated total costs 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 and a reduction in the profit booking rate. Increases or decreases in profit booking rates are recognized in the current period and reflect theinception-to-date effect of such changes. Segment operating profit and ~~margin~~margins may also be impacted favorably or unfavorably by other items. Favorable items may include the positive resolution of contractual matters, cost recoveries on restructuring charges, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual matters; restructuring charges, except for significant severance actions, which are excluded from segment operating results; reserves for disputes; ~~certain~~ asset impairments; and losses on sales of certain assets. Segment operating profit and items such as risk retirements, reductions of profit booking rates or other matters are presented net of state income taxes.

WeAs previously disclosed, we have a ~~contract~~program to ~~provide~~design, integrate, and install an ~~integrated~~ air ~~and~~ missile defense ~~system to~~C4I systems for an international ~~customer. In~~customer that has experienced performance matters and for which we have periodically accrued reserves. During the first quarter ~~ended March 29, 2015,~~of 2017, we revised our estimated costs to complete the program,EADGE-T, as a consequence of ongoing performance ~~issues~~matters and recorded ~~a reserve~~an additional charge of ~~$70 million. Since that time, we have continued~~$120 million ($74 million or $0.25 per share, after tax) at our RMS business segment. As of June 25, 2017, cumulative losses, including reserves, remained at approximately $260 million on this program. We are continuing to ~~experience issues related to customer requirements and~~monitor the ~~implementation of this contract and have periodically accrued additional reserves. Consequently, we are re-evaluating the scope, estimated costs, and~~ viability of the program and the ~~possibility of~~available options and could record additional ~~customer funding. Depending~~charges in future periods. However, based on the ~~outcome~~reserves already accrued and our current estimate of the costs to complete the program, at this ~~re-evaluation, it~~time we do not anticipate that additional charges, if any, would be material.

We have certain commercial satellite programs at our Space Systems business segment, where we have experienced performance issues 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 ~~possible that~~expected to benefit other commercial and government satellite programs. We have periodically revised our estimated costs to complete these programs and have recorded cumulative losses of approximately $260 million as of June 25, 2017, including approximately $90 million during the six months ended June 25, 2017. While the loss reflects our estimated total losses on the programs, we will 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. However, as this re-evaluation is in process and will include ongoing discussions with our customer, we cannot make an estimate of the total expected costs at this time due to uncertainties inherent in the estimation process.

Our consolidated net adjustments not related to volume, including net profit booking rate adjustments and other matters increased segment operating profit by approximately ~~$405~~$485 million and ~~$1.1 billion~~$775 million during the quarter and ~~nine~~six months ended ~~September~~June 25, ~~2016~~2017 and ~~$390~~$355 million and ~~$1.3 billion~~$715 million for the quarter and ~~nine~~six months ended ~~September 27, 2015.~~June 26, 2016.

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


													Quarters Ended				Six Months Ended
	Quarters Ended						Nine Months Ended
	September 25, 2016			September 27, 2015			September 25, 2016			September 27, 2015			June 25, 2017		June 26, 2016		June 25, 2017		June 26, 2016
Net sales		$	4,188		$	3,921		$	12,362		$	11,186	$	5,225	$	4,375	$	9,331	$	8,174
Operating profit			437			418			1,335			1,233		550		478		986		898
Operating margin			10.4%			10.7%			10.8%			11.0%		10.5%		10.9%		10.6%		11.0%

Aeronautics’ net sales during the second quarter ~~ended September 25, 2016~~of 2017 increased ~~$267~~$850 million, or 7%19%, compared to the same period in ~~2015.~~2016. The increase was primarily attributable to higher net sales of approximately ~~$300~~$525 million for theF-35 program program due to increased volume on aircraft production and sustainment activities. This increase was partially offset by lower net sales of approximately $50 million for the C-5 program due primarily to decreased sustainment activities, while aircraft deliveries were comparable in the third quarter of 2016 compared to the same period in 2015 (two aircraft delivered in each period).

Aeronautics’ operating profit during the quarter ended September 25, 2016 increased $19 million, or 5%, compared to the same period in 2015. Operating profit increased approximately $25 million for the F-35 program due to increased volume on aircraft production and sustainment activities; and about $35 million for aircraft support and maintenance programs due to reserves recorded in the third quarter of 2015 that were not repeated in the third quarter of 2016 and increased volume. These increases were partially offset by lower operating profit of approximately $45$120 million for theC-130 program due to ~~contract mix~~aircraft configuration mix; and ~~lower risk retirements. Adjustments not related to volume, including net profit booking rate adjustments, were comparable during the quarters ended September 25, 2016 and September 27, 2015.~~

Aeronautics’ net sales during the nine months ended September 25, 2016 increased $1.2 billion, or 11%, compared to the same period in 2015. The increase was primarily attributable to higher net sales of approximately $1.1 billion for the F-35 program due to increased volume on aircraft production and sustainment activities; and approximately $190about $110 million for the ~~C-130~~C-5 program primarily due to increased deliveries ~~(16~~(three aircraft delivered in ~~the nine months ended September 25, 2016~~2017 compared to ~~14 delivered~~two in the nine months ended September 27, 2015). These increases were partially offset by lower net sales of approximately $155 million for the C-5 program due to decreased volume (six aircraft delivered in the nine months ended September 25, 2016 compared to seven delivered in the nine months ended September 27, 2015)2016) and ~~lower~~higher sustainment activities.

Aeronautics’ operating profit during the ~~nine months ended September 25, 2016~~second quarter of 2017 increased ~~$102~~$72 million, or 8%15%, compared to the same period in ~~2015.~~2016. Operating profit increased approximately ~~$115~~$90 million for theF-35 program due to increased volume on aircraft production and sustainment activities and higher risk retirements; and ~~approximately $20~~about $35 million for ~~aircraft support and maintenance programs~~theC-5 program due to higher risk retirements and increased ~~volume.~~deliveries. These increases were partially offset by ~~lower operating profit~~a decrease of ~~approximately $50~~about $30 million for theC-130 program due to ~~contract mix and lower risk retirements.~~the timing of expenses for sustainment programs. Adjustments not related to volume, including net profit booking rate adjustments, were ~~approximately $30~~about $55 million ~~lower~~higher during the ~~nine months ended September 25, 2016~~second quarter of 2017 compared to the ~~nine~~same period in 2016.

Aeronautics’ net sales during the six months ended ~~September 27, 2015.~~June 25, 2017 increased $1.2 billion, or 14%, compared to the same period in 2016. The increase was primarily attributable to higher net sales of approximately $880 million for theF-35 program due to increased volume on aircraft production and sustainment activities; about $100 million for theF-16 program due to higher volume on aircraft modernization programs; and approximately $65 million for theC-130 program due to increased volume on sustainment activities and aircraft configuration mix, partially offset by lower deliveries (11 aircraft delivered in 2017 compared to 12 in 2016).

Aeronautics’ operating profit during the six months ended June 25, 2017 increased $88 million, or 10%, compared to the same period in 2016. Operating profit increased approximately $150 million for theF-35 program due to increased volume on aircraft production and sustainment activities and higher risk retirements; and about $20 million for theF-16 program due to higher volume on aircraft modernization programs and higher risk retirements. These increases were partially offset by a decrease of about $30 million for theC-130 program due to the timing of expenses for sustainment programs, partially offset by higher risk retirements; $30 million for various programs due to lower risk retirements and establishment of a reserve recorded in the first quarter of 2017; and $15 million due to lower equity earnings from an investee. Adjustments not related to volume, including net profit booking rate adjustments, were about $70 million higher during the six months ended June 25, 2017 compared to the same period in 2016.

