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LOCKHEED MARTIN CORPORATION
2015 ANNUAL REPORT

Table of contents

  • Page 1
    LOCKHEED MARTIN CORPORATION 2015 ANNUAL REPORT

  • Page 2
    ... data Net Sales Segment Operating Profit Consolidated Operating Profit Net Earnings From Continuing Operations Net Earnings Diluted Earnings Per Common Share Continuing Operations Net Earnings Cash Dividends Per Common Share Average Diluted Common Shares Outstanding Cash and Cash Equivalents Total...

  • Page 3
    ..., Executive Vice President, Information Systems & Global Solutions; Richard F. Ambrose, Executive Vice President, Space Systems; Bruce L. Tanner, Executive Vice President and Chief Financial Officer; Marillyn A. Hewson, Chairman, President and Chief Executive Officer; Richard H. Edwards, Executive...

  • Page 4
    OUTSTANDING FINANCIAL PERFORMANCE ... total stockholder return in 2015-significantly... 120 percent of free cash flow to stockholders... Producing the world's most advanced aircraft... Lockheed Martin Corporation II

  • Page 5
    Lockheed Martin Chairman, President and CEO Marillyn Hewson in the Orion Multipurpose Crew Vehicle cockpit simulator at the Lockheed Martin Global Vision Center in Arlington, Virginia.... džƉůŽƌÄ,ƚŝŽŶDŝƐƐŝŽŶͲϭƉĞƌĨŽƌŵÄ,ŶĐĞƌĞƋƵŝƌĞŵĞŶƚƐ͘ III 2015 Annual Report

  • Page 6
    ... International Growth: As part of our growth... why we increased our independent research and... Ä,ĚǀÄ,ŶĐĞĚƐĞǀĞƌÄ,ůŬĞLJƚĞĐŚŶŽůŽŐŝĞƐ͕ŝŶĐůƵĚŝŶŐÍ- Directed Energy... Lockheed Martin Corporation IV

  • Page 7
    ... segment operating profit, segment margin and free cash flow, which are non-GAAP financial measures. For reconciliations between our non-GAAP measures and the nearest GAAP measures, please refer to the page preceding the back cover of this Annual Report. Additionally, this letter includes statements...

  • Page 8
    ... and Chief Executive Officer Lockheed Martin Corporation EXECUTIVE OFFICERS Richard F. Ambrose Executive Vice President Space Systems Sondra L. Barbour Executive Vice President Information Systems & Global Solutions Dale P. Bennett Executive Vice President Mission Systems and Training Orlando...

  • Page 9
    UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2015 Commission file number 1-11437 LOCKHEED MARTIN CORPORATION (Exact name of registrant as ...

  • Page 10
    ... Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ...25 Selected Financial Data ...27 Management's Discussion and Analysis of Financial Condition and Results of Operations ...28 Quantitative and Qualitative Disclosures About Market Risk ...64 Financial Statements...

  • Page 11
    ... Corporation (Sikorsky) for $9.0 billion, net of cash acquired. Sikorsky, a global company primarily engaged in the design, manufacture and support of military and commercial helicopters, has become a wholly-owned subsidiary of ours, aligned under the MST business segment. We funded the acquisition...

  • Page 12
    ... into Leidos stock in the merger pro rata. Subsequent to the program realignment described below, our IS&GS business segment represents the government IT and technical services businesses that were under strategic review. The transaction is expected to close in the third or fourth quarter of 2016...

  • Page 13
    ...to invest in new technologies to maintain and enhance competitiveness in military aircraft design, development and production. Information Systems & Global Solutions In 2015, our IS&GS business segment generated net sales of $5.6 billion, which represented 12% of our total consolidated net sales. IS...

  • Page 14
    ... Logistics Support Services (SOF CLSS) program provides logistics support services to the special operations forces of the U.S. military. Mission Systems and Training In 2015, our MST business segment generated net sales of $9.1 billion, which represented 20% of our total consolidated net sales. MST...

