Lockheed Martin Corporation
2020 Annual Report
FINANCIAL HIGHLIGHTS
In millions, except per share 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
2020
2018
$ 65,398 $ 59,812 $ 53,762
2019
7,152
6,574
5,877
8,644
8,545
7,334
6,888
6,230
5,046
6,833
6,230
5,046
24.50
21.95
17.59
24.30
21.95
17.59
Cash Dividends Per Common Share
Average Diluted Common Shares Outstanding
9.80
281
9.00
284
Cash and Cash Equivalents
$ 3,160 $ 1,514 $
8.20
287
772
Total Assets
Total Debt, net
Total Equity
Common Shares Outstanding at Year-End
50,710
47,528
44,876
12,169
12,654
14,104
6,038
3,171
1,449
279
280
281
Net Cash Provided by Operating Activities
$ 8,183 $ 7,311 $ 3,138
NOTE: For additional information regarding the amounts presented above, see the Form 10-K portion of this Annual
Report. A reconciliation of Segment Operating Profit to Consolidated Operating Profit is included on the page preceding
the back cover of this Annual Report.
Dear Fellow
Stockholders:
James D. Taiclet
Chairman, President and Chief Executive Officer
In 2020, Lockheed Martin demonstrated our agility, resilience, and resolve in the face of the year’s many and
varied geopolitical, business, and public health challenges. Through it all, we maintained the highest level
of focus on our customers’ missions. We also developed a new strategic vision to accelerate the adoption of
leading-edge network-centric technologies to help our nation and allies meet the heightened and evolving
threats of the 21st century.
With an elevated focus on interoperability and resilient connectivity, we made an impact in every domain –
from land and sea to air, space, and cyber. Our team produced integrated solutions in the areas of long-range
precision fires, air and missile defense, satellites, electronic warfare, and rotary- and fixed-wing aircraft. To
stay ahead of evolving threats, Lockheed Martin is partnering with our customers to unleash the full potential
of joint all-domain operations by leveraging advanced capabilities such as hypersonics and directed energy,
and emerging technologies such as artificial intelligence and 5G compatible edge compute nodes.
The dedication, innovation, and agility of the Lockheed Martin team led to strong strategic, operational, and
financial results – despite the impact of COVID-19.
From the beginning of the pandemic, we set clear priorities that guided us through the many challenges
that followed. We protected and prioritized the health and safety of our employees. We sustained our factory,
research, and engineering operations on a continuous basis and continued hiring in communities across
the U.S., welcoming more than 11,000 employees in 2020. As part of this effort, we accelerated approximately
$2.1 billion in payments to our suppliers and business partners in the fourth quarter that were due in 2021 to
ensure that our customers’ critical readiness and modernization programs continued to move forward. These
accelerated payments were critical in maintaining the viability of thousands of small and medium businesses –
especially those that were also adversely impacted by the slowdown in the commercial aviation sector.
FINANCIAL RESULTS
We are proud of the strong financial results we delivered in 2020, including:
•
Orders of $68.1 billion and a year-end backlog of $147.1 billion, an increase of $3.2 billion versus
year-end 2019
• Record cash from operations of approximately $8.2 billion
• Sales of $65.4 billion, up 9% versus 2019
• Segment operating profit* of $7.2 billion, up 9% versus 2019
• Segment margin* of 10.9%
• Net earnings from continuing operations of approximately $6.9 billion
• Diluted earnings per share from continuing operations of $24.50.
I
2020 Annual Report
We paid cash dividends of $2.8 billion and increased
the quarterly dividend by 8% in the third quarter
to $2.60 per share or $10.40 per share annually.
We also continued our share repurchase program,
purchasing 3.0 million shares for a total of
$1.1 billion.
INNOVATION ACROSS THE BUSINESS
Transforming Airpower for the 21st Century
Our Aeronautics business continues to be the gold
standard for airpower innovation.
Throughout 2020, the F-35 program reinforced
its maturity, global readiness, and cost efficiency.
Despite COVID-19 industry challenges that impacted
aircraft deliveries, the fifth-generation program
worked with our customers and partners to mitigate
risks brought on by this pandemic and continued to
achieve unmatched combat capability.
We finalized the Lot 14 production contract, adding
102 jets to the program and bringing the current
number of jets in our backlog to 356 aircraft.
The team added approximately $1 billion in
sustainment and development awards in the
second quarter alone.
In 2020, we delivered 120 F-35s. Though COVID-19
will have short-term impacts on production, the
F-35 program continues to work diligently and is
on track to meet the joint government and industry
recovery commitments over the coming years.
In total, the program has surpassed 600 aircraft
deliveries and more than 355,000 flight hours.
The F-35 continued to drive growth for the
corporation in 2020, with Poland and Singapore
joining the program and several additional
nations expressing interest. In November, the
U.S. government and Lockheed Martin submitted
a proposal to provide the Swiss government with
up to 40 F-35A aircraft in support of Switzerland’s
New Fighter Aircraft competition, worth up to
$10.4 billion.
In addition to the F-35, other programs across the
Aeronautics business scored wins in 2020. The U.S.
Air Force awarded Lockheed Martin Skunk Works®
a contract to enable a quantum leap into the future
for the U-2s. The contract includes the installation
of a new mission computer designed to the Air
II
Force’s open mission systems (OMS) standard,
positioning the U-2 to be the first fully compliant
OMS fleet able to integrate across all domains.
The U.S. Air Force also awarded us an indefinite-
delivery, indefinite-quantity (IDIQ) contract to
provide new F-16 aircraft to several international
customers. The contract is worth up to $62 billion
over 10 years, with the initial delivery valued at
$4.9 billion for 90 F-16s for two international allies.
In 2020, the F-16 backlog increased to 128 jets
across five nations.
The U.S. Air Force also awarded us two important
contracts for the C-130 program in 2020: a
10-year IDIQ worth up to $15 billion to support
the production and sustainment of C-130Js, and
an Indefinite Delivery Requirement for C-130J
sustainment services for international customers
worth up to $1.4 billion over 10 years.
Countering Adversaries with the Highest
Degree of Precision
In 2020, our Missiles and Fire Control business
continued to develop and implement game-
changing technologies to support our customers
and protect citizens.
Following its first test flight in 2019, our next-
generation, long-range missile designed for the
U.S. Army’s Precision Strike Missile (PrSM) program
performed flawlessly in its second and third flight
demonstrations in March and April, respectively.
One of the Army’s top modernization priorities,
the precision-strike, surface-to-surface weapon
system will deliver enhanced capabilities for
attacking, neutralizing, and destroying targets
on the battlefield.
In February, the U.S. Army awarded Missiles and
Fire Control a more than $1 billion contract to
produce Guided Multiple Launch Rocket Systems
(GMLRS) for the U.S. and its allies. In addition, the
U.S. Air Force awarded us an $824 million contract
for the production of Joint Air-to-Surface Standoff
Missile (JASSM) Lots 17 and 18. This latest contract
validates our customers’ view of JASSM as a
reliable, stealthy, and affordable cruise missile
for their arsenals.
In April, we were awarded a contract valued at
more than $6 billion to supply PAC-3 Missile
Segment Enhancement interceptors, launcher
Lockheed Martin Corporation modification kits, and associated equipment
to support the United States and international
customers. Earlier in the year, we received a
contract award to provide THAAD interceptors and
equipment to the U.S. Army and the Kingdom of
Saudi Arabia valued at nearly $933 million.
Alongside our U.S. Air Force customers, we
completed successful captive-carry flight tests
of the hypersonic AGM-183A Air-Launched Rapid
Response Weapon (ARRW), which will serve as
a precursor for additional testing in the next
two years.
Missiles and Fire Control marked other significant
milestones in 2020. The U.S. Department of Defense
awarded us a $485 million IDIQ contract to rapidly
deploy fixed wing sensor capabilities to the U.S. and
its allies. In June, the team delivered the 500th APG-
78 LONGBOW Fire Control Radar (FCR) for the AH-
64 Apache helicopter, which further demonstrates
our commitment to maturing our capabilities in
support of customer needs.
And the U.S. Army awarded us approximately $200
million in contracts to produce 28 High Mobility
Artillery Rocket System (HIMARS) launchers and
associated hardware. The team also celebrated the
delivery of the 500th HIMARS in September.
Redefining the Future of Vertical Lift and
Providing Unparalleled Mission Support
Last year, our Rotary and Mission Systems business
made significant progress toward fulfilling our
customers’ visions across multiple domains.
The U.S. Army selected our transformative X2
Technology to continue in the competition for the
Future Long-Range Assault Aircraft (FLRAA) and
the Future Attack Reconnaissance Aircraft
(FARA) programs.
Rotary and Mission Systems started the year
strong, booking several significant contracts.
Sikorsky led the way with contracts such as a $2
billion Performance-Based Logistics contract for
sustainment services on the MH-60 SEAHAWK®
platform for the U.S. Navy and $500 million for the
second Low-Rate Initial Production (LRIP) lot of
12 Combat Rescue Helicopters. Sikorsky was also
awarded $470 million for the second LRIP lot of
presidential helicopters, bringing the program of
record to 23 rotary-wing aircraft.
Sikorsky also made progress growing
internationally. In February, the Indian government
signed an official letter of acceptance for 24 MH-60R
SEAHAWK® helicopters. This was followed by an
agreement with Greece to purchase four MH-60R
SEAHAWK helicopters. These two awards make
India and Greece the fourth and fifth international
countries to buy the MH-60R helicopter, joining
Australia, Denmark, and Saudi Arabia. With more
than $1 billion in orders, the helicopters will
provide India and Greece with maritime anti-
surface and anti-submarine warfare capabilities,
as well as cargo, utility, and search-and-rescue
mission support.
In June, the Sikorsky CH-53K King Stallion
heavy-lift helicopter successfully completed sea
trials over the Atlantic Ocean. Over a two-week
period, the aircraft executed 364 ship landings and
take-offs from all nine deck spots during tests to
evaluate the performance of the aircraft at sea.
In May, our Spectrum Convergence team signed
a contract for the U.S. Army’s Terrestrial Layer
System-Large program, the service’s first
integrated signals intelligence, electronic warfare,
and cyber platform. As one of two companies
selected, we will integrate our solution onto three
Army ground vehicles over the next 15 months.
This award demonstrates our unmatched
commitment to ensuring our customer achieves
their vision of electromagnetic spectrum dominance
and a network-centric operating paradigm.
The U.S. Space Force declared Initial Operational
Capability for Space Fence, a state-of-the-art radar
system that is now providing unprecedented space
domain awareness to our warfighters. Over the
duration of the program, more than 2,000 Rotary
and Mission Systems employees – some of whom
relocated to the remote Kwajalein Atoll – worked to
develop and deliver this vital capability designed to
detect, monitor, and characterize objects in space
that are as small as a marble.
Rotary and Mission Systems earned a $519 million
contract to outfit the Spanish Navy’s new F-110
frigates with Aegis Combat Systems and SPY-7
radars, reflecting the maturity and capability of
our digital solid-state radar technology.
III
2020 Annual Report
Innovating Capabilities from Low-Earth Orbit
to the Outer Reaches of Space
Our Space business made tremendous progress
this year to support our customers’ global missions
– both here on Earth and beyond – as well as to
advance our ability to integrate our space assets
and capabilities into the network-centric model of
the future.
Early in the year, the sixth and final Lockheed
Martin-built Advanced Extremely High Frequency
(AEHF) satellite launched. Notably, the satellite
was the first in orbit for the newly formed U.S.
Space Force. The AEHF protected communications
constellation provides global connectivity across
ground, sea, and air platforms for the U.S. and
international partners including Australia, Canada,
the Netherlands, and the United Kingdom.
We successfully launched the first Mobile Satellite
Service (MSS) communications satellite, the
JCSAT-17, which was built on the new LM 2100TM
platform. The JCSAT-17 includes more than 25
innovations that increase power, flexibility, and
versatility in orbit. The Space team also launched
the Pony Express 1 mission, the first smart satellite
that enables space mesh networking, artificial
intelligence, and data analytics.
Space was selected as one of three teams that will
continue development of NASA’s commercial lunar
Human Landing System. As part of the Blue Origin
National Team, we are designing the crewed ascent
model that NASA will evaluate after a 10-month
development period. The landers will be used in
the Artemis program, which will return astronauts
to the moon.
The Space Development Agency awarded our team
one of two contracts for approximately $200 million
to develop initial data transport capabilities for
the first generation of the National Defense Space
Architecture. This contract represents an exciting
opportunity to bring high-tech platforms together
into one cohesive network spanning domains, which
will provide unmatched situational awareness when
powered with 5G technology.