We continue to expect Aeronautics’ ~~2016~~2017 net sales to increase in thelow-double digit percentage range as compared to ~~2015~~2016 due to ~~higher production and sustainment~~increased volume on theF-35 program. Operating profit is expected to increase ~~in the high-single digit~~at a slightly lower percentage range, driven by the increased volume ~~and risk retirements~~ on theF-35 program, partially offset by contract mix ~~and lower risk retirements on C-130 and other aircraft programs, resulting~~that results in a slight decrease in operating ~~margin~~margins between years.

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


	Quarters Ended				Nine Months Ended				Quarters Ended				Six Months Ended
	September 25, 2016		September 27, 2015		September 25, 2016		September 27, 2015		June 25, 2017		June 26, 2016		June 25, 2017		June 26, 2016
Net sales		$1,737		$1,769		$4,851		$4,801	$	1,637	$	1,680	$	3,126	$	3,114
Operating profit		289		316		763		895		268		253		487		474
Operating margin		16.6%		17.9%		15.7%		18.6%		16.4%		15.1%		15.6%		15.2%

MFC’s net sales during the second quarter ~~ended September 25, 2016~~of 2017 decreased ~~$32~~$43 million, or 2%3%, compared to the same period in ~~2015.~~2016. The decrease was ~~primarily~~ attributable to lower net sales of approximately ~~$40 million as a result of lower volume on certain fire control programs (Longbow, LANTIRN~~^® ~~and SNIPER~~^®~~); and about $25~~$120 million for air and missile defense programs ~~(primarily Terminal High Altitude Area Defense (THAAD))~~ due to lower ~~volume. These decreases were~~deliveries on certain programs (primarilyPAC-3). This decrease was partially offset by ~~higher net sales~~an increase of approximately ~~$45~~$100 million for tactical ~~missiles~~missile programs due to ~~increased~~product configuration mix (primarily JointAir-to-Surface Standoff Missile (JASSM)) and due to higher deliveries (primarily Hellfire).

MFC’s operating profit during the second quarter ~~ended September 25, 2016 decreased $27~~of 2017 increased $15 million, or 9%6%, compared to the same period in ~~2015.~~2016. Operating profit decreased approximately $20 million for certain fire control programs due to lower risk retirements (Apache) and program mix; approximately $10 million for tactical missiles programs (including Javelin) due to lower risk retirements; and about $20 million on other programs primarily due to lower risk retirements. These decreases were partially offset by higher operating profit ofincreased approximately $25 million for air and missile defense programs

due to ~~higher risk retirements (Patriot Advanced Capability-3 (PAC-3)).~~the achievement of contract milestones on an international program and a reserve recorded in the second quarter of 2016 for a contractual matter that did not recur in 2017. This increase was partially offset by a decrease of approximately $10 million for tactical missiles programs primarily due to performance matters on certain programs. Adjustments not related to volume, including net profit booking rate adjustments, ~~were approximately $30 million lower in~~during the ~~third~~second quarter of ~~2016 compared~~2017 were comparable to the same period in ~~2015.~~2016.

MFC’s net sales during the ~~nine~~six months ended ~~September~~June 25, ~~2016 increased $50 million, or 1%, compared~~2017 were comparable to the same period in ~~2015. The increase was primarily attributable~~2016. Net sales increased due to higher net sales of approximately ~~$135~~$55 million for fire control programs (primarily LANTIRN^® and SNIPER^®) due to increased ~~volume (Special Operations Forces Contractor Logistics Support Services)~~deliveries; and ~~increased deliveries (SNIPER); and about $55~~$50 million for tactical ~~missiles~~missile programs due to increased deliveries (primarily Hellfire) and due to product configuration mix (primarily JASSM). These increases were ~~partially~~ offset by ~~lower net sales~~a decrease of approximately ~~$80~~$60 million for air and missile defense programs due to ~~decreased~~lower deliveries on certain programs (primarilyPAC-3) and lower volume (primarily ~~THAAD)~~Terminal High Altitude Area Defense (THAAD)); and ~~approximately $60~~about $30 million for various other programs primarily due to lower ~~volume on various other programs.~~volume.

MFC’s operating profit during the ~~nine~~six months ended ~~September~~June 25, ~~2016 decreased $132~~2017 increased $13 million, or ~~15%~~3%, compared to the same period in ~~2015.~~2016. Operating profit ~~decreased~~increased approximately ~~$45 million for fire control programs driven by lower risk retirements (Apache) and program mix; about~~ $35 million for air and missile defense programs due to ~~lower~~achievement of contract milestones on an international program, a reserve recorded in the second quarter of 2016 for a contractual matter that did not recur in 2017, and higher risk retirements; and about $30 million for fire control programs (primarily LANTIRN^® and SNIPER^®) due to higher risk retirements ~~(PAC-3)~~ and increased deliveries. These increases were partially offset by a ~~reserve for contractual matters; and about $25~~decrease of approximately $35 million for tactical missiles programs ~~as a result of lower risk retirements (Javelin~~(primarily Hellfire and Precision Fires). due to performance matters on certain programs, partially offset by increased deliveries; and about $20 million for various other programs primarily due to lower volume. Adjustments not related to volume, including net profit booking rate adjustments, ~~were approximately $145 million lower in~~during the ~~nine~~six months ended ~~September~~June 25, ~~2016 compared~~2017 were comparable to the ~~nine months ended September 27, 2015.~~same period in 2016.

We continue to expect MFC’s net sales to ~~experience a slight decline~~increase in ~~2016~~themid-single digit percentage range in 2017 as compared to ~~2015.~~2016 driven primarily by our air and missile defense programs. Operating profit is expected to ~~continue to~~ be ~~accretive to our consolidated operating margins, however~~flat or increase slightly. Accordingly, operating profit ~~will~~margin is expected to decline from ~~2015~~2016 levels ~~driven by~~as a result of contract mix and fewer risk retirements in ~~2016~~2017 compared to ~~2015. Accordingly, operating margin is expected to decline from 2015 levels.~~2016.

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


	Quarters Ended				Nine Months Ended				Quarters Ended				Six Months Ended
	September 25, 2016		September 27, 2015		September 25, 2016		September 27, 2015		June 25, 2017		June 26, 2016		June 25, 2017		June 26, 2016
Net sales	$	3,346	$	2,162	$	9,653	$	6,306	$	3,410	$	3,303	$	6,511	$	6,307
Operating profit		247		245		678		687		254		202		362		431
Operating margin		7.4%		11.3%		7.0%		10.9%		7.4%		6.1%		5.6%		6.8%

RMS’ net sales during the second quarter ~~ended September 25, 2016~~of 2017 increased ~~$1.2 billion,~~$107 million, or ~~55%~~3%, compared to the same period in ~~2015.~~2016. The increase was primarily attributable to higher net sales of approximately ~~$1.2 billion from Sikorsky, net of~~$105 million due to certain adjustments recorded in 2016 required to account for the November 6, 2015 acquisition of ~~this business which occurred~~Sikorsky; about $55 million for C4USS programs due to higher volume; and about $35 million for Sikorsky helicopter programs due to higher commercial aircraft deliveries (three aircraft delivered in ~~the fourth quarter~~2017 compared to none in 2016). These increases were partially offset by a decrease of ~~2015.~~approximately $90 million for CSAT programs (primarily Littoral Combat Ship) due to lower volume.