  • Page 15
    ... and MST business segment operating results for the year ended December 31, 2015 do not reflect a full year of Sikorsky operations. Sikorsky is one of the world's largest helicopter companies and manufactures military and commercial helicopters. Sikorsky designs, manufactures, services and supports...

  • Page 16
    ... net sales, operating profit and related financial information for 2015, 2014, and 2013, see "Business Segment Results of Operations" in Management's Discussion and Analysis of Financial Condition and Results of Operations and "Note 5 - Information on Business Segments" of our consolidated financial...

  • Page 17
    ... technical data; and • require the review and approval of contractor business systems, defined in the regulations as: (i) Accounting System; (ii) Estimating System; (iii) Earned Value Management System, for managing cost and schedule performance on certain complex programs; (iv) Purchasing System...

  • Page 18
    ... any material disruption of operating activities. Management considers employee relations to be good. Available Information We are a Maryland corporation formed in 1995 by combining the businesses of Lockheed Corporation and Martin Marietta Corporation. Our principal executive offices are located at...

  • Page 19
    ... other information contained in this Annual Report on Form 10-K, before deciding to purchase our common stock or debt securities. We depend heavily on contracts with the U.S. Government for a substantial portion of our business. We derived 78% of our total net sales from the U.S. Government in 2015...

  • Page 20
    ..., short-term contracts are the most susceptible to the impacts of budget reductions, such as our Information Systems & Global Solutions (IS&GS) business segment. We have also experienced increased market pressures in these services businesses including lower in-theater support as troop levels are...

  • Page 21
    ... we conduct business. Our profitability and cash flow may vary based on the mix of our contracts and programs, our performance, our ability to control costs and evolving U.S. Government procurement policies. Our profitability and cash flow may vary materially depending on the types of government...

  • Page 22
    ... than charged directly to contracts in certain circumstances. Other policies could negatively impact our working capital and cash flow. For example, the government has expressed a preference for requiring progress payments rather than performance based payments on new fixed-price contracts, which if...

  • Page 23
    ... priorities, foreign government budgets, global economic conditions, and fluctuations in foreign currency exchange rates. Our acquisition of Sikorsky is expected to increase our international sales further exposing us to the risks of international business. Sales of military products are also...

  • Page 24
    ... fail to manage acquisitions, divestitures, equity investments and other transactions successfully or if acquired entities or equity investments fail to perform as expected, our financial results, business and future prospects could be harmed. In pursuing our business strategy, we routinely conduct...

  • Page 25
    ...the anticipated value. At our election, the distribution may be effected by means of a pro rata dividend in a spin-off transaction or in an exchange offer for outstanding Lockheed Martin shares in a split-off transaction. The transaction structure, which is subject to market conditions, is currently...

  • Page 26
    ... if changed may cause our future earnings and cash flow to fluctuate significantly as well as affect the affordability of our products and services. Many of our employees are covered by defined benefit pension plans, and we provide certain health care and life insurance benefits to eligible retirees...

  • Page 27
    ... defined benefit pension plans for non-union employees to freeze future retirement benefits. However, the impact of these actions on our cash flow and earnings may be less than anticipated or may be offset by other factors such as changes in actuarial assumptions and plan asset investment returns...

  • Page 28
    ... including: engineering, science, manufacturing, information technology, cybersecurity, business development and strategy and management. Our operating performance is also dependent upon personnel who hold security clearances and receive substantial training in order to work on certain programs or...

  • Page 29
    ..., our income tax expense and payments would be materially reduced in subsequent years. Actual financial results could differ from our judgments and estimates. Refer to "Critical Accounting Policies" in Management's Discussion and Analysis of Financial Condition and Results of Operations and "Note...

  • Page 30
    ..." of our consolidated financial statements. On October 26, 2015, the New Mexico Environmental Department (NMED) issued a Notice of Violation (NOV) related to a hazardous waste compliance evaluation that NMED conducted at Sandia National Laboratories in April 2015. Sandia Corporation manages Sandia...