More than 200 million miles from Earth, the
Lockheed Martin-built OSIRIS-REx spacecraft
contacted the surface of the asteroid Bennu and
successfully collected a sample with its Touch-and-
IV
Go Sample Acquisition Mechanism. This maneuver
was the first time NASA has attempted to collect
material from an asteroid. OSIRIS-REx will start its
more than two-year return journey to Earth in the
spring of 2021, landing in 2023.
SEEKING TO BOLDLY DEFINE A NEW
NETWORK-CENTRIC FUTURE
Our commitment to innovation led to advances that
will define the future of defense and deterrence in
the 21st century.
We are making investments to deliver the joint
all-domain operations, autonomy, hypersonics,
and artificial intelligence needed by our customers
in an increasingly volatile and unpredictable
threat environment.
Lockheed Martin products and people participated
in several activities in 2020 related to joint all-
domain operations, including a July Orange
Flag Evaluation that demonstrated the F-35’s
data sharing capabilities through the Lockheed
Martin Airborne Sensor Adaptation Kit (A-Kit) to
enhance joint command and control systems.
This demonstration validated the F-35’s capability
to operate as a powerful airborne sensor, helping
make seamless interoperability across multiple
defense platforms. In September, Lockheed Martin
participated in Valiant Shield, a biennial exercise
led by U.S. Indo-Pacific Command. The exercise
included and integrated elements of the Army,
Navy, Air Force, and Marines. In partnering with
our customers, Lockheed Martin helped
demonstrate how non-traditional assets can
serve as force multipliers to achieve joint all-
domain operations.
To enhance our capabilities to take on the world’s
most complex problems, we also made strategic
investments to augment our portfolio of talent and
technologies, including capital expenditures of
$1.8 billion and $1.3 billion in independent research
and development. And in November, Lockheed
Martin completed its acquisition of the hypersonics
portfolio of Integration Innovation Inc. (i3), a
software and systems engineering company that
will expand our ability to design, develop, and
produce integrated hypersonic technologies.
Lockheed Martin Corporation In December, we announced we have entered into a
definitive agreement to acquire Aerojet Rocketdyne
Holdings, Inc., a world-recognized aerospace and
defense rocket engine manufacturer. If approved
by the government, the acquisition will join our
complementary capabilities and enable substantial
growth in areas including hypersonics, tactical
missiles, integrated air and missile defense,
strategic systems, and space exploration by
owning a key component of our supply chain.
In the coming years, we will continue to seek to
reduce costs for our customers by harnessing the
power of digital transformation and fundamentally
changing the ways we develop, build, and sustain
the innovative technologies needed in the
21st century.
THE VALUES BEHIND OUR SUCCESS
Our successes in 2020 are a tribute to the dedication
of the 114,000 men and women of Lockheed Martin
and the values that unite us – to do what’s right, to
respect others, and to perform with excellence.
In the face of extraordinary challenges, our
employees responded with energy, ingenuity, and
integrity to remain focused on the mission, deliver
on our commitments, and make a positive difference
in the world. Our company’s financial strength and
stability enabled us to make nearly $45 million in
charitable contributions to cultivate the future STEM
workforce, support military families and veterans,
and stand with communities trying to alleviate the
educational, food and health challenges of COVID-19.
As a company, we will remember 2020 for our
success in adapting to and overcoming the
challenges brought by the global pandemic. And
this year, we are resolved to continue providing
innovative, affordable, and practical solutions in
every domain, while also protecting the health and
safety of our workforce. Lockheed Martin is well-
positioned to build a brighter future by protecting
lives, advancing scientific discovery, and promoting
progress around the world.
James D. Taiclet
Chairman, President and
Chief Executive Officer
* This letter includes references to segment operating profit and segment margin, 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. As non-
GAAP financial measures are not intended to be considered in isolation or as a substitute for GAAP financial measures, you should carefully read the
Form 10-K included in this Annual Report, which includes our consolidated financial statements prepared in accordance with GAAP. Additionally, this
letter includes 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 Lockheed Martin’s current expectations and assumptions. For a discussion identifying important factors
that could cause actual results to differ materially from those anticipated in the forward-looking statements, see the corporation’s filings with the
Securities and Exchange Commission, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk
Factors” in the Form 10-K portion of this Annual Report.
V
2020 Annual Report CORPORATE DIRECTORY
(As of March 1, 2021)
BOARD OF DIRECTORS
Daniel F. Akerson
Retired Chairman and
Chief Executive Officer
General Motors Company
David B. Burritt
President and
Chief Executive Officer
United States Steel Corporation
Bruce A. Carlson
Retired General
United States Air Force
Joseph F. Dunford, Jr.
Retired General
United States Marine Corps
James O. Ellis, Jr.
Retired President and
Chief Executive Officer
Institute of Nuclear Power
Operations
Thomas J. Falk
Retired Chairman and
Chief Executive Officer
Kimberly-Clark Corporation
Ilene S. Gordon
Retired Chairman and
Chief Executive Officer
Ingredion Incorporated
Vicki A. Hollub
President and
Chief Executive Officer
Occidental Petroleum Corporation
Jeh C. Johnson
Partner
Paul, Weiss, Rifkind,
Wharton & Garrison LLP and
Former Secretary of Homeland
Security
Debra L. Reed-Klages
Retired Chairman, President and
Chief Executive Officer
Sempra Energy
James D. Taiclet
Chairman, President and
Chief Executive Officer
Lockheed Martin Corporation
EXECUTIVE OFFICERS
Richard F. Ambrose
Executive Vice President
Space
Stephanie C. Hill
Executive Vice President
Rotary & Mission Systems
Brian P. Colan
Vice President, Controller
and Chief Accounting Officer
Scott T. Greene
Executive Vice President
Missiles and Fire Control
Maryanne R. Lavan
Senior Vice President,
General Counsel and
Corporate Secretary
John W. Mollard
Vice President and Treasurer
Kenneth R. Possenriede
Chief Financial Officer
Frank A. St. John
Chief Operating Officer
James D. Taiclet
Chairman, President and
Chief Executive Officer
Gregory M. Ulmer
Executive Vice President
Aeronautics
VI
Lockheed Martin Corporation UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 1-11437
LOCKHEED MARTIN CORPORATION
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
6801 Rockledge Drive,
Bethesda,
Maryland
(Address of principal executive offices)
52-1893632
(I.R.S. Employer Identification No.)
20817
(Zip Code)
(301) 897-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $1 par value
Trading Symbol
LMT
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non–accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant computed by reference to the last sales price of such
stock, as of the last business day of the registrant’s most recently completed second fiscal quarter, which was June 26, 2020, was approximately $99.3 billion.
There were 280,103,431 shares of our common stock, $1 par value per share, outstanding as of January 22, 2021.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Lockheed Martin Corporation’s 2021 Definitive Proxy Statement are incorporated by reference into Part III of this Form 10‑K. The 2021 Definitive
Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.
Lockheed Martin Corporation
Form 10-K
For the Year Ended December 31, 2020
Table of Contents
PART I
Page
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 4(a).
Business.................................................................................................................................................
Risk Factors............................................................................................................................................
Unresolved Staff Comments..................................................................................................................
Properties...............................................................................................................................................
Legal Proceedings..................................................................................................................................
Mine Safety Disclosures........................................................................................................................
Information about our Executive Officers.............................................................................................
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
ITEM 16.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities....................................................................................................................................
Selected Financial Data..........................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations................
Quantitative and Qualitative Disclosures About Market Risk...............................................................
Financial Statements and Supplementary Data......................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................
Controls and Procedures........................................................................................................................
Other Information...................................................................................................................................
Directors, Executive Officers and Corporate Governance.....................................................................
Executive Compensation........................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters...................................................................................................................................................
Certain Relationships and Related Transactions, and Director Independence.......................................
Principal Accounting Fees and Services................................................................................................
Exhibits and Financial Statement Schedules..........................................................................................
Form 10-K Summary.............................................................................................................................
SIGNATURES....................................................................................................................................................................
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10
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24
25
25
26
28
30
32
63
64
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107
109
109
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115
ITEM 1.
Business
General
PART I
We are a global security and aerospace company principally engaged in the research, design, development, manufacture,
integration and sustainment of advanced technology systems, products and services. We also provide a broad range of
management, engineering, technical, scientific, logistics, system integration and cybersecurity services. We serve both U.S. and
international customers with products and services that have defense, civil and commercial applications, with our principal
customers being agencies of the U.S. Government. In 2020, 74% of our $65.4 billion in net sales were from the U.S.
Government, either as a prime contractor or as a subcontractor (including 64% from the Department of Defense (DoD)), 25%
were from international customers (including foreign military sales (FMS) contracted through the U.S. Government) and 1%
were from U.S. commercial and other customers. Our main areas of focus are in defense, space, intelligence, homeland security
and information technology, including cybersecurity.
We operate in an environment characterized by both complexity in global security and continuing economic pressures in
the U.S. and globally. A significant component of our strategy in this environment is to focus on program execution, improving
the quality and predictability of the delivery of our products and services, and placing security capability quickly into the hands
of our U.S. and international customers at affordable prices. Recognizing that our customers are resource constrained, we are
endeavoring to develop and extend our portfolio domestically in a disciplined manner with a focus on adjacent markets close to
our core capabilities, as well as growing our international sales. We continue to focus on affordability initiatives. We also
expect to continue to innovate and invest in technologies to fulfill new mission requirements for our customers, including
through acquisitions, and invest in our people so that we have the technical skills necessary to succeed.
We operate in four business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS)
and Space. We organize our business segments based on the nature of the products and services offered.
Strategic Action
On December 20, 2020, we entered into an agreement to acquire Aerojet Rocketdyne Holdings, Inc. (Aerojet Rocketdyne).
We currently expect the transaction to close in the second half of 2021, subject to the satisfaction of customary closing
conditions, including regulatory approvals and approval by Aerojet Rocketdyne’s stockholders. For more information regarding
the proposed transaction, see Management’s Discussion and Analysis of Financial Condition and Results of Operations,
Note 2 – Strategic Action included in our Consolidated Financial Statements and Item 1A - Risk Factors.
Aeronautics
In 2020, our Aeronautics business segment generated net sales of $26.3 billion, which represented 40% of our total
consolidated net sales. Aeronautics’ customers include the military services, principally the U.S. Air Force and U.S. Navy, and
various other government agencies of the U.S. and other countries, as well as commercial and other customers. In 2020, U.S.
Government customers accounted for 69% and international customers accounted for 31% of Aeronautics’ net sales. Net sales
from Aeronautics’ combat aircraft products and services represented 33% of our total consolidated net sales in 2020 and 32% in
both 2019 and 2018.
Aeronautics 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:
•
•
•
•
F-35 Lightning II Joint Strike Fighter - international multi-role, multi-variant, fifth generation stealth fighter;
C-130 Hercules - international tactical airlifter;
F-16 Fighting Falcon - low-cost, combat-proven, international multi-role fighter; and
F-22 Raptor - air dominance and multi-role fifth generation stealth fighter.
The F-35 program is our largest program, generating 28% of our total consolidated net sales, as well as 69% of
Aeronautics’ net sales in 2020. The F-35 program consists of multiple development, production and sustainment contracts.
Development is focused on modernization of F-35’s capability and addressing emerging threats. Sustainment provides logistics
and training support for the aircraft delivered to F-35 customers.
Production of the aircraft is expected to continue for many years given the U.S. Government’s current inventory objective
of 2,456 aircraft for the U.S. Air Force, U.S. Marine Corps and U.S. Navy; commitments from our seven international partner
countries and six international customers; as well as expressions of interest from other countries. In 2020, we delivered
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120 aircraft, including 46 to international customers, resulting in total deliveries of 611 production aircraft since program
inception. This was a decrease from 134 aircraft delivered in the year ended December 31, 2019 due to the impacts of
coronavirus disease 2019 (COVID-19) on the F-35 production rate in 2020 and we expect the production rate in 2021 to
continue to be impacted by COVID-19. We have 356 production aircraft in backlog as of December 31, 2020, including orders
from our international partner countries. For additional information on the F-35 program, see “Status of the F‑35 Program” in
Management’s Discussion and Analysis of Financial Condition and Results of Operations. See also Item 1A - Risk Factors for a
discussion of risks related to the F-35 program.
Aeronautics produces and provides support and sustainment services for the C-130J Super Hercules, as well as upgrades
and support services for the legacy C-130 Hercules worldwide fleet. We delivered 22 C-130J aircraft in 2020. We have 87
aircraft in our backlog as of December 31, 2020. Our C-130J backlog extends into 2025.
Aeronautics produces F-16 aircraft for international customers and continues to provide service-life extension,
modernization and other upgrade programs for our customers’ F‑16 aircraft, with existing contracts continuing for several
years. In 2020, the U.S. Government awarded contracts for new production F-16 Block 70/72 aircraft for Taiwan (66 aircraft)
and Bulgaria (8 aircraft). As of December 31, 2020, we have 128 F-16 aircraft in backlog. We continue to seek international
opportunities to deliver additional aircraft.