RMS’ operating profit during the second quarter ~~ended September 25, 2016 was comparable~~of 2017 increased $52 million, or 26%, compared to ~~operating profit in~~ the same period in ~~2015.~~2016. Operating profit ~~from~~increased approximately $40 million for Sikorsky ~~was approximately~~helicopter programs primarily due to higher risk retirements; about $25 million ~~inclusive~~for C4USS programs primarily due to a charge for performance matters on theEADGE-T contract recorded in the second quarter of ~~the favorable impacts of risk retirements, which were offset by intangible asset amortization~~2016; and ~~other~~approximately $10 million due to certain adjustments recorded in 2016 required to account for the November 6, 2015 acquisition of ~~this business. The net profit from Sikorsky was~~Sikorsky. These increases were partially offset by ~~lower~~a decrease in operating profit of approximately ~~$25~~$20 million ~~from various~~for CSAT programs primarily due to performance matters on certain programs and lower volume. Adjustments not related to volume, including net profit booking rate adjustments, were about $70 million higher in the second quarter of 2017 compared to the same period during 2016.

RMS’ net sales during the six months ended June 25, 2017 increased $204 million, or 3%, compared to the same period in 2016. The increase was primarily attributable to higher net sales of approximately $385 million due to certain adjustments recorded in 2016 required to account for the November 6, 2015 acquisition of Sikorsky. This increase was partially offset by decreases of approximately $100 million for CSAT programs due to lower volume; and about $65 million for Sikorsky helicopter programs due to lower government aircraft deliveries (71 aircraft delivered in 2017 compared to 87 in 2016).

RMS’ operating profit during the six months ended June 25, 2017 decreased $69 million, or 16%, compared to the same period in 2016. Operating profit decreased approximately $85 million for C4USS programs primarily due to ~~decreased~~a net $90 million increase in charges for performance matters on theEADGE-T contract; and about $50 million for training and logistics services programs and CSAT programs primarily due to lower risk retirements and performance matters on certain programs. These decreases were partially offset by an increase in operating profit of $45 million due to certain adjustments recorded in 2016 required to account for the November 6, 2015 acquisition of Sikorsky; and an increase in operating profit of $20 million for Sikorsky helicopter programs due to higher risk retirements. Adjustments not related to volume, including net profit booking rate adjustments, ~~and other matters,~~ were ~~approximately $20~~about $45 million ~~higher in~~lower during the ~~third quarter of 2016~~six months ended June 25, 2017 compared to the same period in ~~2015.~~

RMS’ net sales during the nine months ended September 25, 2016 increased $3.3 billion, or 53%, compared to the same period in 2015. The increase was primarily attributable to net sales of approximately $3.4 billion from Sikorsky, net of adjustments required to account for the acquisition of this business. This increase was partially offset by lower net sales of approximately $70 million for undersea systems programs, primarily due to decreased volume.

RMS’ operating profit during the nine months ended September 25, 2016 was comparable to operating profit in the same period in 2015. Operating profit decreased as a result of an operating loss from Sikorsky of approximately

$65 million, inclusive of the unfavorable impacts of intangible asset amortization and other adjustments required to account for the acquisition of this business; and due to lower operating profit of approximately $30 million for various programs due to decreased volume. These decreases were offset by higher operating profit of approximately $65 million for training and logistics programs due primarily to higher risk retirements, including the favorable resolution of contract matters; and approximately $20 million for undersea systems programs due primarily to higher reserves for performance matters on an international program in the first nine months of 2015 compared to the first nine months of 2016. Adjustments not related to volume, including net profit booking rate adjustments, were approximately $75 million higher in the nine months ended September 25, 2016 compared to the nine months ended September 27, 2015.

We continue to expect ~~RMS’s 2016~~RMS’ 2017 net sales to increase in the ~~mid-double~~low-single digit percentage range compared to ~~2015, due to the inclusion of Sikorsky programs for a full year, partially offset by a decline in volume due to the completion of certain programs.~~2016. Operating profit is also expected to increase in the ~~mid-single~~low-single digit percentage range ~~on higher volume, and operating margin is expected to decline~~ due to ~~costs associated with~~a reduction in certain purchase accounting adjustments that were attributable to the Sikorsky acquisition, ~~including~~offset by a charge recorded in the ~~impact~~first quarter of ~~purchase accounting adjustments, integration costs and inherited restructuring costs associated with actions committed to by Sikorsky prior to acquisition.~~2017 for performance matters on theEADGE-T contract, resulting in comparable operating profit margins between years.

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


	Quarters Ended				Nine Months Ended				Quarters Ended				Six Months Ended
	September 25, 2016		September 27, 2015		September 25, 2016		September 27, 2015		June 25, 2017		June 26, 2016		June 25, 2017		June 26, 2016
Net sales	$	2,280	$	2,208	$	6,630	$	6,723	$	2,413	$	2,219	$	4,774	$	4,350
Operating profit		450		265		1,034		883		256		340		544		584
Operating margin		19.7%		12.0%		15.6%		13.1%		10.6%		15.3%		11.4%		13.4%

Space Systems’ net sales during the second quarter ~~ended September 25, 2016~~of 2017 increased ~~$72~~$194 million, or 3%9%, compared to the same period in ~~2015.~~2016. The increase was ~~primarily~~ attributable to approximately $275 million due to net sales ~~of approximately $100 million~~ from AWE, ~~following the consolidation of this business~~which we began consolidating in the third quarter of 2016. This increase was partially offset by ~~lower net sales~~a decrease of approximately ~~$40~~$45 million for ~~the Orion program~~other programs in strategic missile and defense systems and a decrease of $30 million for government satellite programs (primarily AEHF and MUOS) both due to ~~decreased~~lower volume.

Space Systems’ operating profit induring the ~~third~~second quarter of ~~2016 increased $185~~2017 decreased $84 million, or ~~70%~~25%, compared to the same period in ~~2015. The~~2016. Operating profit decreased about $70 million due to lower equity earnings from ULA; and a net $40 million increase ~~was primarily attributable~~in charges due to ~~a non-cash, pre-tax gain~~performance matters on certain commercial satellite programs. These decreases were partially offset by an increase of approximately ~~$127 million related to the consolidation of AWE; and approximately $30~~$20 million for government ~~and commercial~~ satellite programs due to ~~higher~~increased risk retirements, partially offset by a decrease due to contract mix (primarily ~~Space Based Infrared System (SBIRS)~~ground solutions) and ~~Advanced Extremely High Frequency)~~lower volume (primarily AEHF and MUOS). Adjustments not related to volume, including net profit booking rate adjustments, ~~and other matters,~~ were ~~approximately $25~~about $10 million higher induring the ~~third~~second quarter of ~~2016~~2017 compared to the same period in ~~2015.~~2016.

Space Systems’ net sales during the ~~nine~~six months ended ~~September~~June 25, ~~2016 decreased $93~~2017 increased $424 million, or 1%10%, compared to the same period in ~~2015.~~2016. The ~~decrease~~increase was ~~primarily~~ attributable to ~~lower~~approximately $600 million due to net sales from AWE, which we began consolidating in the third quarter of 2016. This increase was partially offset by decreases of approximately ~~$260~~$60 million for the other programs in strategic missile and defense systems; and about $55 million for government satellite programs (primarily AEHF and MUOS); and approximately $50 million for the Orion program, with all decreases due to decreased volume (primarily SBIRS and Mobile User Objective System (MUOS)) and the wind-down or completion of mission solutions programs. This decrease was partially offset by net sales of approximately $100 million from AWE following the consolidation of this business in the third quarter of 2016; and higher net sales of approximately $65 million for various programs due to increasedlower volume.