  • Page 31
    ...Chief Executive Officer of Lockheed Martin since January 2014. Having served 33 years at Lockheed Martin in roles of increasing responsibility, she held the positions of Chief Executive Officer and President from January 2013 to December 2013; President and Chief Operating Officer from November 2012...

  • Page 32
    ... served as Vice President, Finance and Business Operations of Electronic Systems from July 2008 to June 2011. Bruce L. Tanner (age 56), Executive Vice President and Chief Financial Officer Mr. Tanner has served as Executive Vice President and Chief Financial Officer since September 2007. 24

  • Page 33
    ..., Related Stockholder Matters and Issuer Purchases of Equity Securities. At January 29, 2016, we had 29,972 holders of record of our common stock, par value $1 per share. Our common stock is traded on the New York Stock Exchange (NYSE) under the symbol LMT. Information concerning the stock prices...

  • Page 34
    ...plans. The program does not have an expiration date. During the quarter ended December 31, 2015, the total number of shares purchased included 10,090 shares that were transferred to us by employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock...

  • Page 35
    ... tax) in 2013 (Note 1). The impact of our postretirement benefit plans can cause our operating profit, net earnings, cash flows and amounts recorded on our Balance Sheets to fluctuate. Accordingly, our earnings were affected by FAS/CAS pension income of $471 million and $376 million in 2015 and 2014...

  • Page 36
    ... costs associated with actions committed to by Sikorsky prior to acquisition. Accordingly, we expect 2016 segment operating profit margin will be below 2015 levels, in the 10% range. Our 2016 outlook includes amounts for the government IT infrastructure services and technical services businesses...

  • Page 37
    ... of cash acquired. Sikorsky, a global company primarily engaged in the design, manufacture, service and support of military and commercial helicopters, has become a wholly-owned subsidiary of ours, aligned under the MST business segment. We funded the acquisition with new debt issuances, commercial...

  • Page 38
    ... in information technology, civil government services and the energy market. Amor Group is included in our IS&GS business segment. For additional information, see "Note 3 - Acquisitions and Divestitures" of our consolidated financial statements. Industry Considerations U.S. Government Funding...

  • Page 39
    ... our operating results will lag in certain of our businesses with longer cycles such as our Aeronautics and Space Systems business segments, and our products businesses within our MFC and MST business segments, due to our production contract backlog. However, our businesses with smaller, short-term...

  • Page 40
    ... 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, findings resulting from testing, and operating the aircraft. Cybersecurity On July 9, 2015, the U.S. Office...

  • Page 41
    ... the impact, if any, on Lockheed Martin or our current or former employees. Consolidated Results of Operations 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...

  • Page 42
    ...in product sales at MST was primarily attributable to product sales from Sikorsky, which we acquired in the fourth quarter of 2015. Product sales at Aeronautics increased primarily due to higher volume on F-35 production contracts, as well as increased deliveries on our C-5 program; partially offset...

  • Page 43
    ... Systems and $70 million at MST, primarily due to the reasons described above for lower product sales at each respective business segment. Additionally, lower product costs at MST were partially offset by costs related to the settlements of contract cost matters on certain programs in the prior year...

  • Page 44
    ... service sales in 2014 compared to 2013 was primarily due to items decreasing service costs at IS&GS. Goodwill Impairment Charges In the fourth quarter of 2015, we performed our annual goodwill impairment test for each of our reporting units. Additionally, as part of our previously described program...

  • Page 45
    ... related to our decision to divest Lockheed Martin Commercial Flight Training (LMCFT) in 2016 and non-recoverable transaction costs of approximately $45 million associated with the Sikorsky acquisition and the strategic review of our government IT and technical services businesses, partially offset...

  • Page 46
    ..., but our income tax expense and payments would be materially reduced in subsequent years. Our net deferred tax assets as of December 31, 2015 and 2014 were $5.9 billion and $5.5 billion, based on a 35% Federal statutory income tax rate, and primarily relate to our postretirement benefit plans. If...

  • Page 47
    ... 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...