Aeronautics continues to provide modernization and sustainment activities for the U.S. Air Force’s F-22 aircraft fleet. The
modernization program comprises upgrading existing systems requirements, developing new systems requirements, adding
capabilities and enhancing the performance of the weapon systems. The sustainment program consists of sustaining the weapon
systems of the F-22 fleet, providing training systems, customer support, integrated support planning, supply chain management,
aircraft modifications and heavy maintenance, systems engineering and support products.
In addition to the aircraft programs discussed above, Aeronautics is involved in advanced development programs
incorporating innovative design and rapid prototype applications. Our Advanced Development Programs (ADP) organization,
also known as Skunk Works®, is focused on future systems, including unmanned and manned aerial systems and next
generation capabilities for hypersonics, intelligence, surveillance, reconnaissance, situational awareness and air mobility. We
continue to explore technology advancement and insertion into our existing aircraft. We also are involved in numerous
network-enabled activities that allow separate systems to work together to increase effectiveness and we continue to invest in
new technologies to maintain and enhance competitiveness in military aircraft design, development and production.
Missiles and Fire Control
In 2020, our MFC business segment generated net sales of $11.3 billion, which represented 17% of our total consolidated
net sales. MFC’s customers include the military services, principally the U.S. Army, and various government agencies of the
U.S. and other countries, as well as commercial and other customers. In 2020, U.S. Government customers accounted for 75%
and international customers accounted for 25% of MFC’s net sales.
MFC provides air and missile defense systems; tactical missiles and air-to-ground precision strike weapon systems;
logistics; fire control systems; mission operations support, readiness, engineering support and integration services; manned and
unmanned ground vehicles; and energy management solutions. MFC also has contracts with the U.S. Government for various
classified programs. MFC’s major programs include:
•
•
•
The Patriot Advanced Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD) air and missile defense
programs. PAC-3 is an advanced defensive missile for the U.S. Army and international customers designed to intercept and
eliminate incoming airborne threats using kinetic energy. THAAD is a transportable defensive missile system for the U.S.
Government and international customers designed to engage targets both within and outside of the Earth’s atmosphere.
The Multiple Launch Rocket System (MLRS), Hellfire, Joint Air-to-Surface Standoff Missile (JASSM) and Javelin tactical
missile programs. MLRS is a highly mobile, automatic system that fires surface-to-surface rockets and missiles from the
M270 and High Mobility Artillery Rocket System platforms produced for the U.S. Army and international customers.
Hellfire is an air-to-ground missile used on rotary and fixed-wing aircraft, which is produced for the U.S. Army, Navy,
Marine Corps and international customers. JASSM is an air-to-ground missile launched from fixed-wing aircraft, which is
produced for the U.S. Air Force and international customers. Javelin is a shoulder-fired anti-armor rocket system, which is
produced for the U.S. Army, Marine Corps and international customers.
The Apache, Sniper Advanced Targeting Pod (SNIPER®) and Infrared Search and Track (IRST21®) fire control systems
programs. The Apache fire control system provides weapons targeting capability for the Apache helicopter for the U.S.
Army and international customers. SNIPER is a targeting system for several fixed-wing aircraft and is produced for the
U.S. Air Force and international customers. IRST21 provides long-range infrared detection and tracking of airborne threats
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and is used on several fixed-wing aircraft. IRST21 is produced for the U.S. Air Force, the U.S. Navy, the National Guard
and international customers.
The Special Operations Forces Global Logistics Support Services (SOF GLSS) program, which provides logistics support
services to the special operations forces of the U.S. military.
Hypersonics programs, which include several programs with the U.S. Air Force and U.S. Army to design, develop and
build hypersonic strike weapons.
•
•
Rotary and Mission Systems
In 2020, our RMS business segment generated net sales of $16.0 billion, which represented 25% of our total consolidated
net sales. RMS’ customers include the military services, principally the U.S. Navy and Army, and various government agencies
of the U.S. and other countries, as well as commercial and other customers. In 2020, U.S. Government customers accounted for
72%, international customers accounted for 25% and U.S. commercial and other customers accounted for 3% of RMS’ net
sales. Net sales from RMS’ Sikorsky helicopter programs represented 9% of our consolidated net sales in 2020 and 2019, and
10% in 2018.
RMS designs, manufactures, services and supports various military and commercial helicopters, surface ships, sea and
land-based missile defense systems, radar systems, sea and air-based mission and combat systems, command and control
mission solutions, cyber solutions, and simulation and training solutions. RMS’ major programs include:
•
•
•
•
Integrated warfare systems and sensors (IWSS) programs such as Aegis Combat System (Aegis) programs that serve as an
air and missile defense system for the U.S. Navy and international customers and is also a sea and land-based element of
the U.S. missile defense system, and the Littoral Combat Ship (LCS) and Multi-Mission Surface Combatant (MMSC)
programs to provide surface combatant ships for the U.S. Navy and international customers that are designed to operate in
shallow waters and the open ocean.
Sikorsky programs such as those related to the Black Hawk® and Seahawk® helicopters which are in service with U.S. and
foreign governments, the CH-53K King Stallion heavy lift helicopter serving the U.S. Marine Corps, the Combat Rescue
Helicopter (CRH) utilized by the U.S. Air Force, and the VH-92A helicopter for the U.S. Marine One transport mission.
Command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance
(C6ISR) programs such as the Command, Control, Battle Management and Communications (C2BMC) program to provide
an air operations center for the Ballistic Missile Defense System for the U.S. Government, and undersea combat systems
programs largely serving the U.S. Navy.
Training and logistics solutions (TLS) programs such as those providing sustainment services and programs that provide
simulators and associated training to U.S. military and foreign government customers.
Space
In 2020, our Space business segment generated net sales of $11.9 billion, which represented 18% of our total consolidated
net sales. Space’s customers include the U.S. Air Force, U.S. Navy and various government agencies of the U.S. and other
countries along with commercial customers. In 2020, U.S. Government customers accounted for 87% and international
customers accounted for 13% of Space’s net sales. Net sales from Space’s satellite products and services represented 11% of
our total consolidated net sales in 2020, 2019 and 2018.
Space is engaged in the research, design, development, engineering and production of satellites, space transportation
systems, and strategic, advanced strike, and defensive systems. Space provides network-enabled situational awareness and
integrates complex space and ground global systems to help our customers gather, analyze and securely distribute critical
intelligence data. Space is also responsible for various classified systems and services in support of vital national security
systems. Space’s major programs include:
•
•
•
The Trident II D5 Fleet Ballistic Missile (FBM), a program with the U.S. Navy for the only submarine-launched
intercontinental ballistic missile currently in production in the U.S.
The Space Based Infrared System (SBIRS) and Next Generation Overhead Persistent Infrared (Next Gen OPIR) system
programs, which provide the U.S. Air Force with enhanced worldwide missile warning capabilities.
The Orion Multi-Purpose Crew Vehicle (Orion), a spacecraft for the National Aeronautics and Space Administration
(NASA) utilizing new technology for human exploration missions beyond low earth orbit.
• Global Positioning System (GPS) III, a program to modernize the GPS satellite system for the U.S. Air Force.
• Hypersonics programs, which include several programs with the U.S. Army and U.S. Navy to design, develop and build
•
hypersonic strike weapons.
The Advanced Extremely High Frequency (AEHF) system, the next generation of highly secure communications satellites
for the U.S. Air Force.
5
•
The United Kingdom’s (UK) nuclear deterrent program operated by the AWE Management Limited (AWE) joint venture.
On November 2, 2020, the UK Ministry of Defense (MOD) announced its intention to re-nationalize the program on June
30, 2021.
Competition
Our broad portfolio of products and services competes both domestically and internationally against products and services
of other large aerospace and defense companies, numerous smaller competitors and, increasingly, non-traditional defense
contractors. Changes within the industry we operate in, such as vertical integration by our peers, could negatively impact us.
We often form teams with our competitors in efforts to provide our customers with the best mix of capabilities to address
specific requirements. In some areas of our business, customer requirements are changing to encourage expanded competition.
Principal factors of competition include the value of our products and services to the customer; technical and management
capability; the ability to develop and implement complex, integrated system architectures; total cost of ownership; our
demonstrated ability to execute and perform against contract requirements; and our ability to provide timely and cost effective
solutions. Technological advances in such areas as additive manufacturing, data analytics, digital engineering, artificial
intelligence, advanced materials, autonomy and robotics, and new business models such as commercial access to space are
enabling new factors of competition for both traditional and non-traditional competitors.
The competition for international sales is generally subject to U.S. Government stipulations (e.g., export restrictions,
market access, technology transfer, industrial cooperation and contracting practices). We may compete against U.S. and non-
U.S. companies (or teams) for contract awards by international governments. International competitions also may be subject to
different laws or contracting practices of international governments that may affect how we structure our bid for the
procurement. In many international procurements, the purchasing government’s relationship with the U.S. and its industrial
cooperation programs are important factors in determining the outcome of a competition. It is common for international
customers to require contractors to comply with their industrial cooperation regulations, sometimes referred to as offset
requirements, and we have entered into foreign offset agreements as part of securing some international business. For more
information concerning offset agreements, see “Contractual Commitments and Off-Balance Sheet Arrangements” in
Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 1A - Risk Factors.
Intellectual Property
We routinely apply for and own a substantial number of U.S. and foreign patents and trademarks related to the products
and services we provide. In addition to owning a large portfolio of patents and trademarks, we develop and own other
intellectual property, including copyrights, trade secrets and research, development and engineering know-how, which
contribute significantly to our business. We also license intellectual property to and from third parties. The Federal Acquisition
Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS) provide that the U.S. Government
obtains certain rights in intellectual property, including patents, developed by us and our subcontractors and suppliers in
performance of government contracts or with government funding. The U.S. Government may use or authorize others,
including competitors, to use such intellectual property. See the discussion of matters related to our intellectual property within
Item 1A - Risk Factors. Non-U.S. governments may also have certain rights in patents and other intellectual property developed
in performance of our contracts for them. Although our intellectual property rights in the aggregate are important to the
operation of our business, we do not believe that any existing patent, license or other intellectual property right is of such
importance that its loss or termination would have a material adverse effect on our business taken as a whole.
Raw Materials, Suppliers and Seasonality
Some of our products require relatively scarce raw materials. Historically, we have been successful in obtaining the raw
materials and other supplies needed in our manufacturing processes. We seek to manage raw materials supply risk through
long-term contracts and by maintaining an acceptable level of the key materials in inventories.
Aluminum and titanium are important raw materials used in certain of our Aeronautics and Space programs. Long-term
agreements have helped enable a continued supply of aluminum and titanium. Carbon fiber is an important ingredient in
composite materials used in our Aeronautics programs, such as the F-35 aircraft. We have been advised by some suppliers that
pricing and the timing of availability of materials in some commodities markets can fluctuate widely. These fluctuations may
negatively affect the price and availability of certain materials. While we do not anticipate material problems regarding the
supply of our raw materials and believe that we have taken appropriate measures to mitigate these variations, if key materials
become unavailable or if pricing fluctuates widely in the future, it could result in delay of one or more of our programs,
increased costs or reduced operating profits or cash flows.
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We rely on other companies to provide materials, major components and products, and to perform a portion of the services
that are provided to our customers under the terms of most of our contracts. A failure by one or more of these suppliers or
subcontractors to provide the agreed-upon supplies or perform the agreed-upon services on a timely basis, according to
specifications, or at all, may affect our ability to perform our obligations. While we believe we have taken appropriate measures
to mitigate these risks, supplier disruptions, including as a result of COVID-19, could result in delays, increased costs, or
reduced operating profits or cash flows. For more information on the risks related to our suppliers and raw materials, see
Item 1A. Risk Factors.
No material portion of our business is considered to be seasonal. Various factors can affect the distribution of our sales
between accounting periods, including the timing of government awards, the availability of government funding, product
deliveries and customer acceptance.
Government Contracts and Regulations
Our business is heavily regulated. We contract with numerous U.S. Government agencies and entities, principally all
branches of the U.S. military and NASA. We also contract with similar government authorities in other countries and they
regulate our non-FMS international sales. Additionally, our commercial aircraft products are required to comply with U.S. and
international regulations governing production and quality systems, airworthiness and installation approvals, repair procedures
and continuing operational safety.
We must comply with, and are affected by, laws and regulations relating to the formation, administration and performance
of U.S. Government and other governments’ contracts, including foreign governments. These laws and regulations, among
other things:
•
•
•
•
•
require certification and disclosure of all cost or pricing data in connection with certain types of contract negotiations;
impose specific and unique cost accounting practices that may differ from U.S. generally accepted accounting principles
(GAAP);
impose acquisition regulations, which may change or be replaced over time, that define which costs can be charged to the
U.S. Government, how and when costs can be charged, and otherwise govern our right to reimbursement under certain U.S.