Space Systems’ operating profit during the ~~nine~~six months ended ~~September~~June 25, ~~2016 increased $151~~2017 decreased $40 million, or ~~17%~~7%, compared to the same period in ~~2015. The increase was primarily attributable to a non-cash, pre-tax gain of~~2016. Operating profit decreased approximately ~~$127~~$30 million ~~related to the consolidation of AWE; and approximately $55 million of increased~~for lower equity earnings from ULA; and a net $50 million increase in ~~joint ventures (primarily ULA).~~charges due to performance matters on certain commercial satellite programs. These ~~increases~~decreases were partially offset by ~~lower operating profit~~an increase of approximately ~~$30~~$25 million for government satellite programs ~~primarily~~ due to ~~lower~~increased risk retirements, ~~(mission solutions programs, MUOS~~partially offset by a decrease due to contract mix (primarily ground solutions) and ~~SBIRS)~~lower volume (primarily AEHF and ~~decreased volume;~~MUOS); and ~~approximately $25~~an increase of about $20 million for ~~commercial satellite programs~~the Orion program due ~~primarily~~ to ~~performance matters on certain programs.~~increased risk retirements. Adjustments not related to volume, including net profit booking rate adjustments, were ~~approximately $110~~about $35 million ~~lower in~~higher during the ~~nine~~six months ended ~~September~~June 25, ~~2016~~2017 compared to the ~~nine months ended September 27, 2015.~~

Total equity earnings recognized by Space Systems (primarily ULA) represented approximately ~~$70~~$45 million, or ~~16%,~~18% and approximately ~~$240~~$125 million or 23%, of this business segment’s operating profit ~~for~~during the quarter and ~~nine~~six months ended ~~September~~June 25, ~~2016,~~2017, compared to approximately ~~$70~~$120 million, or ~~26%,~~35% and ~~$185~~approximately $170 million or ~~21%~~29%, ~~for~~during the quarter and ~~nine~~six months ended ~~September 27, 2015.~~June 26, 2016.

We expect Space Systems’ 2017 net sales ~~in 2016~~ to ~~be comparable to 2015 levels, with an increase in sales resulting from the consolidation of the AWE venture offset by a~~ decrease in ~~sales~~thelow-single digit percentage range as compared to 2016, driven by program lifecycles on government satellite programs, ~~due to lower volume driven~~partially offset by ~~program lifecycles.~~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. Operating profit is expected to ~~increase~~decline in the ~~high-single~~low-double digit percentage range, primarily driven by sales volume, theone-time AWEnon-cash gain ~~recorded~~ in ~~connection with obtaining control~~2016, amortization of the AWE ~~venture~~intangible assets in 2017, and ~~as a result of increased~~lower equity earnings in ~~joint ventures.~~2017 compared to 2016. As a result operating profit margin is expected to ~~increase as compared to 2015~~decline from 2016 levels.

We have a balanced cash deployment strategy to 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 capital expenditures, independent research and development and have made selective business acquisitions and ~~divestitures,~~investments, while returning cash to stockholders through dividends and share repurchases, and managing our debt levels, maturities and interest rates.

We have generated strong operating cash flows, which have been the primary source of funding for our operations, capital expenditures, debt service and repayments, dividends, share repurchases and postretirement benefit plan contributions. During the third quarter of 2016, we reduced our total outstanding share count by approximately 9.9 million shares, including 9.4 million shares of our common stock retired as a result of the exchange offer related to the divestiture of the IS&GS business segment. On September 22, 2016, we increased our share repurchase program by $2.0 billion. Inclusive of this increase, theThe total remaining authorization for future common share repurchases under our share repurchase program was ~~$4.3~~$2.5 billion as of ~~September~~June 25, ~~2016.~~2017.

During the quarter ended September 25, 2016, we also received a tax-free special cash payment of approximately $1.8 billion as a result of the divestiture of the IS&GS business segment in the third quarter of 2016. The proceeds of the special cash payment will be used to repay debt, pay dividends or repurchase stock. In September 2016, we repaid $500 million of long-term notes at their scheduled maturity and paid $484 million in dividends with a portion of this cash, and we intend to use the remainder of this cash by December 31, 2016, for dividends and share repurchases.

We have accessed the capital markets opportunistically as we did in February 2015 when we issued $2.25 billion of long-term debt and as needed as we did in November 2015 when we issued $7.0 billion of long-term debt in connection with our acquisition of Sikorsky. We expect our cash from operations will continue to be sufficient to support our operations, ~~and~~ anticipated capital expenditures, and postretirement benefit plan contributions for the foreseeable future. However, we ~~expect to continue to~~may as conditions warrant issue commercial paper backed by our revolving credit facility to manage the timing of our cash flows. As ~~mentioned~~described in the “Capital Resources” section below, we have ~~financial~~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 ~~but not limited to,~~ 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.

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


	Nine Months Ended				Six Months Ended
	September 25, 2016		September 27, 2015		June 25, 2017		June 26, 2016
Cash and cash equivalents at beginning of year	$	1,090	$	1,446		$ 1,837	$	1,090

Operating activities
Net earnings		4,314		2,672		1,705		1,919
Non-cash adjustments		(227)		879		682		789
Changes in working capital		(682)		(1,004)		(207)		(402)
Other, net		1,055		1,190		1,030		834
Net cash provided by operating activities		4,460		3,737		3,210		3,140
Net cash used for investing activities		(551)		(411)		(439)		(327)
Net cash used for financing activities		(2,104)		(1,472)		(2,156)		(2,634)
Net change in cash and cash equivalents		1,805		1,854		615		179
Cash and cash equivalents at end of period	$	2,895	$	3,300		$ 2,452	$	1,269

Net cash provided by operating activities ~~increased $723 million~~ during the ~~nine~~six months ended ~~September~~June 25, ~~2016, compared~~2017 was comparable to the same period in ~~2015, primarily due increased net earnings, a decrease~~2016. Net cash provided by operating activities during the six months ended June 25, 2017 included $207 million in cash ~~used for~~provided by changes in working capital and recording $137 million of additional tax benefits related to the vesting or settlement of share based awards as operating cash flows upon adoption of the accounting standards update for employee share-based payment awards.capital. 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 ~~payments~~cash receipts for accounts ~~payable and~~receivable (primarily the F-35 program), timing of cash receipts for customer advances and amounts in excess of cost incurred ~~partially offset by~~(primarily THAAD), and timing of payments for accounts payable. In addition, cash ~~receipts for receivables. We made net income tax payments of $945 million~~provided by operating activities during the ~~nine~~six months ended ~~September 25,~~June 26, 2016 ~~compared to $1.2 billion during the nine months ended September 27, 2015. We made interest payments~~included cash generated by IS&GS of ~~$439~~approximately $295 million ~~during the nine months ended September 25, 2016, compared to $266 million during the nine months ended September 27, 2015.~~

~~We may determine to fund customer programs ourselves pending government appropriations. If~~as we ~~incur costs in excess of funds obligated on a contract, we are at risk for reimbursement~~retained this cash as part of the excess costs. In 2014 and 2015, we received customer authorization and initial funding to begin producing F-35 aircraft to be acquired under low-rate initial production (LRIP) 9 and 10 contracts, respectively. We continue to negotiate these contracts with the customer. Throughout the negotiation process, we have incurred costs in excess of funds obligated and have provided multiple notifications to the customer that current funding is insufficient to cover the production process. Despite not yet receiving funding sufficient to cover our costs, we continued work in an effort to meet the customer’s desired aircraft delivery dates. As a result, we have approximately $950 million of potential cash exposure and $2.3 billion in termination liability exposure related to the F-35 LRIP 9 and 10 contracts.divestiture.

Net cash used for investing activities increased ~~$140~~$112 million during the ~~nine~~six months ended ~~September~~June 25, ~~2016,~~2017, compared to the same period in ~~2015~~2016 primarily due to ~~increased~~an increase of $62 million in capital expenditures. Capital expenditures amounted to ~~$627~~$448 million and ~~$500~~$386 million during the ~~nine~~six months ended ~~September~~June 25, ~~2016~~2017 and ~~September 27, 2015.~~June 26, 2016. 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 ofinternal-use software. In addition, the prior year included cash proceeds related to the sale of property during the six months ended June 26, 2016.