  • Page 48
    ... FAS/CAS pension income in 2016 of about $975 million as further discussed in "Critical Accounting Policies - Postretirement Benefit Plans" below. We recognized non-cash goodwill impairment charges related to the Technical Services reporting unit within our MFC business segment in 2014 and 2013. For...

  • Page 49
    ... Fire Control Mission Systems and Training Space Systems Total business segment operating profit Unallocated items, net Total consolidated operating profit $14,920 7,788 7,680 7,147 8,065 $45,600 $ 1,649 699 1,358 843 1,039 5,588 4 $ 5,592 Year Ended December 31, 2014 Government IT Technical Svcs...

  • Page 50
    ... Control Mission Systems and Training Space Systems Total business segment operating profit Unallocated items, net Total consolidated operating profit $14,123 8,367 7,757 7,153 7,958 $45,358 $ 1,612 759 1,431 905 1,045 5,752 (1,247) $ 4,505 Year Ended December 31, 2013 Government IT Technical Svcs...

  • Page 51
    ... 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 the inception-to-date effect of such changes. Segment operating profit and margins may also be impacted...

  • Page 52
    ... Our Aeronautics business segment is engaged in the research, design, development, manufacture, integration, sustainment, support and upgrade of advanced military aircraft, including combat and air mobility aircraft, unmanned air vehicles and related technologies. Aeronautics' major programs include...

  • Page 53
    ... F-35 program offset by contract mix that results in a slight decrease in operating margins between years. Information Systems & Global Solutions Our IS&GS business segment provides advanced technology systems and expertise, integrated information technology solutions and management services across...

  • Page 54
    ... defense systems; tactical missiles and air-to-ground precision strike weapon systems; logistics; fire control systems; mission operations support, readiness, engineering support and integration services; manned and unmanned ground vehicles; and energy management solutions. MFC's major programs...

  • Page 55
    ... for the year ended December 31, 2015 do not reflect a full year of Sikorsky operations. Our MST business segment provides design, manufacture, service and support for a variety of military and civil helicopters, ship and submarine mission and combat systems; mission systems and sensors for rotary...

  • Page 56
    ... business segment includes our share of earnings for our investment in ULA, which provides expendable launch services to the U.S. Government. Space Systems' operating results included the following (in millions): Net sales Operating profit Operating margins Backlog at year-end 2015 compared to 2014...

  • Page 57
    ... equity earnings in 2016 compared to 2015. As a result, operating profit margin is expected to decline slightly between the years. Liquidity and Cash Flows We have a balanced cash deployment strategy to enhance stockholder value and position ourselves to take advantage of new business opportunities...

  • Page 58
    ... of our cash flows. We expect to receive a tax-free special cash payment of approximately $1.8 billion as a result of the anticipated divestiture of our IS&GS business segment in the third or fourth quarter of 2016 that we intend to use to repay debt, pay dividends or repurchase stock, although the...

  • Page 59
    ... qualified defined benefit pension trust in 2015 compared to $2.0 billion in 2014. We made $5.0 million in contributions to our new Sikorsky bargained qualified defined benefit pension plan in 2015. The increase in cash flows related to Other, net was offset by higher federal and foreign income tax...

  • Page 60
    ... are incurred to support new and existing programs across all of our business segments. We also incur capital expenditures for information technology to support programs and general enterprise information technology infrastructure, inclusive of costs for the development or purchase of internal-use...

  • Page 61
    ... limiting our ability and certain of our subsidiaries' ability to encumber assets and a covenant not to exceed a maximum leverage ratio, as defined in the 5-year Facility agreement. Long-Term Debt On November 23, 2015, we issued $7.0 billion of notes (the November 2015 Notes) in a registered public...

  • Page 62
    ...Off-Balance Sheet Arrangements At December 31, 2015, we had contractual commitments to repay debt, make payments under operating leases, settle obligations related to agreements to purchase goods and services and settle tax and other liabilities. Capital lease obligations were not material. Payments...

  • Page 63
    ... in the estimates of our total costs to complete the contract and may impact our profitability and cash flows. The ability to recover investments that we make is generally dependent upon the successful operation of ventures that we do not control and may involve products and services that are...