Government and foreign contracts;
require specific security controls to protect U.S. Government controlled unclassified information and restrict the use and
dissemination of information classified for national security purposes and the export of certain products, services and
technical data; and compliance with cyber security regulations by our supply chain; 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; (v) Material Management and Accounting System, for planning, controlling
and accounting for the acquisition, use, issuing and disposition of material; and (vi) Property Management System.
The U.S. Government and other governments may terminate any of our government contracts and subcontracts either at its
convenience or for default based on our performance. If a contract is terminated for convenience, we generally are protected by
provisions covering reimbursement for costs incurred on the contract and profit on those costs. If a contract is terminated for
default, we generally are entitled to payments for our work that has been accepted by the U.S. Government or other
governments; however, the U.S. Government and other governments could make claims to reduce the contract value or recover
its procurement costs and could assess other special penalties. For more information regarding the U.S. Government’s and other
governments’ right to terminate our contracts, see Item 1A - Risk Factors. For more information regarding government
contracting laws and regulations, see Item 1A - Risk Factors as well as “Critical Accounting Policies - Contract Accounting /
Sales Recognition” in Management’s Discussion and Analysis of Financial Condition and Results of Operations. For more
information on the risks of doing work internationally, see Item 1A - Risk Factors.
Additionally, our programs for the U.S. Government often operate for periods of time under undefinitized contract actions
(UCAs), which means that we begin performing our obligations before the terms, specifications or price are finally agreed to
between the parties. Although in most cases we historically have reached mutual agreement to definitize our UCAs, the U.S.
Government has the ability to unilaterally definitize contracts and has done so in the past. Absent a successful appeal of such
action, the unilateral definitization of the contract obligates us to perform under terms and conditions imposed by the U.S.
Government. The U.S. Government’s power to unilaterally definitize a contract can affect our ability to negotiate mutually
agreeable contract terms and, if a contract is unilaterally imposed upon us, it may negatively affect our expected profit and cash
flows on a program or impose burdensome terms.
A portion of our business is classified by the U.S. Government and cannot be specifically described. The operating results
of these classified contracts are included in our consolidated financial statements. The business risks and capital requirements
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associated with classified contracts historically have not differed materially from those of our other U.S. Government contracts.
Our internal controls addressing the financial reporting of classified contracts are consistent with our internal controls for our
non-classified contracts.
Our operations are subject to and affected by various federal, state, local and foreign environmental protection laws and
regulations regarding the discharge of materials into the environment or otherwise regulating the protection of the environment.
While the extent of our financial exposure cannot in all cases be reasonably estimated, the costs of environmental compliance
have not had, and we do not expect that these costs will have, a material adverse effect on our earnings, financial position and
cash flow, primarily because substantially all of our environmental costs are allowable in establishing the price of our products
and services under our contracts with the U.S. Government. For information regarding these matters, including current
estimates of the amounts that we believe are required for remediation or cleanup to the extent that they are probable and
estimable, see “Critical Accounting Policies - Environmental Matters” in Management’s Discussion and Analysis of Financial
Condition and Results of Operations and “Note 15 – Legal Proceedings, Commitments and Contingencies” included in our
Notes to Consolidated Financial Statements. See also the discussion of environmental matters within Item 1A - Risk Factors.
Research and Development
We conduct research and development (R&D) activities using our own funds (referred to as company-funded R&D or
independent research and development (IR&D)) and under contractual arrangements with our customers (referred to as
customer-funded R&D) to enhance existing products and services and to develop future technologies. R&D costs include basic
research, applied research, concept formulation studies, design, development, and related test activities. See “Note 1 –
Significant Accounting Policies” (under the caption “Research and development and similar costs”) included in our Notes to
Consolidated Financial Statements.
Human Capital Resources
Due to the specialized nature of our business, our performance depends on identifying, attracting, developing, motivating,
and retaining a highly skilled workforce in multiple areas, including engineering, science, manufacturing, information
technology, cybersecurity, business development and strategy and management. Our human capital management strategy,
which we refer to as our people strategy, is tightly aligned with our business needs and technology strategy. During 2020, our
human capital efforts were focused on accelerating the transformation of our technology for workforce management through
investments in upgraded systems and processes, and continuing to increase our agility to meet the quickly changing needs of the
business, considering the challenges of the global pandemic and social and political unrest. We use a variety of human capital
measures in managing our business, including: workforce demographics; diversity metrics with respect to representation,
attrition, hiring, promotions and leadership; and talent management metrics including retention rates of top talent and hiring
metrics.
Workforce Demographics
As of December 31, 2020, we had a highly skilled workforce made up of approximately 114,000 employees, including
approximately 60,000 engineers, scientists and information technology professionals. As of December 31, 2020, approximately
93% of our workforce was located in the U.S. and approximately 20% of our employees are covered by collective bargaining
agreements with various unions. A number of our existing collective bargaining agreements expire in any given year.
Historically, we have been successful in negotiating renewals to expiring agreements without any material disruption of
operating activities, and management considers employee relations to be good.
Diversity and Inclusion
Diversity and inclusion is a business imperative for us, as we believe that it is key to our future success. We have focused
our diversity and inclusion initiatives on employee recruitment, including investments in minority-serving institutions and
outreach, employee training and development, such as efforts focused on expanding the diverse talent pipeline, and employee
engagement, including through participation in our employee Business Resource Groups. Our Business Resource Groups are
voluntary, employee-led groups that foster a diverse and inclusive workplace aligned with our organizational mission, values,
goals and business practices. Through these and other focused efforts, we have improved the diversity of our overall U.S.
workforce and within leadership positions, specifically in the representation of women, People of Color and People with
Disabilities.
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Employee Profile (as of December 31, 2020):
Overall
Executives(b)
Women(a)
23%
22%
People of Color(a)
28%
14%
Veterans(a)
22%
21%
People with Disabilities(a)
9%
9%
(a) Based on employees who self-identify. Includes only U.S. employees and expatriates except for Women, which also includes local
country nationals. Excludes casual workers, interns/co-ops and employees of certain subsidiaries and joint ventures.
(b)
Executive is defined as director-level (one level below vice president) or higher.
Talent Acquisition, Retention and Development
We strive to hire, develop and retain the top talent in the industry. During 2020, we hired more than 11,000 employees,
despite the challenges presented by the COVID-19 pandemic. An integral part of our people strategy is early career hiring
through college and intern pipelines, particularly in technical fields. In addition to efforts focused on recruitment, we also
monitor employee attrition across a broad array of categories and segments of the population, including with respect to diversity
and top talent. Critical to attracting and retaining top talent is employee satisfaction, and we regularly conduct employee
engagement surveys to gauge employee satisfaction and to understand the effectiveness of our employee and compensation
programs. We attract and reward our employees by providing market competitive compensation and benefit practices, including
incentives and recognition plans that extend to all levels in our organization. In addition, we invest in the development of our
employees through trainings, apprenticeship programs, leadership development plans and offering tuition assistance programs
for continuing education or industry certifications. This employee development helps to make us more competitive and also
assists with leadership succession planning throughout the corporation.
Employee Safety and Health
Our safety and health program seeks to optimize our operations through targeted safety, health and wellness opportunities
designed to ensure safe work conditions, a healthy work environment, promote workforce resiliency and enhance business
value. As part of this program, we track employee health and safety measures, including quarterly and yearly targets related to
the number of injury and illness incidents that occur, those incidents that result in days lost, and the number of days lost due to
workplace injuries. During 2020, these metrics were negatively impacted by the absence from work and delays in the return to
work related to the COVID-19 pandemic. In response to COVID-19, we took action to protect our employees’ safety and
health, including by equipping employees with personal protective equipment, establishing minimum staffing and social
distancing policies, sanitizing workspaces more frequently, adopting alternate work schedules and instituting other measures
aimed at minimizing the transmission of COVID-19 while sustaining production and related services. In addition, we have
implemented a flexible teleworking policy for employees who can meet our customer commitments remotely, and a significant
portion of our workforce began teleworking in mid-March 2020 and were continuing to telework as of December 31, 2020. For
more information on our response to COVID-19, see Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
For information on the risks related to our human capital resources, see Item 1A - Risk Factors.
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 6801 Rockledge Drive, Bethesda, Maryland 20817. Our telephone
number is (301) 897-6000 and our website address is www.lockheedmartin.com.
We make our website content available for information purposes only. It should not be relied upon for investment
purposes, nor is it incorporated by reference into this Annual Report on Form 10-K (Form 10-K).
Throughout this Form 10-K, we incorporate by reference information from parts of other documents filed with the U.S.
Securities and Exchange Commission (SEC). The SEC allows us to disclose important information by referring to it in this
manner.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements for our
annual stockholders’ meetings and amendments to those reports are available free of charge on our website,
www.lockheedmartin.com/investor, as soon as reasonably practical after we electronically file the material with, or furnish it to,
the SEC. In addition, copies of our annual report will be made available, free of charge, upon written request. The SEC also
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maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding SEC registrants,
including Lockheed Martin Corporation.
Forward-Looking Statements
This Form 10-K 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.
Statements and assumptions with respect to future sales, income and cash flows, program performance, the outcome of
litigation, anticipated pension cost and funding, environmental remediation cost estimates, planned acquisitions or dispositions
of assets, or the anticipated consequences are examples of forward-looking statements. Numerous factors, including the risk
factors described in the following section, could cause our actual results to differ materially from those expressed in our
forward-looking statements.
Our actual financial results likely will be different from those projected due to the inherent nature of projections. Given
these uncertainties, forward-looking statements should not be relied on in making investment decisions. The forward-looking
statements contained in this Form 10-K speak only as of the date of its filing. Except where required by applicable law, we
expressly disclaim a duty to provide updates to forward-looking statements after the date of this Form 10-K to reflect
subsequent events, changed circumstances, changes in expectations, or the estimates and assumptions associated with them. The
forward-looking statements in this Form 10-K are intended to be subject to the safe harbor protection provided by the federal
securities laws.
ITEM 1A. Risk Factors
An investment in our common stock or debt securities involves risks and uncertainties. We seek to identify, manage and
mitigate risks to our business, but risk and uncertainty cannot be eliminated or necessarily predicted. The outcome of one or
more of these risks could have a material effect on our operating results, financial position, or cash flows. You should carefully
consider the following factors, in addition to the other information contained in this Annual Report on Form 10-K, before
deciding to purchase our common stock or debt securities.
Risks Related to our Reliance on Government Contracts
We depend heavily on contracts with the U.S. Government, including contracts related to the F-35 program, for a
substantial portion of our business. Changes in the U.S. Government’s priorities and delays or reductions in spending could
have a material adverse effect on our business.
We derived 74% of our total net sales from the U.S. Government in 2020, including 64% from the DoD. We expect to
continue to derive most of our sales from work performed under U.S. Government contracts. Those contracts are conditioned
upon the continuing availability of Congressional appropriations. Congress usually appropriates funds on a fiscal year (FY)
basis even though contract performance may extend over many years. Consequently, contracts are often partially funded
initially and additional funds are committed only as Congress makes further appropriations. If we incur costs in excess of funds
obligated on a contract, we may be at risk for reimbursement of those costs unless and until additional funds are obligated to the
contract.
The F-35 program, which consists of multiple development, production and sustainment contracts, is our largest program.
It represented 28% of our total net sales in 2020. A decision by the U.S. Government or other governments to cut spending on
this program or reduce or delay planned orders would have an adverse impact on our business and results of operations. Given
the size and complexity of the F-35 program, we anticipate that there will be continual reviews related to aircraft performance,
program 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 (including
COVID-19 related challenges), software development, the availability and receipt of funding for contracts on a timely basis,
execution of future flight tests and findings resulting from testing and operating the aircraft, the level of cost associated with
life-cycle operations and sustainment and warranties, continuing to reduce the unit production costs, and achieving cost targets.
Budget uncertainty, the risk of future budget cuts, the potential for U.S. government shutdowns, the use of continuing
resolutions, and the federal debt ceiling can adversely affect our industry and the funding for our programs. If a government
10
shutdown were to occur and were to continue for an extended period of time, we could be at risk of program cancellations and
other disruptions and nonpayment. If the U.S. Government operates under a continuing resolution, new contract and program
starts are restricted and funding for our programs may be unavailable, reduced or delayed. Shifting funding priorities, including
COVID-19 related spending, or federal budget compromises, could also result in reductions in overall defense spending which
could adversely impact our business. Our business could also be adversely impacted by reductions or delays in spending by
non-U.S. government customers who are facing budget pressures.