Net cash used for financing activities was ~~$2.1~~$2.2 billion during the ~~nine~~six months ended ~~September~~June 25, ~~2016, as~~2017, compared to ~~$1.5~~$2.6 billion the same period in ~~2015.~~2016. Net cash used for financing activities during the ~~nine~~six months ended

~~Management’s Discussion~~ June 25, 2017 was primarily driven by dividend payments and ~~Analysis of Financial Condition~~

~~September 25,~~share repurchases. Net cash used for financing activities during the six months ended June 26, 2016 was primarily driven by dividend payments, share repurchases and repayments of long-term debt according to their scheduled ~~maturities, partially offset by~~maturities.

During the ~~proceeds from the one-time special cash payment from the divestiture of the IS&GS business segment. Net cash used for financing activities during the nine~~six months ended ~~September 27, 2015 was primarily driven by share repurchases~~June 25, 2017, we paid our first and ~~dividend payments partially offset by proceeds from~~second quarter dividends, which totaled $1.1 billion ($3.64 per share). During the ~~February 2015 debt issuance.~~six months ended June 26, 2016, we paid dividends totaling $1.0 billion. We paid ~~$1.3~~$1.0 billion during both the six months ended June 25, 2017 and ~~$2.4 billion~~June 26, 2016 to repurchase ~~5.7~~3.8 million and ~~12.0~~4.5 million shares of our common stock, during the nine months ended September 25, 2016 and September 27, 2015, respectively. During the nine months ended September 25, 2016 and September 27, 2015, we paid dividends totaling $1.5 billion ($4.95 per share) and $1.4 billion ($4.50 per share), respectively.

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

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

In August 2016, as part of the previously announced divestiture of the IS&GS business segment and merger of this business with Leidos in a Reverse Morris Trust transaction, Abacus Innovations Corporation (Abacus), a wholly owned subsidiary of Lockheed Martin created to facilitate the transaction, borrowed an aggregate principal amount of approximately $1.84 billion under term loan facilities with third party financial institutions. The proceeds of the borrowing were used to make a one-time special cash payment of $1.8 billion to Lockheed Martin and to pay associated borrowing fees and expenses. The obligations under the term loan facilities were retained by Abacus, which merged with a subsidiary of Leidos as part of the transaction.

~~On February 20, 2015, we received proceeds of $2.21 billion for the issuance of $2.25 billion of fixed interest rate long-term notes.~~

Cash received from the issuance of our common stock in connection with employee stock option exercises during the ~~nine~~six months ended ~~September~~June 25, 2017 and June 26, 2016 ~~and September 27, 2015~~ totaled ~~$75~~$44 million and ~~$126~~$53 million, respectively. Those exercises resulted in the issuance of ~~1.0~~0.5 million and ~~1.6~~0.6 million shares of our common stock.

At ~~September~~June 25, ~~2016,~~2017, we held cash and cash equivalents of ~~$2.9 billion. At September 25, 2016, $640~~$2.5 billion, of which approximately $560 million of our cash and cash equivalents related to the $1.8 billion one-time special cash payment, which we plan to use to repay debt, pay dividends, or repurchase stock. As of September 25, 2016, approximately $400 million of our cash and cash equivalents was held outside of the U.S. by our ~~international~~foreign subsidiaries. Although those balances are generally available to fund ordinary business operations without legal or other restrictions, a significant portion is not immediately available to fund U.S. operations unless repatriated. Our intention is to permanently reinvest earnings from our ~~international~~foreign subsidiaries. While we do not intend to do so, if this cash had been repatriated at ~~September~~June 25, ~~2016,~~2017, the amount of additional U.S. federal income tax that would be due after considering foreign tax credits would not be significant.

Our outstanding debt, net of unamortized discounts and ~~deferred financing~~issuance costs, was $14.3 billion as of ~~September~~June 25, ~~2016~~2017 and mainly is in the form of publicly-issued notes that bear interest at fixed rates. In the quarter ended June 26, 2016, we repaid $452 million of long-term notes with a fixed interest rate of 7.65% according to their scheduled maturities. In the quarter ended September 25, 2016, we repaid $500 million of long-term notes with a fixed interest rate of 2.13% according to their scheduled maturities. As of ~~September~~June 25, ~~2016,~~2017, we were in compliance with all covenants contained in our debt and credit agreements. ~~Other than the repayment of outstanding debt described above, there~~There were no material changes during the quarter or ~~nine~~six months ended ~~September~~June 25, ~~2016~~2017 to our contractual commitments as presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our ~~2015~~ 2016Form 10-K that were outside the ordinary course of our business.

At ~~September~~June 25, ~~2016,~~2017, we had a $2.5 billion revolving credit facility (the5-year Facility) with various banks ~~which~~that is available for general corporate ~~purposes.~~purposes and expires on October 9, 2021. The undrawn portion of the5-year Facility is also available to serve as a backup facility for the issuance of commercial paper. ~~Effective October 7, 2016, we extended the expiration date of the5-year Facility~~ ~~from October 9, 2020 to October 9, 2021.~~ We may request and the banks may grant, at their discretion, an increase in the borrowing capacity under the5-year Facility of up to an additional $500 million. There were no borrowings outstanding under the5-year Facility as of ~~September~~June 25, ~~2016.~~

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 June 25, 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 thenon-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 both the quarter and six months ended ~~September~~June 25, ~~2016~~2017, we ~~borrowed and fully repaid amounts under our commercial paper programs. At September 25, 2016~~sold approximately $365 million of customer receivables. There were no ~~borrowings were outstanding.~~gains or losses related to sales of these receivables.

Our total equity was ~~$2.4~~$1.3 billion at ~~September~~June 25, ~~2016,~~2017, a decrease of ~~$667~~$257 million from December 31, ~~2015.~~2016. The decrease was primarily attributable to ~~a reduction in equity of $2.5 billion as a result of the exchange and retirement of 9.4 million shares of common stock in connection with the IS&GS divestiture,~~ dividends declared of ~~$2.0~~$1.6 billion, which includes our third quarter 2017 dividend, and the repurchase of ~~5.7~~3.8 million shares for ~~$1.3 billion,~~$1.0 billion. These decreases were partially offset by net earnings of ~~$4.3~~$1.7 billion, ~~amortization of $387~~$405 million in postretirement benefit plan expense and ~~$275~~gains, and $169 million in stock-based awards and employee stock ownership plan

(ESOP) activity. 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 additionalpaid-in capital. If additionalpaid-in capital is reduced to zero, we record the remainder of the excess purchase price over par value as a reduction of retained earnings.

~~Non-cash adjustments associated~~ Due to the volume of repurchases made under our share repurchase program, additionalpaid-in capital was reduced to zero, with the ~~funded status~~remainder of ~~our postretirement benefit plans are expected to result in~~the excess purchase price over par value of $828 million recorded as a ~~deficit in equity at December 31, 2016, which will limit our ability to pay dividends and make share repurchases under Maryland law to our net~~reduction of retained earnings ~~in either~~during the current or the preceding fiscal year or from the net earnings for the preceding eight quarters. This deficit will not affect our ability to comply with our debt covenants as the debt-related financial covenants in our revolving credit facility exclude the effect of adjustments to equity resulting from re-measuring the funded status of postretirement plans.six months ended June 25, 2017.

TheF-35 program consists of development contracts, ~~multiple~~ production contracts and sustainment activities. The 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. Production of the aircraft is expected to continue for many years given the U.S. Government’s current inventory objective of 2,443 aircraft for the U.S. Air Force, U.S. Marine Corps, and U.S. Navy; commitments from our eight international partners and three international customers; as well as expressions of interest from other countries.