  • Page 64
    ... U.S. Government. We record sales for both products and services under cost-reimbursable, fixed-price and time-and-materials contracts. Contract Types Cost-reimbursable contracts Cost-reimbursable contracts, which accounted for about 43%, 40%, and 45% of our total net sales in 2015, 2014, and 2013...

  • Page 65
    ...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...

  • Page 66
    ... relate to our qualified defined benefit pension plans and retiree medical and life insurance plans. We recognize on a plan-by-plan basis the net funded status of these postretirement benefit plans under GAAP as either an asset or a liability on our Balance Sheets. There is a corresponding non-cash...

  • Page 67
    ... our benefit obligations related to our retiree medical plans at December 31, 2015, compared to 3.75% at December 31, 2014 and 4.50% at December 31, 2013. We evaluate several data points in order to arrive at an appropriate discount rate, including results from cash flow models, quoted rates from...

  • Page 68
    ... defined benefit pension plans was about 73% and 76% funded at December 31, 2015 and 2014. Contributions to our defined benefit pension plans are recovered over time through the pricing of our products and services on U.S. Government contracts, including FMS, and are recognized in our cost of sales...

  • Page 69
    ... 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...

  • Page 70
    ... estimate of future sales, earnings and cash flows after considering factors such as general market conditions, U.S. Government budgets, existing firm orders, expected future orders, contracts with suppliers, labor agreements, changes in working capital, long term business plans and recent operating...

  • Page 71
    ...twenty years, based on the nature of the asset and the underlying pattern of economic benefit as reflected by future net cash inflows. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard that will change the way we recognize revenue and...

  • Page 72
    ... 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 new standard will extend over future periods. In...

  • Page 73
    ... fair value on our Balance Sheet in other noncurrent assets. The trust holds investments in marketable equity securities and fixed-income securities that are exposed to price changes and changes in interest rates. A portion of the liabilities associated with the deferred compensation plans supported...

  • Page 74
    ... of Directors and Stockholders Lockheed Martin Corporation We have audited the accompanying consolidated balance sheets of Lockheed Martin Corporation as of December 31, 2015 and 2014, and the related consolidated statements of earnings, comprehensive income, stockholders' equity, and cash flows for...

  • Page 75
    Lockheed Martin Corporation Consolidated Statements of Earnings (in millions, except per share data) Years Ended December 31, 2014 2013 $ 36,093 9,507 45,600 (31,965) (8,393) (119) - 132 (40,345) 5,255 337 5,592 (340) 6 5,258 (1,644) 3,614 - $ 3,614 $ 35,691 9,667 45,358 (...

  • Page 76
    Lockheed Martin Corporation Consolidated Statements of Comprehensive Income (in millions) Years Ended December 31, 2014 2013 $ 3,614 $2,981 Net earnings Other comprehensive income (loss), net of tax Postretirement benefit plans Net other comprehensive (loss) income recognized during the period, net...

  • Page 77
    Lockheed Martin Corporation Consolidated Balance Sheets (in millions, except par value) December 31, 2015 2014 Assets Current assets Cash and cash equivalents Receivables, net Inventories, net Deferred income taxes Other current assets Total current assets Property, plant and equipment, net Goodwill...

  • Page 78
    ...charges Changes in assets and liabilities Receivables, net Inventories, net Accounts payable Customer advances and amounts in excess of costs incurred Postretirement benefit plans Income taxes Other, net Net cash provided by operating activities Investing activities Capital expenditures Acquisitions...

  • Page 79
    Lockheed Martin Corporation Consolidated Statements of Stockholders' Equity (in millions, except per share data) Additional Paid-In Capital $ - - - (1,294) - 1,294 - - - (792) - 792 - - - (656) - 656 $ - Accumulated Other Comprehensive Loss $(13,493) - 3,892 - - - (9,601) - (2,269) - - - (11,870) - ...

  • Page 80
    ... Corporation (Sikorsky) for $9.0 billion, net of cash acquired. Sikorsky, a global company primarily engaged in the design, manufacture, service and support of military and commercial helicopters, has become a wholly-owned subsidiary of ours, aligned under our MST business segment. The financial...