We believe our diverse range of products and services generally make it less likely that cuts in any specific contract or
program will affect our business on a long-term basis. However, termination of multiple or large programs or contracts could
adversely affect our business and future financial performance. Changes in funding priorities may afford new or additional
opportunities for our businesses in terms of existing, follow-on or replacement programs, but could also reduce opportunities in
existing programs and in planned programs where we intend to compete. While we would expect to compete and be well
positioned as the incumbent on existing programs, we may not be successful or, even if successful, the replacement programs
may be funded at lower levels.
We are subject to a number of procurement laws and regulations, including the U.S. Government’s ability to terminate
contracts for convenience. Our business and reputation could be adversely affected if we or those we do business with fail to
comply with these laws.
We must comply with and are affected by laws and regulations relating to the award, administration and performance of
U.S. Government contracts. Government contract laws and regulations affect how we do business with our customers and
impose certain risks and costs on our business. A violation of these laws and regulations by us, our employees, others working
on our behalf, a supplier or a joint venture partner could harm our reputation and result in the imposition of fines and penalties,
the termination of our contracts, suspension or debarment from bidding on or being awarded contracts, loss of our ability to
export products or perform services and civil or criminal investigations or proceedings. In addition, costs to comply with new
government regulations can increase our costs, reduce our margins and affect our competitiveness.
In some instances, these laws and regulations impose terms or obligations that are different than those typically found in
commercial transactions. For example, the U.S. Government may terminate any of our government contracts and subcontracts
not only for default based on our performance but also at its convenience. Upon termination for convenience of a fixed-price
type contract, typically we are entitled to receive the purchase price for delivered items, reimbursement for allowable costs for
work-in-process and an allowance for profit on the contract or adjustment for loss if completion of performance would have
resulted in a loss.
Upon termination for convenience of a cost-reimbursable contract, we normally are entitled to reimbursement of allowable
costs plus a portion of the fee, and allowable costs include our cost to terminate agreements with our suppliers and
subcontractors. The amount of the fee recovered, if any, is related to the portion of the work accomplished prior to termination
and is determined by negotiation. We attempt to ensure that adequate funds are available by notifying the customer when its
estimated costs, including those associated with a possible termination for convenience, approach levels specified as being
allotted to its programs. As funds are typically appropriated on a fiscal year basis, and because the costs of a termination for
convenience may exceed the costs of continuing a program in a given fiscal year, programs occasionally do not have sufficient
funds appropriated to cover the termination costs if the government were to terminate them for convenience. Under such
circumstances, the U.S. Government could assert that it is not required to appropriate additional funding.
A termination arising out of our default may expose us to liability and have a material adverse effect on our ability to
compete for future contracts and orders. In addition, on those contracts for which we are teamed with others and are not the
prime contractor, the U.S. Government could terminate a prime contract under which we are a subcontractor, notwithstanding
the fact that our performance and the quality of the products or services we delivered were consistent with our contractual
obligations as a subcontractor. In the case of termination for default, the U.S. Government could make claims to reduce the
contract value or recover its procurement costs and could assess other special penalties. Under such circumstances we may have
rights and there may be remedial actions available to us under applicable laws and the FAR.
Additionally, our programs for the U.S. Government often operate for periods of time under Undefinitized Contract
Actions (UCAs), which means that we begin performing our obligations before the terms, specifications or price are finally
agreed to between the parties. The U.S. Government has the ability to unilaterally definitize contracts, which, absent a
successful appeal, obligates us to perform under terms and conditions imposed by the U.S. Government. The U.S. Government
has unilaterally definitized contracts with us in the past, most notably the F-35 LRIP 9 contract in 2016 and more recently two
FMS F-16 upgrade proposals in 2020, and may do so in the future. The U.S. Government’s power to unilaterally definitize a
contract can affect our ability to negotiate mutually agreeable contract terms and, if a contract is unilaterally imposed upon us, it
may negatively affect our expected profit and cash flows on a program or impose burdensome terms.
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Certain of our U.S. Government contracts span one or more base years and include multiple option years. The U.S.
Government generally has the right not to exercise option periods and may decide not to exercise an option period for various
reasons. The U.S. Government also may decide to exercise option periods for contracts under which it is expected that our costs
may exceed the contract price or ceiling, which could result in losses or unreimbursed costs.
Evolving U.S. Government procurement policies and increased emphasis on cost over performance and rapid acquisition
could adversely affect our business.
The U.S. Government could implement procurement policies that negatively impact our profitability or the ability to win
new business. Changes in procurement policy favoring more incentive-based fee arrangements, different award fee criteria or
government contract negotiation offers based upon the customer’s view of what our costs should be (as compared to our actual
costs) may affect the predictability of our profit rates or make it more difficult to compete on certain types of programs. Our
customers also may pursue non-traditional contract provisions or contract types in negotiation of contracts. The U.S.
Government’s preference for fixed-price contracting has resulted in what we believe to be the inappropriate application of
fixed-priced contracting methods to development programs. By their nature, the technical challenges, costs and timing of
development programs are difficult to estimate and the use of fixed-price instead of cost-reimbursable contracts for such
programs increases the financial risk to the contractor. This increased risk may lead to losses on fixed price development
programs or may cause us not to bid on future fixed-price development programs, which could adversely affect our future
growth prospects and financial performance. In addition, given the customer’s emphasis on cost, even if we effectively manage
program life-cycle and sustainment costs and meet customer affordability targets, the customer may elect to recompete
programs at the end of existing contracts, which may result in a lost business opportunity. From time to time, the U.S.
Government also has proposed contract terms or taken positions that represent fundamental changes from historical practices or
that we believe are inconsistent with the FAR or other laws and regulations and which could adversely affect our business.
The DoD also is increasingly pursuing rapid development and acquisition of new technologies through rapid acquisition
pathways and procedures, including through other transaction authority agreements (OTAs). While OTAs do not currently
represent a significant portion of our overall contracts (less than 2% of total backlog), in recent years the DoD has increased the
frequency of use and size of OTAs and we expect this trend to continue in the future. OTAs are exempt from many traditional
procurement laws, including the FAR, and may be used, subject to certain conditions, for research, prototype development and
follow on production for a successful prototype. The conditions to award OTAs include, in certain instances, that a significant
portion of the work under the OTA is performed by a non-traditional defense contractor or that a portion of the cost of the
protype project is funded by non-governmental sources. If we cannot successfully adapt to the DoD’s rapid acquisition
processes or if the DoD significantly increases the use of OTAs with non-traditional defense contractors or increasingly
mandates cost sharing, then we may lose strategic new business opportunities in high-growth areas and our future performance
and results could be adversely affected. Shorter life-cycle technologies rather than large platforms could also make our existing
portfolio less competitive in the future.
As recommended by a June 2019 U.S. Government Accountability Office (GAO) Report on contract financing, the DoD
has stated that it will conduct a comprehensive assessment of the effect that DoD contract financing and profit policies have on
the defense industry. We have no assurance regarding the full scope and recurrence of any study and what changes will be
proposed, if any, and their impact on our working capital, cash flow, profit or results of operation. Earlier changes proposed by
the DoD in 2018 and later withdrawn would have had a negative effect on the timing of our cash flows.
We are routinely subject to audit by our customers on government contracts and the results of those audits could have an
adverse effect on our business, reputation and results of operations.
U.S. Government agencies, including the Defense Contract Audit Agency, the Defense Contract Management Agency and
various agency Inspectors General, routinely audit and investigate government contractors. These agencies review a
contractor’s performance under its contracts, its cost structure, its business systems and compliance with applicable laws,
regulations and standards. The U.S. Government has the ability to decrease or withhold certain payments when it deems
systems subject to its review to be inadequate. Additionally, any costs found to be misclassified may be subject to repayment
and from time to time we have had substantial disagreements with government auditors regarding the allowability of costs
incurred by us under government contracts, which further delays payments even if we are correct in our positions. We have
unaudited or unsettled incurred cost claims related to past years, which limits our ability to issue final billings on contracts for
which authorized and appropriated funds may be expiring or can result in substantial delays in final billings and our ability to
close out a contract.
If an audit or investigation uncovers improper or illegal activities, we may be subject to civil or criminal penalties and
administrative sanctions, including reductions of the value of contracts, contract modifications or terminations, forfeiture of
profits, suspension of payments, penalties, fines, suspension, or prohibition from doing business with the U.S. Government. In
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addition, we could suffer serious reputational harm if allegations of impropriety were made against us. Similar government
oversight exists in most other countries where we conduct business.
Our profitability and cash flow may vary based on the mix of our contracts and programs, our performance, and our ability
to control costs.
Our profitability and cash flow may vary materially depending on the types of government contracts undertaken, the nature
of products produced or services performed under those contracts, the costs incurred in performing the work, the achievement
of other performance objectives and the stage of performance at which the right to receive fees is determined, particularly under
award and incentive-fee contracts. Failure to perform to customer expectations and contract requirements may result in reduced
fees or losses and may adversely affect our financial performance. Our backlog includes a variety of contract types and
represents the sales we expect to recognize for our products and services in the future.
Contract types primarily include fixed-price and cost-reimbursable contracts. Under each type of contract, if we are unable
to control costs, our operating results could be adversely affected, particularly if we are unable to justify an increase in contract
value to our customers. Cost overruns or the failure to perform on existing programs also may adversely affect our ability to
retain existing programs and win future contract awards.
Under fixed-price contracts, we agree to perform specified work for a pre-determined price. To the extent our actual costs
vary from the estimates upon which the price was negotiated, we will generate more or less profit or could incur a loss. Some
fixed-price contracts have a performance-based component under which we may earn incentive payments or incur financial
penalties based on our performance.
Cost-reimbursable contracts provide for the payment of allowable costs incurred during performance of the contract plus a
fee up to a ceiling based on the amount that has been funded. Typically, we enter into three types of cost-reimbursable
contracts: cost-plus-award-fee, cost-plus-incentive-fee, and cost-plus-fixed-fee. Cost-plus-award-fee contracts provide for an
award fee that varies within specified limits based on the customer’s assessment of our performance against a predetermined set
of criteria, such as targets based on cost, quality, technical and schedule criteria. Cost-plus-incentive-fee contracts provide for
reimbursement of costs plus a fee that is adjusted by a formula based on the relationship of total allowable costs to total target
costs (i.e., incentive based on cost) or reimbursement of costs plus an incentive to exceed stated performance targets (i.e.,
incentive based on performance). The fixed-fee in a cost-plus-fixed-fee contract is negotiated at the inception of the contract
and that fixed-fee does not vary with actual costs.
Contracts for development programs with complex design and technical challenges are often cost-reimbursable. In these
cases, the associated financial risks primarily relate to a reduction in fees and the program could be canceled if cost, schedule or
technical performance issues arise. Other contracts included in our backlog are for the transition from development to
production (e.g., LRIP contracts), which includes the challenge of starting and stabilizing a manufacturing production and test
line while the final design is being validated and managing change in requirements or capabilities. These contracts frequently
are cost-reimbursable or fixed-price incentive-fee contracts. Generally, if our costs exceed the contract target cost or are not
allowable under the applicable regulations, we may not be able to obtain reimbursement for all costs and may have our fees
reduced or eliminated. There are also contracts for production, as well as operations and maintenance of the delivered products,
that have the challenge of achieving a stable production and delivery rate, while maintaining operability of the product after
delivery. These contracts are primarily fixed-price. In addition, certain contracts associated with our Space business segment
contain provisions that require us to forfeit fees, pay penalties, or provide replacement systems in the event of performance
failure, which could negatively affect our earnings and cash flows.
Increased competition and bid protests in a budget-constrained environment may make it more difficult to maintain our
financial performance and customer relationships.
A substantial portion of our business is awarded through competitive bidding. The U.S. Government increasingly has relied
on competitive contract award types, including indefinite-delivery, indefinite-quantity and other multi-award contracts, which
have the potential to create pricing pressure and to increase our costs by requiring us to submit multiple bids and proposals.
Multi-award contracts require us to make sustained efforts to obtain task orders under the contract. Additionally, competitive
bids that do not contain cost-realism evaluation criteria can lead to competitors taking aggressive pricing positions. The
competitive bidding process entails substantial costs and managerial time to prepare bids and proposals for contracts that may
not be awarded to us or may be split among competitors. The U.S. Government also may not award us large competitive
contracts that we otherwise might have won in an effort to maintain a broader industrial base.
Even if we are successful in obtaining an award, we may encounter bid protests from unsuccessful bidders on new program
awards. Unsuccessful bidders may protest in the hope of being awarded a subcontract for a portion of the work in return for
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withdrawing the protest. Bid protests could result in significant expenses to us, contract modifications or even loss of the
contract award. Even where a bid protest does not result in the loss of a contract award, the resolution can extend the time until
contract activity can begin and, as a result, delay the recognition of sales. We also may not be successful in our efforts to protest
or challenge any bids for contracts that were not awarded to us and we could incur significant time and expense in such efforts.