~~The~~In January 2017, Defense Secretary Mattis ordered a review of theF-35 program, including a comparison review of theF-35C carrier variant with a fourth generation alternative. Our Chairman, President and Chief Executive Officer continues to have discussions with the new Presidential Administration on the importance of theF-35 program and our commitment to cut costs. We continue to focus on reducing production and sustainment costs relating to theF-35 program.

Operationally, the U.S. Government continues to complete various ~~operational~~ tests, including ship trials, mission system evaluations and weapons ~~testing. The~~ testing, and theF-35 aircraft fleet recently surpassed ~~72,000~~98,000 flight hours. Progress also continues ~~to be made~~ on the production of aircraft. In ~~current production, multiple aircraft for our partner countries and international customers~~January 2017, the program achieved a major milestone when the U.S. Navy received its firstF-35C carrier variant at NAS Lemoore, California, as we continue to ~~advance. In the third quarter of 2016, the United States Air Force declared Initial Operating Capability (IOC) for the F-35A. Advancement~~advance towards the ~~2018 IOC~~U.S. Navy declaring theF-35C carrier variant ready for combat. The U.S. Marine Corps completed the ~~United Stated Navy continues, as the first fleet pilots landed aboard the aircraft carrier USS George Washington in F-35C aircraft. Internationally, we saw progress in the third quarter~~deployment of ~~2016, as the F-35 roll out ceremony was held for~~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 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 ~~the F-35~~is slated to produce over 100 aircraft ~~made appearances at airshows~~ in ~~the United Kingdom and Canada.~~total. As of ~~September~~June 25, ~~2016,~~2017, we have delivered ~~184~~229 production aircraft to our U.S. and international partners, and we have 97148 production aircraft in backlog, including orders from our international partners.

During recent aircraft inspections, debris was found in the fuel tank of an F-35A model aircraft. It was determined the debris was caused by insulation shedding from tubing that is part of the system that provides cooling for the electronics and avionics and is located within the wing. Engineering assessments indicate the tube assembly was wrapped using non-compliant insulation material. The non-compliant insulation is confined to only the F-35A model and is attributed to a single supplier and is now eliminated from use. This issue affects 42 aircraft in the factory and 15 delivered aircraft. Flight operations for the delivered aircraft have been temporarily suspended. Engineering teams have developed solutions to correct the issue and minimize costs of the corrective actions. Modification work is underway to fix the 42 aircraft in

production prior to delivery. We expect to deliver some of these aircraft prior to the end of 2016. Work has begun to fix the 15 operational aircraft and we expect the initial aircraft to begin flying by the end of October and all to be flying again by the end of 2016. We do expect this issue will result in the delay of deliveries of approximately 10 additional aircraft. However, we do not expect this issue will have a significant impact on our operating results or cash flows in 2016.

Given the size and complexity of theF-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’ oversight and budgeting processes. Current program challenges include, but are not limited to, supplier and partner performance, software development, level of cost associated with life cycle operations and sustainment and warranties, receiving funding for production contracts on a timely basis, executing future flight tests, ~~and~~ findings resulting from testing, and operating the aircraft.

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

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 ~~2015~~2016 Form10-K.

~~We measure~~The carrying value of our ~~net obligations related to~~Sikorsky reporting unit included goodwill of $2.7 billion as of June 25, 2017. In our ~~postretirement benefit plans annually at year end,~~most recent annual goodwill impairment analysis, which ~~are largely dependent upon several key economic and actuarial assumptions. If we assume a discount rate at~~was performed in the ~~end~~fourth quarter of 2016, we estimated that the fair value of ~~3.625%,~~our Sikorsky reporting unit exceeded its carrying value by a ~~75 basis point decrease from~~margin of approximately 10%. We acquired Sikorsky in November 2015 and recorded the ~~end~~assets acquired and liabilities assumed at fair value. Due to the acquisition and valuation, the carrying value and fair value of ~~2015,~~our Sikorsky reporting unit are currently closely aligned. Therefore, any business deterioration, contract cancelations or terminations, or negative changes in market factors could cause our sales, earnings and cash flows to decline below current projections. Similarly, market factors utilized in the impairment analysis, including long-term growth rates, discount rates and relevant comparable public company earnings multiples and transaction multiples, could negatively impact the fair value of our reporting units. 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 deterioration of projected cash flows, negative changes in market factors or a ~~5.0% actual return on plan assets~~significant increase in ~~2016, updated longevity assumptions released October 20, 2016 by~~ the ~~Society of Actuaries, and all other assumptions are held constant, we expect the 2017 FAS/CAS pension benefit to be approximately $800 million. With these assumptions, we expect the amount~~carrying value of the ~~qualified defined benefit pension plan obligation to be recorded at~~reporting unit.

The carrying value of our Sikorsky indefinite-lived trademark intangible asset was $887 million as of June 25, 2017. We performed our most recent annual impairment analysis in the ~~end~~fourth quarter of 2016 using the relief from royalty method. The results indicated that the fair value of this intangible asset approximated its carrying value and no impairment existed. The carrying value and fair value of Sikorsky’s indefinite-lived intangible asset are currently closely aligned due to ~~increase, resulting~~the recent acquisition of Sikorsky. Therefore, any business deterioration, contract cancelations or terminations, or negative changes in ~~a non-cash, after-tax decrease in equity of approximately $3.2 billion.~~

~~On October 20, 2016, the Society of Actuaries published revised longevity assumptions that are used~~market factors could cause our sales to estimate the life expectancy of plan participants during which they are expected to receive benefit payments. Actuarial studies have recently been updated and would have the resultant impact of decreasing the total number of benefit payments to plan participants. These actuarial studies have not yet been reflected or incorporated in the postretirement benefit plan obligation recognized at September 25, 2016 or the FAS expense and CAS cost for 2016. The new longevity assumptions, which we expect to adopt atdecline below current projections. Based on our ~~December 31, 2016 measurement date, currently are expected to decrease the amount of our postretirement benefit plan obligation and increase our 2017 net earnings.~~

~~We expect to have a deficit in equity at December 31, 2016 as a result~~assessment of these ~~adjustments associated with the funded status of~~circumstances, we have determined that our postretirement benefit plans. The deficit would not affect our ability to comply with our debt covenants and based on our anticipated available net earnings we do not anticipate the deficit will hinder our ability to pay dividends and make stock repurchases. The non-cash, after-tax adjustment to equity will not affect 2016 net earnings.

A change of plus or minus 25 basis points to the assumed discount rate of 3.625%, with all other assumptions held constant, would result in an incremental non-cash, after-tax increase or decrease to equitySikorsky trademark intangible asset is at ~~the end of 2016 of approximately $1.0 billion, with a corresponding incremental increase or decrease of approximately $125 million to the estimated 2017 FAS/CAS pension benefit discussed above.~~

A change of plus or minus 100 basis points to the 2016 actual return on plan assets, with all other assumptions held constant, would result in an incremental non-cash, after-tax increase or decrease to equity at the end of the 2016 of approximately $200 million, with a corresponding incremental increase or decrease of approximately $20 million to the estimated 2017 FAS/CAS pension benefit discussed above.

We do not plan to make contributions to our legacy pension plans in 2016 or 2017, other than insignificant contributions to the Sikorsky pension plan, because none are required using current assumptions, including anticipated investment returns on plan assets. We anticipate recovering approximately $2.3 billion of CAS pension cost in 2017.