  • Page 81
    ...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...

  • Page 82
    ... cost or estimated net realizable value. Costs on long-term contracts and programs in progress represent recoverable costs incurred for production or contract-specific facilities and equipment, allocable operating overhead, advances to suppliers and, in the case of contracts with the U.S. Government...

  • Page 83
    ... estimate of future sales, earnings and cash flows after considering factors such as general market conditions, U.S. Government budgets, existing firm orders, expected future orders, contracts with suppliers, labor agreements, changes in working capital, long-term business plans and recent operating...

  • Page 84
    ..., 2015 and 2014, are amortized as interest expense over the life of the related debt. In prior year presentation, these costs were reflected within other noncurrent assets on our consolidated balance sheets. Postretirement benefit plans - Many of our employees are covered by defined benefit pension...

  • Page 85
    ...2014, our equity method investments totaled $1.3 billion and $971 million, which primarily are composed of our Space Systems business segment's investment in United Launch Alliance (ULA), as further described in Note 14, and our Aeronautics and MST business segments' investments in Advanced Military...

  • Page 86
    ... 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 new standard will extend over future periods. In...

  • Page 87
    ...UTC's subsidiaries. The purchase price of the acquisition was $9.0 billion, net of cash acquired. As a result of the acquisition, Sikorsky became a whollyowned subsidiary of ours. Sikorsky is a global company primarily engaged in the research, design, development, manufacture and support of military...

  • Page 88
    ... 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...

  • Page 89
    ... 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...

  • Page 90
    ...the anticipated value. At our election, the distribution may be effected by means of a pro rata dividend in a spin-off transaction or in an exchange offer for outstanding Lockheed Martin shares in a split-off transaction. The transaction structure, which is subject to market conditions, is currently...

  • Page 91
    ... of government IT and technical services businesses. The transaction is expected to close in the third or fourth quarter of 2016. Until closing, IS&GS will operate as a business segment and financial results for the IS&GS business segment will be reported in our continuing operations. Prior Year...

  • Page 92
    ...Aeronautics, Information Systems & Global Solutions (IS&GS), Missiles and Fire Control (MFC), Mission Systems and Training (MST) and Space Systems. We organize our business segments based on the nature of products and services offered. During the fourth quarter of 2015, we realigned certain programs...

  • Page 93
    ...FAS pension expense. Selected Financial Data by Business Segment Summary operating results for each of our business segments were as follows (in millions): 2015 Net sales Aeronautics Information Systems & Global Solutions Missiles and Fire Control Mission Systems and Training Space Systems Total net...

  • Page 94
    ... Financial Data by Business Segment (continued) 2015 Intersegment sales Aeronautics Information Systems & Global Solutions Missiles and Fire Control Mission Systems and Training Space Systems Total intersegment sales Depreciation and amortization Aeronautics Information Systems & Global Solutions...

  • Page 95
    Selected Financial Data by Business Segment (continued) Net Sales by Customer Category Net sales by customer category were as follows (in millions): 2015 U.S. Government Aeronautics Information Systems & Global Solutions Missiles and Fire Control Mission Systems and Training Space Systems Total U.S....

  • Page 96
    ...): 2015 Assets Aeronautics Information Systems & Global Solutions Missiles and Fire Control Mission Systems and Training Space Systems Total business segment assets Corporate assets (b) Total assets Customer advances and amounts in excess of costs incurred Aeronautics Information Systems & Global...

  • Page 97
    ... our net sales and cost of sales. As a result, the impact of certain transactions on our operating profit and of other matters presented in these financial statements is disclosed net of state income taxes. Our total net state income tax expense was $127 million for 2015, $207 million for 2014, and...

  • Page 98
    ... tax assets related to: Accrued compensation and benefits Pensions (a) Other postretirement benefit obligations Contract accounting methods Foreign company operating losses and credits Other Valuation allowance (b) Deferred tax assets, net Deferred tax liabilities related to: Goodwill and purchased...