We are experiencing increased competition, including from emerging non-traditional competitors, while, at the same time,
many of our customers are facing significant budget pressures, trying to do more with less by cutting costs, using fixed price
contracts, deferring large procurements, identifying more affordable solutions, performing certain work internally rather than
hiring contractors, and reducing product development cycles. If emerging competitors can offer faster or lower cost services
and products at equivalent or even reduced capabilities, then we may lose new business opportunities or contract recompetes,
which could adversely affect our future results. Our success in competing and remaining cost-competitive may depend on our
ability to adopt and integrate new digital manufacturing and operating technologies and tools into our product lifecycles and
processes. Furthermore, acquisitions in our industry, particularly vertical integration by tier-1 prime contractors, could also
result in increased competition or limit our access to certain suppliers. To remain competitive, we must maintain consistently
strong customer relationships, seek to understand customer priorities and provide superior performance, advanced technology
solutions and services at an affordable cost with the agility that our customers require to satisfy their mission objectives in an
increasingly price competitive environment.
Other Risks Related to our Operations
The effects of COVID-19 and other potential future public health crises, epidemics, pandemics or similar events on our
business, operating results and cash flows are uncertain.
The global outbreak of the coronavirus disease 2019 (COVID-19) has negatively affected the U.S. and global economies,
disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders
to “shelter-in-place” and quarantine restrictions. The pandemic has presented unprecedented business challenges, and we have
experienced impacts in each of our business areas related to COVID-19, primarily in increased coronavirus-related costs, delays
in supplier deliveries, impacts of travel restrictions, site access and quarantine requirements, and the impacts of remote work
and adjusted work schedules. The extent of the impact of the COVID-19 pandemic on our operational and financial
performance, including our ability to execute our programs in the expected timeframe, remains uncertain and will depend on
future pandemic related developments, including the duration of the pandemic, any potential subsequent waves of COVID-19
infection, the effectiveness, distribution and acceptance of COVID-19 vaccines, and related government actions to prevent and
manage disease spread, all of which are uncertain and cannot be predicted. The long-term impacts of COVID-19 on government
budgets and other funding priorities, including international priorities, that impact demand for our products and services and our
business are also difficult to predict.
In accordance with the Department of Homeland Security’s identification of the Defense Industrial Base as a critical
infrastructure sector in March 2020, our U.S. production facilities have continued to operate during the pandemic, however, our
operations have been adjusted in response to the pandemic, including, most significantly, a reduction in the F-35 production
rate primarily due to supplier delays. Staffing levels at our facilities, our customer facilities, and our supplier facilities have and
could continue to fluctuate as a result of COVID-19, which could negatively impact our business. In addition, countries other
than the U.S. have different responses to the pandemic that can affect our international operations and the operations of our
suppliers and customers. Base closures, travel restrictions, and quarantine requirements both within and outside the U.S. have
affected our normal operations and resulted in some schedule delays and future or prolonged occurrences of these could
adversely affect our ability to achieve future contract milestones and our results of operations.
As described in the risk factor below, we rely on other companies and the U.S. Government to provide materials, major
components and products, and to perform a portion of the services that are provided to our customers under the terms of most of
our contracts. Many of these suppliers also supply parts for commercial aviation businesses which have been more significantly
impacted by the pandemic due to the impacts on these markets. Global supply chain disruption caused by the response to
COVID-19 has impacted some of our programs and could impact our ability to perform on our contracts, in particular in
instances where there is not a qualified second source of supply. We have identified a number of suppliers that have
experienced delivery impacts due to COVID-19 and have been working to manage those impacts. However, if alternatives or
other mitigations are not effective, deliveries and other milestones on affected programs could be adversely impacted.
Delays in inspection, acceptance and payment by our customers, many of whom are teleworking, could also affect our sales
and cash flows. This is particularly an issue with respect to classified work that is unable to be done remotely. Limitations on
government operations can also impact regulatory approvals such as export licenses that are needed for international sales and
deliveries. In addition, we could experience delays in new program starts or awards of future work as well as the uncertain
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impact of contract modifications to respond to the pandemic. Limitations on travel to customers could impact international
orders. We have been granted some travel exemptions to allow us to continue certain activities but we have no assurance that
they will continue or additional restrictions will not be imposed. If significant portions of our workforce are unable to work
effectively, including because of illness, quarantines, absenteeism, government actions, facility closures, travel restrictions or
other restrictions due to COVID-19, our operations will be impacted and this could create risks to the effectiveness of our
internal controls. Additionally, we have not previously experienced such a significant portion of our workforce working
remotely for a prolonged period, so its effects on our long-term operations are unknown. The impact of COVID-19 could
worsen depending on the duration and spread of the COVID-19 pandemic or potential subsequent waves of COVID-19
infection in affected regions after they have begun to experience improvement.
Coronavirus-related costs for us and our suppliers are significant and we are seeking reimbursement of coronavirus-related
costs under our U.S. Government contracts through a combination of equitable adjustments to the contract price and
reimbursement of the costs under Section 3610 of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), which
allows federal agencies to reimburse contractors for certain COVID-19 related costs from March 27, 2020 through March 31,
2021. These cost increases, including costs for employees whose jobs cannot be performed remotely and for certain costs
incurred prior to March 27, 2020, may not be fully recoverable under our contracts, particularly fixed-price contracts, or
adequately covered by insurance. We also have no assurance that Congress will appropriate funds to cover the reimbursement
of defense contractors authorized by the CARES Act, which could reduce funds available for other U.S. Government defense
priorities.
The continued spread of COVID-19 has also led to disruption and volatility in the global capital markets, which depending
on future developments could impact our capital resources and liquidity in the future and the investment returns on our pension
assets. We are also monitoring the impacts of COVID-19 on the fair value of our assets. While we do not currently anticipate
any material impairments on our assets as a result of COVID-19, future changes in expectations for sales, earnings and cash
flows related to intangible assets and goodwill below our current projections could cause these assets to be impaired.
For more information on the effect of COVID-19 on our operations and our response to COVID-19, see Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
We are the prime contractor on most of our contracts and if our subcontractors, suppliers or teaming agreement or joint
venture partners fail to perform their obligations, our performance and our ability to win future business could be harmed.
We rely on other companies to provide materials, major components and products, and to perform a portion of the services
that are provided to our customers under the terms of most of our contracts. These arrangements may involve subcontracts,
teaming arrangements, joint ventures or supply agreements with other companies upon which we rely (contracting parties).
There is a risk that the contracting party does not perform at all or to our expectations or meet affordability targets and we may
have disputes with our contracting parties, including disputes regarding the quality and timeliness of work performed, the
workshare provided to that party, customer concerns about the other party’s performance, our failure to extend existing task
orders or issue new task orders, or our hiring the personnel of a subcontractor, teammate or joint venture partner or vice versa.
We could also be adversely affected by actions by or issues experienced by our contracting parties that are outside of our
control, such as misconduct and reputational issues involving our contracting parties, which could subject us to liability or
adversely affect our ability to compete for contract awards.
Changes in the economic environment, including the COVID-19 pandemic, geopolitical events, defense budgets, trade
sanctions and constraints on available financing, and the highly competitive and budget constrained environment in which we
operate, may adversely affect the financial stability and viability of our contracting parties or their ability to meet their
performance requirements or to provide needed supplies or services on a timely basis. Some scarce raw materials required for
our products are largely controlled by a single country, including rare earth minerals that are largely controlled by China, and
therefore can be adversely impacted by potential trade actions involving that country. Additionally, our efforts to increase the
efficiency of our operations and improve the affordability of our products and services could negatively impact our ability to
attract and retain suppliers. We must comply with specific procurement requirements which can limit the available suppliers
and we do not have secondary suppliers for some supplies and the qualification of new or additional suppliers can under some
circumstances take an extended period of time.
A failure, for whatever reason, by one or more of our contracting parties to provide the agreed-upon supplies or perform
the agreed-upon services on a timely basis, according to specifications, or at all, may affect our ability to perform our
obligations and require that we transition the work to other companies. Contracting party performance deficiencies may result
in additional costs or delays in product deliveries and affect our operating results and could result in a customer terminating our
contract for default or convenience. A default termination could expose us to liability and affect our ability to compete for
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future contracts and orders. A failure by our contracting parties to meet affordability targets could negatively affect our
profitability, result in contract losses and affect our ability to win new business.
Our success depends, in part, on our ability to develop new technologies, products and services and efficiently produce and
deliver existing products.
Many of the products and services we provide are highly engineered and involve sophisticated technologies with related
complex manufacturing and system integration processes. Our customers’ requirements change and evolve regularly.
Accordingly, our future performance depends, in part, on our ability to adapt to changing customer needs rapidly, identify
emerging technological trends, develop and manufacture innovative products and services efficiently and bring those offerings
to market quickly at cost-effective prices. This includes efforts to implement emerging digital and network technologies and
capabilities. To advance our innovation, we may seek to collaborate with commercial entities that are not accustomed to
government contracting and these entities may be unwilling to agree to the government’s customary terms, including those
governing intellectual property. Due to the complex and often experimental nature of the products and services we offer, we
may experience technical difficulties during the development of new products or technologies. These technical difficulties
could result in delays and higher costs, which may negatively impact our financial results, and could divert resources from other
projects, until such products or technologies are fully developed. See “Note 1 – Significant Accounting Policies” included in
our Notes to Consolidated Financial Statements for further details about losses incurred on certain development programs.
Additionally, there can be no assurance that our development projects will be successful or meet the needs of our customers.
Our competitors may also develop new technology, or offerings, or more efficient ways to produce existing products that
could cause our existing offerings to become obsolete or that could gain market acceptance before our own competitive
offerings. If we fail in our development projects or if our new products or technologies fail to achieve customer acceptance, we
may be unsuccessful in procuring new contracts or winning all or a portion of next generation programs, and this could
adversely affect our future performance and financial results. We also may not be successful in our efforts to grow in key areas
such as hypersonics and mission systems, which could adversely affect our future performance.
International sales may pose different political, economic, regulatory, competition and other risks.
In 2020, 25% of our total net sales were from international customers. We have a strategy to continue to grow international
sales, inclusive of sales of F-35 aircraft to our international partner countries and other countries. International sales are subject
to numerous political and economic factors, budget uncertainty, regulatory requirements, significant competition, taxation, and
other risks associated with doing business in foreign countries.
In international sales, we face substantial competition from both U.S. manufacturers and international manufacturers whose
governments sometimes provide research and development assistance, marketing subsidies and other assistance for their
products and services. Additionally, many of our competitors are also focusing on increasing their international sales.
Our international business is conducted through foreign military sales (FMS) contracted through the U.S. Government to
international customers through which the U.S. Government purchases products or services from us on behalf of the foreign
customer and by direct commercial sales (DCS) to such customers. In 2020, approximately 67% of our sales to international
customers were FMS and about 33% were DCS. FMS contracts with the U.S. Government are subject to the FAR and the
DFARS. In contrast, DCS transactions represent sales by us directly to international customers and are not subject to the FAR
or the DFARS.
All sales to international customers are subject to U.S. and foreign laws and regulations, including import-export control,
technology transfer restrictions, investments, taxation, repatriation of earnings, exchange controls, the Foreign Corrupt Practices
Act and other anti-corruption laws and regulations, and the anti-boycott provisions of the U.S. Export Control Reform Act of
2018. While we have extensive policies in place to comply with such laws and regulations, failure by us, our employees or
others working on our behalf to comply with these laws and regulations could result in administrative, civil, or criminal
liabilities, including suspension, debarment from bidding for or performing government contracts, or suspension of our export
privileges, which could have a material adverse effect on us. We frequently team with international subcontractors and suppliers
who also are exposed to similar risks.
International sales present risks that are different and potentially greater than those encountered in our U.S. business; and
we believe DCS presents the greatest potential risks. DCS transactions involve direct commercial relationships with parties with
whom we have less familiarity and where there may be significant cultural differences. Additionally, international procurement
and local country rules and regulations, contract laws, and judicial systems differ from those in the U.S. and, in some cases,
may be less developed than in the U.S., which could impair our ability to enforce contracts and increase the risk of adverse or
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unpredictable outcomes, including the possibility that certain matters that would be considered civil matters in the U.S. are
treated as criminal matters.