~~Accounting~~risk for postretirement benefit plans under GAAP requires that the amounts we record are computed using actuarial valuations. These valuations include many assumptions, including those we make regarding financial markets and other economic conditions. 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 2016 actual return on plan assets on December 31, 2016. The final assumptions and the actual investment returns for 2016 may differ materially from those discussed above.

~~Please refer to our critical accounting policies under the caption “Postretirement Benefit Plans” in our 2015Form 10-K~~ ~~for a more detailed discussion of the significant assumptions we must make, in addition to information regarding our ability to recover our pension costs in the pricing of our contracts.~~impairment.

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

For quantitative and qualitative disclosures about market risk, refer to the following sections of our Annual Report on Form 10-K for the year ended December 31, 2015: “Quantitative and Qualitative Disclosures About Market Risk,” and Note 9. As disclosed in ~~ITEM 7A.~~Item 7A “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report onForm 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. ~~Due to recently awarded programs we increased our exposure to the Australian dollar.~~ Our other exposures to market risk have not changed materially since December 31, ~~2015.~~2016. See “Note 8 – Fair Value Measurements” included in our Notes to Consolidated Financial Statements for additional discussion.

We performed an evaluation of the effectiveness of our disclosure controls and procedures as of ~~September~~June 25, ~~2016.~~2017. The evaluation was performed with the participation of senior management of each business segment and key ~~Corporate~~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 ~~operating~~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 Rotary 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 Form10-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 Form10-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.

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 ~~September 25,~~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.

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 six 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 also began testing the design of process-level and information technology controls. 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 expect that the remediation of this material weakness will be completed as of December 31, 2017.

Other than the remediation efforts identified above to address the material weakness, 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~~June 25, ~~2016~~2017 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

This Form10-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:

These are only some of the factors that may affect ~~the~~ forward-looking statements contained in this Form10-Q. For a discussion identifying additional important factors that could cause actual results to vary 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 Form10-K for the year ended December 31, ~~2015~~2016 and ~~this~~subsequent quarterly reports on Form10-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 atwww.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. Theforward-looking statements contained in this Form10-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 Form10-Q to reflect subsequent events, changed circumstances, changes in expectations, or the estimates and assumptions associated with them. The forward-looking statements in this Form10-Q are intended to be subject to the safe harbor protection provided by the federal securities laws.

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, including liabilities retained from, or indemnities provided in connection with, divested businesses.~~owned. These types of matters could result in fines, penalties, compensatory or treble damages ornon-monetary sanctions or relief. We believe the probability is remote that the outcome of these matters will have a material adverse effect on the ~~Corporation~~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 8~~“Note 7 – Legal Proceedings and Contingencies” included in ~~this Form 10-Q~~our Notes to Consolidated Financial Statements and ~~Note~~“Note 14 – Legal Proceedings, Commitments and Contingencies” in our Annual Report onForm 10-K for the year ended December 31, ~~2015 (2015~~2016 (2016 Form~~Form~~ 10-K) filed with the U.S. Securities and Exchange Commission.

We are subject to federal, state, local and foreign requirements for protection of the environment, including those for discharge of hazardous ~~materials~~substances and remediation of contaminated sites. As a result, 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 matters, including current estimates of the amounts that we believe are required for remediation orclean-up to the extent estimable, see ~~Note 8~~“Note 7 – Legal Proceedings and Contingencies” included in ~~this Form 10-Q.~~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~~“Note 14 – Legal Proceedings, Commitments and Contingencies”, each in our ~~2015~~2016 Form10-K for a description of previously reported matters.

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.

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 ~~Annual Report on~~2016 Form10-K ~~for the year ended December 31, 2015 (2015 Form 10-K)~~ describes some of the risks and uncertainties associated with our business, including U.S. Government ~~defense spending priorities,~~funding, as further described in the “Industry Considerations” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form10-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. ~~The information below describes~~We do not believe that there have been any material changes to the risk factors disclosed in our ~~2015~~2016 Form ~~10-K and should be read in conjunction with the risk factors and information described therein.~~

~~The divestiture of our Information Systems & Global Solutions business segment may not achieve the intended benefits and changes our exposure to other risks and uncertainties.~~

On August 16, 2016, we completed the divestiture of the IS&GS business segment and the merger of this business with Leidos Holdings, Inc. in a Reverse Morris Trust transaction. The transaction was structured as a split-off transaction and included an exchange offer in which participating Lockheed Martin stockholders received shares of Leidos common stock in exchange for shares of Lockheed Martin common stock tendered and accepted. Both

the exchange offer and the merger are expected to qualify as tax-free transactions to Lockheed Martin and its stockholders, except to the extent that cash was paid to Lockheed Martin stockholders in lieu of fractional shares. However, we have no assurance that we will be able to realize the intended benefits and tax treatment of the transaction. The completion of the transaction could also cause disruptions in our business, including potential adverse reactions or changes to business relationships and competitive responses to the transaction. Declines in our sales, earnings and cash flows as a result of the divestiture could also result in future asset impairments (including goodwill) and we also may be unable to fully recover the corporate overhead costs previously allocated to the IS&GS business through the pricing of our products and services in future periods. Additionally, the former IS&GS programs we moved to our other business segments and retained could experience increased pricing pressures which could have a negative impact on operating margins and impact our ability to win future contracts. The anticipated benefits of the transaction may also be reduced by potential liabilities related to post-closing adjustments and indemnities. Any of the foregoing could adversely affect our business, financial condition and results of operations.

~~This risk factor replaces in its entirety the risk factor included in our 2015 Form 10-K:~~“We are pursuing a plan to separate and combine our government information technology and technical services businesses with Leidos Holdings, Inc. in a tax-efficient Reverse Morris Trust transaction.~~The proposed transaction may not be completed on the currently contemplated timeline or at all and may not achieve the intended benefits.”~~

In addition, as a consequence of our divestiture of the IS&GS business segment, our exposure to the risks associated with smaller, short-term contracts; increased market pressures and lower volumes in our services businesses; and increased competition in the information technology business, each as described in the risk factor~~“We depend heavily on contracts with the U.S. Government for a substantial portion of our business”~~ ~~and the risk factor~~~~“Increased competition and bid protests in a budget-constrained environment may make it more difficult to maintain our financial performance and customer relationships”~~included in our 2015 Form 10-K, have been reduced but not eliminated as we faced and continue to face these risks in our other business segments although to a lesser degree than in the IS&GS business segment.

~~Our ability to pay dividends or repurchase shares of our common stock is subject to compliance with applicable law and the discretion of our board.~~

The payment of cash dividends and share repurchases is subject to limitations under applicable law and the discretion of the Lockheed Martin board of directors and is determined in light of then current conditions, including earnings, other operating results and capital requirements. Non-cash adjustments associated with the funded status of our postretirement benefit plans are expected to result in a deficit in equity at December 31, 2016, which will limit our ability to pay dividends and make share repurchases under Maryland law to our net earnings in either the current or the preceding fiscal year or from the net earnings for the preceding eight quarters. In addition, the continuation, timing and amount of share repurchases under board approved share repurchase plans is within the discretion of management and will depend on many factors, including results of operations, capital requirements as well as applicable law.

There were no sales of unregistered equity securities induring the ~~third~~ quarter ~~2016.~~ended June 25, 2017.

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 induring the ~~third~~ quarter ~~of 2016.~~ended June 25, 2017.

Effective September 22, 2016, the Board of Directors of Lockheed Martin Corporation amended and restated the Corporation’s bylaws primarily to implement proxy access (as so amended and restated, the “Bylaws”). A new section 1.11 was added to the Bylaws to permit a stockholder, or a group of up to 20 stockholders, owning at least 3% of the Corporation’s outstanding common stock continuously for at least three years to nominate and include in the Corporation’s proxy materials director nominees constituting up to the greater of two or 20% of the Board, provided that the nominating stockholder(s) and the director nominee(s) satisfy the requirements specified in the Bylaws.