  • Page 99
    ...with rates from 6.15% to 9.13%, due 2016 to 2036 Other debt Total long-term debt Less: unamortized discounts and deferred financing costs Total long-term debt, net Revolving Credit Facilities On October 9, 2015, we entered into a new $2.5 billion revolving credit facility (the 5-year Facility) with...

  • Page 100
    ... asset or a liability on our Balance Sheets. There is a corresponding non-cash adjustment to accumulated other comprehensive loss, net of tax benefits recorded as deferred tax assets, in stockholders' equity. The funded status is measured as the difference between the fair value of the plan's assets...

  • Page 101
    ... status related to our qualified defined benefit pension plans and our retiree medical and life insurance plans (in millions): Qualified Defined Benefit Pension Plans 2015 2014 Change in benefit obligation Beginning balance Service cost Interest cost Benefits paid (a) Actuarial losses (gains) New...

  • Page 102
    ...Plans 2015 2014 $ 201 $ 204 (11,807) (11,413) Retiree Medical and Life Insurance Plans 2015 2014 $ - $ - (1,070) (1,102) Prepaid pension asset Accrued postretirement benefit liabilities Accumulated other comprehensive loss (pre-tax) related to: Net actuarial losses Prior service (credit) cost Total...

  • Page 103
    ... 4.30% Retiree Medical and Life Insurance Plans 2015 2014 2013 4.25% 3.75% 4.50% 8.00% 8.00% 8.00% 9.00% 5.00% 2032 8.50% 5.00% 2029 8.75% 5.00% 2029 Discount rate Expected long-term rate of return on assets Rate of increase in future compensation levels Health care trend rate assumed for next year...

  • Page 104
    ...fair values estimated using significant unobservable inputs. December 31, 2015 Total Level 1 Level 2 Level 3 Cash and cash equivalents (a) Equity (a): U.S. equity securities International equity securities Commingled equity funds Fixed income (a): Corporate debt securities U.S. Government securities...

  • Page 105
    ... assets while the income approach uses earnings or the net present value of estimated future cash flows adjusted for liquidity and other risk factors. Hedge funds are valued by independent administrators using various pricing sources and models based on the nature of the securities. Private equity...

  • Page 106
    ...presents estimated future benefit payments, which reflect expected future employee service, as of December 31, 2015 (in millions): 2016 Qualified defined benefit pension plans Retiree medical and life insurance plans Defined Contribution Plans We maintain a number of defined contribution plans, most...

  • Page 107
    ... income taxes, which will be recognized on our tax returns in future years. See Note 9 and Note 11 for more information on our income taxes and postretirement benefit plans. Note 13 - Stock-Based Compensation During 2015, 2014 and 2013, we recorded non-cash stock-based compensation expense totaling...

  • Page 108
    ...-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. Stock...

  • Page 109
    ... forfeitures, as compensation expense ratably over the vesting period based on the number of awards expected to vest at each reporting date. The remaining PSUs were valued at $188.96 per PSU using a Monte Carlo model as the performance target is related to our total shareholder return relative to...

  • Page 110
    ... of costs over approximately 20 years. Our acquisition of Sikorsky included certain environmental remediation liabilities that are among those recorded on our Balance Sheet, along with the related receivables for probable future recovery. These amounts did not materially impact our consolidated...

  • Page 111
    ... 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...

  • Page 112
    ...million related to our IS&GS, MST and Space Systems business segments (prior to realignment). These charges reduced our 2013 net earnings by $130 million ($.40 per share) and primarily related to a plan we committed to in November 2013 to close and consolidate certain facilities and reduce our total...

  • Page 113
    ... 2015 and 2014, excluding unamortized discounts of $941 million and $872 million. The estimated fair values of our outstanding debt were determined based on quoted prices for similar instruments in active markets (Level 2). In connection with the Sikorsky acquisition, we recorded the assets acquired...