In conjunction with defense procurements, some international customers require contractors to comply with industrial
cooperation regulations, including entering into industrial participation or industrial development agreements, sometimes
referred to as offset agreements, as a condition to obtaining orders for our products and services. Industrial development
agreements generally extend over several years and obligate the contractor to perform certain commitments, which may include
in-country purchases, technology transfers, local manufacturing support, consulting support to in-country projects, investments
in joint ventures and financial support projects. Expectations as to offset commitments can be substantial, including high-value
content, and may exceed existing local technical capability. Failure to meet these commitments, which can be subjective and
outside of our control, may result in significant penalties, and could lead to a reduction in sales to a country. Furthermore,
certain of our existing industrial development agreements are dependent upon the successful operation of joint ventures that we
do not control and involve products and services that are outside of our core business, which may increase the risk that we fail
to meet our industrial cooperation agreements, expose us to compliance risks of the joint venture and impair our ability to
recover our investment. For more information on our industrial development obligations, including the notional value of our
remaining industrial development obligations and potential penalties for non-compliance, see “Contractual Commitments and
Off-Balance Sheet Arrangements” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Political issues and considerations, both in the U.S. and internationally, could have a significant effect on our business.
Our international business is highly sensitive to changes in regulations (including tariffs, sanctions, embargoes, export and
import controls and other trade restrictions), political environments or security risks that may affect our ability to conduct
business outside of the U.S., including those regarding investment, procurement, taxation and repatriation of earnings.
On July 14, 2020 and again on October 26, 2020, the People’s Republic of China (China) announced it may impose
sanctions against Lockheed Martin in response to Congressional Notifications of potential Foreign Military Sales to Taiwan.
Foreign Military Sales are government-to-government transactions, and we work closely with the U.S. Government on any
military sales to international customers. We will continue to follow official U.S. Government guidance as it relates to sales to
Taiwan and do not see a material impact on our sales at this time. China has not specified the nature of any such sanctions, but
could seek to restrict our commercial sales or supply chain, including our supply of rare earth or other raw materials, and could
also impose sanctions on our suppliers, teammates or partners. The nature, timing and potential impact of any sanctions that
may be imposed by China or any other related actions that may be taken are uncertain.
We continue to monitor the effect of the United Kingdom’s (UK) departure from the European Union (EU) (commonly
referred to as Brexit) on our business operations and financial results. We anticipate that the most probable near-term effects are
likely to reflect the pressure Brexit has placed on the UK government, which may influence the government’s ability to make
decisions on large complex programs of the type we perform. The post-Brexit border controls between the UK and EU also
may have adverse implications on the movement of products or sustainment activities between the UK and EU or may increase
costs. Additionally, longer term effects of Brexit may impact the value of the pound sterling. If the pound sterling were to
remain depressed against the U.S. dollar, this could negatively impact the ability of the UK government to afford our products
and services. While we have operations in the UK and these operations have activity between the UK and the EU (e.g., sales,
supply chain, or reliance on personnel), we currently do not anticipate that Brexit will have a material impact on our operations
or our financial results. Additionally, our practice is to substantially hedge our transactional currency exposure and therefore,
we do not have material currency transaction exposure to the pound sterling or the euro.
International sales also may be adversely affected by actions taken by the U.S. Government in the exercise of foreign
policy, Congressional oversight or the financing of particular programs, including the prevention or imposition of conditions
upon the sale and delivery of our products, the imposition of sanctions, or Congressional action to block sales of our products.
For example, the U.S. Government has imposed certain sanctions on Turkish entities and persons as described in the risk factor
below, and could act in the future to prevent or restrict sales to other customers, including the Kingdom of Saudi Arabia and the
United Arab Emirates. U.S. Government officials have indicated that the Biden administration is temporarily pausing the
implementation of some pending U.S. defense transfers and sales to various countries to allow incoming leadership an
opportunity to review. The officials also state that the review is typical with any new administration, but the duration and results
of the review are unknown, and if current sales are delayed or canceled or future sales prohibited or restricted, our results from
operations, backlog and future performance could be adversely affected. Our international business also may be impacted by
changes in foreign national priorities, foreign government budgets, global economic conditions, and fluctuations in foreign
currency exchange rates. Sales of military products and any associated industrial cooperation agreements are also affected by
defense budgets and U.S. foreign policy, including trade restrictions and disputes, and there could be significant delays or other
issues in reaching definitive agreements for announced programs and international customer priorities could change.
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Additionally, the timing of orders from our international customers can be less predictable than for our U.S. customers and may
lead to fluctuations in the amount reported each year for our international sales.
U.S. Government sanctions on Turkey and Turkey’s removal from the F-35 program could adversely impact our results of
operations and cash flows.
As a result of Turkey accepting delivery of the Russian S-400 air and missile defense system, the U.S. Government
removed Turkey from the F-35 program in 2019 and in December 2020 imposed sanctions on Turkey’s defense procurement
agency (SSB) and certain of the agency’s officers under the Countering America’s Adversaries Through Sanctions Act
(CAATSA). The primary sanction imposed was a restriction on all new U.S. export licenses and authorizations for any goods or
technology transferred to the SSB, but does not apply to current, valid export licenses and authorizations. Lockheed Martin
expects the U.S. Government to continue to engage Turkey on these issues, but we have no indication that the sanctions will be
removed, that additional sanctions will not be imposed or that Turkey will not issue reciprocal sanctions. While we do not
expect the current sanctions to have a material effect on our current programs, additional sanctions, reciprocal sanctions or other
actions, could be material to our operations, operating results, financial position or cash flows.
In addition to having committed to purchase up to 100 F-35 aircraft, six of which had completed production at the time of
removal, Turkish suppliers continue to produce component parts for the F-35 program, some of which are single-sourced. To
minimize the risks of disruption of our supply chain and ensure continuity of F-35 production, we have been working closely
with the DoD and supporting activities to identify and engage alternate suppliers for the component parts produced by Turkish
suppliers. We have made significant progress transitioning to non-Turkish suppliers, but due to the procedure to qualify new
parts and suppliers, this collaborative process between DoD and Lockheed Martin is ongoing. During 2020, the DoD publicly
confirmed that Turkish suppliers would be permitted to provide certain components for the F-35 through 2022. While the
transition timeline is an important first step, it is equally important that our replacement capacity is re-established so that
production is not impacted. Efforts to date have significantly reduced our risk, but final resolution on a limited number of
remaining components could affect F-35 deliveries, and any accelerated work stoppage would impact cost. We will continue to
follow official U.S. Government guidance as it relates to completed Turkish aircraft and the export and import of component
parts from the Turkish supply chain.
The effects on the F-35 program of the U.S. Government sanctions on the SSB and Turkey’s removal from the F-35
program do not appear to be significant at this time. However, unforeseen actions could impact the timing of orders, disrupt the
production of aircraft, delay delivery of aircraft, disrupt delivery of sustainment components produced in Turkey and impact
funding on the F-35 program to include the result of any reprogramming of funds that may be necessary to mitigate the impact
of alternate sources for component parts made in Turkey. While, in the case of the F-35 program, we expect that these costs
ultimately would be recovered from the U.S. Government, the availability or timing of any recovery could adversely affect our
cash flows and results of operations.
We currently have programs directly with SSB that include delivery and support of helicopters for Turkish end users. We
also have contracts with Turkish industry for the Turkish Utility Helicopter Program (TUHP), which is overseen by SSB, in
support of Turkish industry’s production of helicopters for Turkish end users. Each program has current, valid export licenses
that should not be subject to the current sanctions. We expect pending and future export licensing applications and any required
modifications, extensions or changes in scope to the existing licenses, where SSB is a party to the transaction, would be denied,
adversely affecting our ability to perform the program contracts. In addition, we have other programs where we work with
Turkish industry, including for domestic U.S. Black Hawk helicopter production, that rely on components from Turkish
suppliers. While these commercial relationships are not affected by the current sanctions, they could be adversely affected by
the imposition of additional sanctions.
Although the current sanctions are not expected to have a material effect on our current programs, they may result in the
loss of future sales, and any future sanctions or reciprocal actions by Turkey could result in further restrictions on exports or
imports, losses of future sales, reductions in backlog, return of advance payments, costs to develop alternate supply sources,
restrictions on payments, force majeure events or contract terminations. Such activity also could result in claims from our
suppliers, which may include both the amount established in any settlement agreements, the costs of evaluating supplier
settlement proposals and the costs of negotiating settlement agreements. These effects could have a material impact on our
operating results, financial position and cash flows.
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We may be unable to benefit fully from or adequately protect our intellectual property rights or use third-party intellectual
property, which could negatively affect our business.
We routinely apply for and own a substantial number of U.S. and foreign patents and trademarks related to the products
and services we provide. In addition to owning a large portfolio of patents and trademarks, we develop and own other
intellectual property, including copyrights, trade secrets and research, development and engineering know-how, which
contribute significantly to our business. We also license intellectual property to and from third parties. The FAR and DFARS
provide that the U.S. government obtains certain rights in intellectual property, including patents, developed by us and our
subcontractors and suppliers in performance of government contracts or with government funding. The U.S. government may
use or authorize others, including competitors, to use such intellectual property. Non-U.S. governments may also have certain
rights in patents and other intellectual property developed in performance of our contracts with these entities. The U.S.
government is pursuing aggressive positions regarding the types of intellectual property to which government use rights apply
and when it is appropriate for the government to insist on broad use rights. The DoD is also implementing an overarching
intellectual property acquisition policy that will require a greater focus and planning as to intellectual property rights for its
programs, and we have no assurance as to the potential impacts of this policy or any associated regulatory changes on future
acquisitions. The DoD’s efforts could affect our ability to protect and exploit our intellectual property and to leverage supplier
intellectual property, for example, if we are unable to obtain necessary licenses from our suppliers to meet government
requirements. Additionally, while we take measures to protect and enforce our intellectual property rights and to respect the
intellectual property rights of others, our intellectual property and intellectual property licensed or obtained from third parties is
subject to challenges (such as infringement and misappropriation claims) by third parties, which could adversely affect our
ability to compete and perform on contracts.
Our business and financial performance depends, in part, on our ability to identify, attract and retain a highly skilled
workforce.
Due to the specialized nature of our business, our performance is dependent upon our ability to identify, attract and retain a
workforce with the requisite skills in multiple areas 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 tasks.
Additionally, as we expand our operations internationally, it is increasingly important to hire and retain personnel with relevant
experience in local laws, regulations, customs, traditions and business practices.
We face a number of challenges that may affect personnel retention such as our endeavors to increase the efficiency of our
operations and improve the affordability of our products and services such as workforce reductions and consolidating and
relocating certain operations. Additionally, a substantial portion of our workforce (including personnel in leadership positions)
are retirement-eligible or nearing retirement.
To the extent that we lose experienced personnel, it is critical that we develop other employees, hire new qualified
personnel, and successfully manage the short and long-term transfer of critical knowledge and skills. Competition for personnel
is intense, and we may not be successful in attracting or retaining personnel with the requisite skills or clearances. We
increasingly compete with commercial technology companies outside of the aerospace and defense industry for qualified
technical, cyber and scientific positions as the number of qualified domestic engineers is decreasing and the number of cyber
professionals is not keeping up with demand. To the extent that these companies grow at a faster rate or face fewer cost and
product pricing constraints, they may be able to offer more attractive compensation and other benefits to candidates or our
existing employees. If the demand for skilled personnel exceeds supply, we could experience higher labor, recruiting or training
costs in order to attract and retain such employees. We could experience difficulty in performing our contracts and executing on
new or growing programs if we have a shortage of skilled employees or if our recruiting is delayed. We also must manage
leadership development and succession planning throughout our business. While we have processes in place for management
transition and the transfer of knowledge and skills, the loss of key personnel, coupled with an inability to adequately train other
personnel, hire new personnel or transfer knowledge and skills, could significantly impact our ability to perform under our
contracts and execute on new or growing programs.
Approximately 20% of our employees are covered by collective bargaining agreements with various unions. If we
encounter difficulties with renegotiations or renewals of collective bargaining arrangements or are unsuccessful in those efforts,
we could incur additional costs and experience work stoppages. Union actions at suppliers can also affect us. Any delays or
work stoppages could adversely affect our ability to perform under our contracts, which could negatively impact our results of
operations, cash flows, and financial condition.
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Our efforts to minimize the likelihood and impact of adverse cybersecurity incidents and to protect data and intellectual
property may not be successful and our business could be negatively affected by cyber or other security threats or other
disruptions.
We routinely experience various cybersecurity threats, threats to our information technology infrastructure, unauthorized
attempts to gain access to our company, employee- and customer-sensitive information, insider threats and denial-of-service
attacks as do our customers, suppliers, subcontractors and joint venture partners. We experience similar security threats at
customer sites that we operate and manage.
The threats we face vary from attacks common to most industries, to more advanced and persistent, highly organized
adversaries, including nation states. These nation state actors target us and other defense contractors for several reasons,
including because we protect national security information and develop advanced technology systems. If we are unable to
protect sensitive information, including complying with evolving information security and data protection/privacy regulations,
our customers or governmental authorities could question the adequacy of our threat mitigation and detection processes and
procedures. Moreover, depending on the severity of an incident, our customers’ data, our employees’ data, our intellectual
property (including trade secrets and research, development and engineering know-how), and other third-party data (such as
teammates, joint venture partners, subcontractors, suppliers and vendors) could be compromised. Products and services we
provide to customers also carry cybersecurity risks, including risks that they could be breached or fail to detect, prevent or
combat attacks, which could result in losses to our customers and claims against us, and could harm our relationships with our
customers.