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.


Maryland		52-1893632
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

6801 Rockledge Drive, Bethesda, Maryland		20817
(Address of principal executive offices)		(Zip Code)


		Page

PART I. FINANCIAL INFORMATION

ITEM 1.	Financial Statements

	Consolidated Statements of Earnings for the Quarters and ~~Nine~~Six Months Ended ~~September~~June 25, ~~2016~~2017 and ~~September 27, 2015~~June 26, 2016		3

	Consolidated Statements of Comprehensive Income for the Quarters and ~~Nine~~Six Months Ended ~~September~~June 25, ~~2016~~2017 and ~~September 27, 2015~~June 26, 2016		4

	Consolidated Balance Sheets as of ~~September~~June 25, ~~2016~~2017 and December 31, ~~2015~~2016		5

	Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 25, ~~2016~~2017 and ~~September 27, 2015~~June 26, 2016		6

	Consolidated Statements of Equity for the ~~Nine~~Six Months Ended ~~September~~June 25, ~~2016~~2017 and ~~September 27, 2015~~June 26, 2016		7

	Notes to Consolidated Financial Statements		8

	Review Report of Ernst & Young LLP, Independent Registered Public Accounting Firm		3023

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		3124

~~ITEM~~ ITEM��3.	Quantitative and Qualitative Disclosures About Market Risk		5140

ITEM 4.	Controls and Procedures		5140

PART II. OTHER INFORMATION

ITEM 1.	Legal Proceedings		5343

ITEM 1A.	Risk Factors		5343

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		5544

ITEM 5.6.	~~Other Information~~Exhibits		5645

~~ITEM 6.~~SIGNATURE		~~Exhibits~~		57

~~SIGNATURE~~			5846


Cash and cash equivalents	$	75
Receivables, net		1,948
Inventories, net		1,605
Other current assets		25
Property, plant and equipment		649
Goodwill		2,853
Intangible assets:
Customer programs		3,204
Trademarks		887
Other noncurrent assets		507
Deferred income tax assets		265
Total identifiable assets and goodwill	$	12,018
Accounts payable	$	(565	)
Customer advances and amounts in excess of costs incurred		(1,197	)
Salaries, benefits and payroll taxes		(105	)
Other current liabilities		(382	)
Customer contractual obligations^(a)		(507	)
Other noncurrent liabilities		(156	)
Deferred income tax liabilities^(a)		(28	)
Total liabilities assumed	$	(2,940	)
Total purchase price	$	9,078


	Quarter Ended September 27, 2015		Nine Months Ended September 27, 2015
Net sales	$	11,434	$	33,289
Net earnings		858		2,631
Basic earnings per common share		2.78		8.44
Diluted earnings per common share		2.74		8.32


	September 25, 2016						December 31, 2015
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Finite-Lived:
Customer programs	$	3,204	$	(214)	$	2,990	$	3,127	$	(38)	$	3,089
Customer relationships		380		(82)		298		137		(59)		78
Other		111		(81)		30		111		(72)		39
Total finite-lived intangibles		3,695		(377)		3,318		3,375		(169)		3,206
Indefinite Lived:
Trademarks		887		—		887		816		—		816
Total acquired intangibles	$	4,582	$	(377)	$	4,205	$	4,191	$	(169)	$	4,022


	Quarters Ended				Nine Months Ended
	September 25, 2016^(a)		September 27, 2015		September 25, 2016^(a)		September 27, 2015
Net sales	$	739	$	1,401	$	3,410	$	4,199
Cost of sales		(635)		(1,222)		(2,953)		(3,644)
Severance charges		—		(20)		(19)		(20)
Gross profit		104		159		438		535
Other income, net		19		3		16		8
Operating profit		123		162		454		543
Earnings from discontinued operations before income taxes		123		162		454		543
Income tax expense		(51)		(53)		(168)		(180)
Net gain on divestiture of discontinued operations		1,234		—		1,234		—
Net earnings from discontinued operations	$	1,306	$	109	$	1,520	$	363


	Quarter Ended		Six Months Ended
	June 26, 2016		June 26, 2016
Net sales		$ 1,337		$ 2,671
Cost of sales		(1,143)		(2,318)
Severance charges		—		(19)
Gross profit		194		334
Other expense, net		(3)		(4)
Operating profit		191		330
Interest expense		(1)		—
Earnings from discontinued operations before income taxes		190		330
Income tax expense		(68)		(116)
Net earnings from discontinued operations		$ 122		$ 214


	Aeronautics		MFC			RMS			Space Systems		Total

Balance at December 31, 2015	$	171		$ 2,198			$ 6,738		$	1,588		$ 10,695

Purchase accounting adjustments		—		—			89			—		89
Divestitures		—		—			(7	)		—		(7)
Foreign currency translation		—		(8	)		24			(2)		14

Balance at September 25, 2016	$	171		$ 2,190			$ 6,844		$	1,586		$ 10,791


	Postretirement Benefit Plans		Other, net		AOCL

Balance at December 31, 2016	$	(11,981)	$	(121)	$	(12,102)
Other comprehensive income before reclassifications		3		53		56
Amounts reclassified from AOCL
Recognition of net actuarial losses^(a)		516		—		516
Amortization of net prior service credits^(a)		(114)		—		(114)
Other		—		7		7

Total reclassified from AOCL		402		7		409

Total other comprehensive income		405		60		465

Balance at June 25, 2017	$	(11,576)	$	(61)	$	(11,637)


Balance at December 31, 2015	$	(11,314)	$	(130)	$	(11,444)
Other comprehensive loss before reclassifications		—		(7)		(7)
Amounts reclassified from AOCL
Recognition of net actuarial losses^(a)		469		—		469
Amortization of net prior service credits^(a)		(123)		—		(123)
Other		—		1		1

Total reclassified from AOCL		346		1		347

Total other comprehensive income (loss)		346		(6)		340

Balance at June 26, 2016	$	(10,968)	$	(136)	$	(11,104)


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 27, 2016 – July 31, 2016		416,365			$	246.21		416,327		$	2,496
August 1, 2016 – August 28, 2016		29,971			$	256.76		—		$	2,496
August 29, 2016 – September 25, 2016		732,128			$	240.21		731,932		$	4,320

		1,178,464	^(c)		$	242.75		1,148,259


Exhibit No.		Description

~~3.1~~		Bylaws of Lockheed Martin Corporation, as amended and restated effective September 22, 2016 (incorporated by reference to Exhibit 3.1 to Lockheed Martin Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission (SEC) on September 22, 2016).

10.1		~~Extension Agreement dated as~~Amendments to Terms of ~~October 7, 2016 by~~Outstanding Long-Term Incentive Performance Award Agreements (2015–2017 Performance Period and ~~among~~2016–2018 Performance Period) under the Lockheed Martin Corporation ~~the lenders listed therein, and Bank of America, N.A., as administrative agent (incorporated by reference~~2011 Performance Award Plan Relating to ~~Exhibit 10.1 to Lockheed Martin Corporation’s Current Report on Form 8-K filed with the SEC on October 7, 2016)~~Tax Withholding.

12		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 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

32		Certification of Marillyn A. Hewson and Bruce L. Tanner 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

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document


	~~Lockheed Martin Corporation~~ ~~(Registrant)~~

			Lockheed Martin Corporation

~~Date: October 27, 2016~~		(Registrant)

Date: July 20, 2017			By:~~/s/~~ /s/ BrianP.Colan
			Brian P. Colan
			Vice President and Controller
			(Duly Authorized Officer and Chief Accounting Officer)