  • Page 114
    ... fourth quarter of 2015 incorporates the results of Sikorsky from the November 6, 2015 acquisition date through December 31, 2015, including approximately $400 million in net sales and about $45 million in operating loss, inclusive of intangible amortization and adjustments required to account for...

  • Page 115
    ... in net sales and operating loss, respectively, for the year then ended. We will perform an assessment of the effectiveness of Sikorsky's internal control over financial reporting within one year of the date of acquisition. Our independent registered public accounting firm has issued a report on the...

  • Page 116
    ... with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Lockheed Martin Corporation as of December 31, 2015 and 2014, and the related consolidated statements of earnings, comprehensive income, stockholders' equity, and cash flows for...

  • Page 117
    ...12 related to our equity compensation plans that authorize the issuance of shares of Lockheed Martin common stock to employees and directors is included under the heading "Executive Compensation - Equity Compensation Plan Information" in the 2016 Proxy Statement, and that information is incorporated...

  • Page 118
    ... ...Consolidated Statements of Cash Flows - Years ended December 31, 2015, 2014 and 2013 ...Consolidated Statements of Stockholders' Equity - Years ended December 31, 2015, 2014 and 2013 ...Notes to Consolidated Financial Statements ... 67 68 69 70 71 72 The report of Lockheed Martin Corporation...

  • Page 119
    ... Martin Corporation, The Boeing Company and United Launch Alliance, L.L.C. (incorporated by reference to Exhibit 10.2 to Lockheed Martin Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (File No. 00111437)). Lockheed Martin Corporation Directors Deferred Stock Plan...

  • Page 120
    ...Performance Award Plan (incorporated by reference to Exhibit 10.39 of Lockheed Martin Corporation's Annual Report on Form 10-K for the year ended December 31, 2011 (File No. 001-11437)). Form of Restricted Stock Unit Award Agreement, Form of Long-Term Incentive Performance Award Agreement (2014-2016...

  • Page 121
    ...quarter ended June 28, 2015). Non-Employee Director Compensation Summary (incorporated by reference to Exhibit 10.1 to Lockheed Martin Corporation's Current Report on Form 8-K filed with the SEC on June 26, 2015). Form of Restricted Stock Unit Award Agreement, Form of Long-Term Incentive Performance...

  • Page 122
    ... by the undersigned, thereunto duly authorized. Lockheed Martin Corporation (Registrant) Date: February 24, 2016 By: Brian P. Colan Vice President, Controller, and Chief Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

  • Page 123
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  • Page 124
    ... the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer...

  • Page 125
    ... the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer...

  • Page 126
    ... with the Annual Report of Lockheed Martin Corporation (the "Corporation") on Form 10-K for the period ended December 31, 2015, as filed with the U.S. Securities and Exchange Commission on the date hereof (the "Report"), I, Marillyn A. Hewson, Chief Executive Officer of the Corporation, and I, Bruce...

  • Page 127
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  • Page 128
    ...Items Segment Operating Profit (Non-GAAP) Consolidated Operating Margin Segment Operating Margin (Non-GAAP) 2015 2014 $46,132 $45,600 $ $ 5,436 $ 5,592 $ (50) 4 $ 5,486 $ 5,588 $ 11.8% 12.3% 11.9% 12.3% 2013 45,358 4,505 (1,247) 5,752 9.9% 12.7% Free Cash Flow Lockheed Martin defines Free Cash Flow...

  • Page 129
    ... stock purchase and dividend reinvestment program available for new investors to make an initial investment in Lockheed Martin common stock and for existing stockholders to increase their holdings of Lockheed Martin common stock. For more information about Lockheed Martin Direct Invest, contact...

  • Page 130
    ... Drive Bethesda, MD 20817 www com The cov r rÄžƉƌŝŶt r, which coŶt st-c recy r r elemeŶt r F^Î D 30 % The F r tĞĚŽŶR K coŶt st-c recy r r rĞŶew gas ĞŶĞr EKLK'KÄ,ŶĚF^Î D PAPER CERTIFIED FOR REDUCED ENVIRONMENTAL IMPACT. VIEW SPECIFIC ATTRIBUTES...