We take a variety of precautions to protect our systems and data, including a Computer Incident Response Team (CIRT) to
defend against cyber attacks and regular periodic training of our employees on protection of sensitive information, including
training intended to prevent the success of “phishing” attacks. However, as a consequence of the persistence, sophistication and
volume of cyber attacks, we may not be successful in defending against all such attacks. We also have a corporate-wide
counterintelligence and insider threat detection program to proactively identify external and internal threats, and mitigate those
threats in a timely manner. Nevertheless, due to the evolving nature of these security threats and the national security aspects of
much of the data we protect, the impact of any future incident cannot be predicted.
In addition to cyber threats, we experience threats to the security of our facilities and employees and threats from terrorist
acts. We also typically work cooperatively with our customers, suppliers, subcontractors, joint venture partners and entities we
acquire, whom are subject to similar threats, to seek to minimize the impact of cyber threats, other security threats or business
disruptions. However, we must rely on the safeguards put in place by these entities, and other entities, none of which we
control, who have access to our information, and thus may affect the security of our information or the information we are
obligated to protect. These entities have varying levels of cybersecurity expertise and safeguards, and their relationships with
government contractors, including us, may increase the likelihood that they are targeted by the same cyber threats we face. We
have thousands of direct suppliers and even more indirect suppliers with a wide variety of systems and cybersecurity
capabilities and adversaries actively seek to exploit security and cybersecurity weaknesses in our supply chain. A breach in our
multi-tiered supply chain could impact our data or customer deliverables. We also must rely on this supply chain for detecting
and reporting cyber incidents, which could affect our ability to report or respond to cybersecurity incidents effectively or in a
timely manner.
The costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means.
Additionally, some cyber technologies we develop under contract for our customers, particularly those related to homeland
security, may raise potential liabilities related to intellectual property and civil liberties, including privacy concerns, which may
not be fully insured or indemnified by other means or involve reputational risk. Our enterprise risk management program
includes threat detection and cybersecurity mitigation plans, and our disclosure controls and procedures address cybersecurity
and include elements intended to ensure that there is an analysis of potential disclosure obligations arising from security
breaches. We also maintain compliance programs to address the potential applicability of restrictions on trading while in
possession of material, nonpublic information generally and in connection with a cybersecurity breach.
If we fail to manage acquisitions, divestitures, equity investments and other transactions, including our proposed acquisition
of Aerojet Rocketdyne, 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 discussions, evaluate companies, and enter into agreements
regarding possible acquisitions, joint ventures, other investments and divestitures. We seek to identify acquisition or investment
opportunities that will expand or complement our existing products and services or customer base, at attractive valuations. We
often compete with other companies for the same opportunities. To be successful, we must conduct due diligence to identify
valuation issues and potential loss contingencies; negotiate transaction terms; complete and close complex transactions;
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integrate acquired companies and employees; and realize anticipated operating synergies efficiently and effectively.
Acquisition, divestiture, joint venture and investment transactions often require substantial management resources and have the
potential to divert our attention from our existing business. Unidentified or identified but un-indemnified pre-closing liabilities
could affect our future financial results, particularly through successor liability under procurement laws and regulations such as
the False Claims Act or Truth in Negotiations Act, anti-corruption, environmental, tax, import-export and technology transfer
laws, which provide for civil and criminal penalties and the potential for debarment. We also may incur unanticipated costs or
expenses, including post-closing asset impairment charges, expenses associated with eliminating duplicate facilities, employee
retention, transaction-related or other litigation, and other liabilities. Any of the foregoing could adversely affect our business
and results of operations.
On December 20, 2020, we entered into an agreement to acquire Aerojet Rocketdyne Holdings, Inc. (Aerojet Rocketdyne).
The transaction is expected to close in the second half of 2021 and is subject to the satisfaction of customary closing conditions,
including regulatory approvals and approval by Aerojet Rocketdyne’s stockholders. We may be unable to achieve the expected
benefits of this transaction as a result of, among other things, the failure to obtain, delays in obtaining, or adverse conditions
contained in any required regulatory or other approvals for consummation of the acquisition; the possibility that Aerojet
Rocketdyne stockholders may not approve the proposed acquisition; the failure to consummate or a delay in consummating the
proposed acquisition for other reasons; the failure by us to obtain any necessary financing on favorable terms or at all; Aerojet
Rocketdyne’s or our business being disrupted due to transaction-related uncertainty; the failure to successfully and timely
integrate Aerojet Rocketdyne and realize the expected synergies, cost savings and other benefits of the acquisition; the risk of
litigation relating to the proposed acquisition; competitive responses to the proposed acquisition; unexpected liabilities, costs,
charges or expenses resulting from the acquisition; and potential adverse reactions or changes to business relationships from the
announcement or completion of the acquisition. The expected cash cost of the acquisition of approximately $4.4 billion also
assumes the assumption of net cash on the balance sheet of Aerojet Rocketdyne at closing after payment of outstanding debt,
which is subject to uncertainty related to Aerojet Rocketdyne’s earnings and costs through the date of closing. The total equity
value of approximately $4.6 billion to be paid by Lockheed Martin for Aerojet Rocketdyne, including Aerojet Rocketdyne’s
convertible notes on an as-converted basis, assumes the payment by Aerojet Rocketdyne of its announced special cash
dividend, which is revocable through the payment date at the election of the Aerojet Rocketdyne board of directors.
Joint ventures and other noncontrolling investments operate under shared control with other parties. These investments
typically face many of the same risks and uncertainties as we do, but in addition may expose us to additional risks not present if
we retained full control. A joint venture partner may have economic or other business interests that are inconsistent with ours
and we may be unable to prevent strategic decisions that may adversely affect our business, financial condition and results of
operations. We also could be adversely affected by, or liable for, actions taken by these joint ventures that we do not control,
including violations of anti-corruption, import and export, taxation and anti-boycott laws.
Depending on our rights and percentage of ownership, we may consolidate the financial results of such entities or account
for our interests under the equity method. Under the equity method of accounting for nonconsolidated ventures and
investments, we recognize our share of the operating profit or loss of these joint ventures in our results of operations. Our
operating results are affected by the conduct and performance of businesses over which we do not exercise control and, as a
result, we may not be successful in achieving the growth or other intended benefits of strategic investments. Of our business
segments, our equity investments had the greatest impact on our Space business segment where approximately 12% of its 2020
operating profit was derived from its share of earnings from equity method investees, primarily that in United Launch Alliance
(ULA). We also have our 51% ownership interest in AWE Management Limited (AWE), which operates the United Kingdom’s
nuclear deterrent program. This venture generated sales of about $1.4 billion and net earnings of about $29 million in 2020. On
November 2, 2020, the UK Ministry of Defense announced its intention to re-nationalize the program on June 30, 2021, which
is expected to result in the loss of future sales and operating profit attributable to AWE.
Through our Lockheed Martin Ventures Fund, we make investments in companies (both within the U.S. and in other
countries) that we believe are developing disruptive technologies applicable to our core businesses and new initiatives
important to Lockheed Martin. These investments may be in the forms of common or preferred stock, convertible debt
securities or investments in funds. Typically, we hold a non-controlling interest and, therefore, are unable to influence strategic
decisions by these companies and may have limited visibility into their activities, which may result in our not realizing the
intended benefits of the investments. We have also begun investing in funds that invest in other companies. We have less
influence and visibility as a non-controlling investor in a fund.
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Risks Related to Significant Contingencies, Uncertainties and Estimates, including Pension, Environmental and
Litigation Costs
Pension funding and costs are dependent on several economic assumptions which 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 and retirees participate in defined benefit pension plans, retiree medical and life insurance plans,
and other postemployment plans (collectively, postretirement benefit plans). The impact of these plans on our earnings may be
volatile in that the amount of expense we record for our postretirement benefit plans may materially change from year to year
because the calculations are sensitive to changes in several key economic assumptions including interest rates and rates of
return on plan assets, other actuarial assumptions including participant longevity (also known as mortality) and employee
turnover, as well as the timing of cash funding. Changes in these factors, including actual returns on plan assets, may also affect
our plan funding, cash flow and stockholders’ equity. In addition, the funding of our plans and recovery of costs on our
contracts, as described below, may also be subject to changes caused by legislative or regulatory actions.
With regard to cash flow, we make substantial cash contributions to our plans as required by the Employee Retirement
Income Security Act of 1974 (ERISA), as amended by the Pension Protection Act of 2006 (PPA). We generally are able to
recover these contributions related to our plans as allowable costs on our U.S. Government contracts, including FMS. However,
there is a lag between the time when we contribute cash to our plans under pension funding rules and when we recover pension
costs under U.S. Government Cost Accounting Standards (CAS). We also may not be successful in our efforts to reduce the
volatility of our outstanding pension obligations and to accelerate CAS recovery and recover associated costs from the U.S.
Government.
For more information on how these factors could impact earnings, financial position, cash flow and stockholders’ equity,
see “Critical Accounting Policies - Postretirement Benefit Plans” in Management’s Discussion and Analysis of Financial
Condition and Results of Operations and “Note 12 – Postretirement Benefit Plans” included in our Notes to Consolidated
Financial Statements.
Our estimates and projections may prove to be inaccurate and certain of our assets may be at risk of future impairment.
The accounting for some of our most significant activities is based on judgments and estimates, which are complex and
subject to many variables. For example, accounting for sales using the percentage-of-completion method requires that we assess
risks and make assumptions regarding schedule, cost, technical and performance issues for thousands of contracts, many of
which are long-term in nature. Additionally, we initially allocate the purchase price of acquired businesses based on a
preliminary assessment of the fair value of identifiable assets acquired and liabilities assumed. For significant acquisitions we
may use a one-year measurement period to analyze and assess a number of factors used in establishing the asset and liability
fair values as of the acquisition date which could result in adjustments to asset and liability balances.
We have $10.8 billion of goodwill assets recorded on our consolidated balance sheet as of December 31, 2020 from
previous acquisitions, which represents approximately 21% of our total assets. These goodwill assets are subject to annual
impairment testing and more frequent testing upon the occurrence of certain events or significant changes in circumstances that
indicate goodwill may be impaired. If we experience changes or factors arise that negatively affect the expected cash flows of a
reporting unit, we may be required to write off all or a portion of the reporting unit’s related goodwill assets. The carrying value
and fair value of our Sikorsky reporting unit are closely aligned. Therefore, any business deterioration, contract cancellations or
terminations, or market pressures could cause our sales, earnings and cash flows to decline below current projections and could
cause goodwill and intangible assets to be impaired. Additionally, Sikorsky may not perform as expected, or demand for its
products may be adversely affected by global economic conditions, including oil and gas trends that are outside of our control.
Changes in U.S. (federal or state) or foreign tax laws and regulations, or their interpretation and application, including
those with retroactive effect, including the amortization for research or experimental expenditures, could result in increases in
our tax expense and affect profitability and cash flows. Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the
option to deduct research and development expenditures currently and requires taxpayers to amortize them over five years.
While it is possible that Congress may modify or repeal this provision before it takes effect and we continue to have ongoing
discussions with members of Congress, both on our own and with other industries through coalitions, we have no assurance that
these provisions will be modified or repealed. Furthermore, we are continuing to work with our advisors to refine our legal
interpretation of this provision prior to implementation in 2022. If these provisions are not repealed and based on current
interpretations of the law, initially this would materially decrease our cash from operations based on current assumptions
beginning in 2022 by approximately $2.0 billion; and increase our net deferred tax assets by a similar amount. The largest
impact would be on 2022 cash from operations, which would depend on the amount of research and development expenses paid
or incurred in 2022 and other factors. The impact, however, would continue over the five year amortization period but would
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decrease over the period and be immaterial in year six. The amount of net deferred tax assets will change periodically based on
several factors, including the measurement of our postretirement benefit plan obligations, actual cash contributions to our
postretirement benefit plans, and future changes in tax laws. In addition, we are regularly under audit or examination by tax
authorities, including foreign tax authorities. The final determination of tax audits and any related litigation could similarly
result in unanticipated increases in our tax expense and affect profitability and cash flows.
Our business involves significant risks and uncertainties that may not be covered by indemnity or insurance.
A significant portion of our business relates to designing, developing and manufacturing advanced defense and technology
products and systems. New technologies may be untested or unproven. Failure of some of these products and services could
result in extensive loss of life or property damage. Accordingly, we may incur liabilities that are unique to our products and
services. In some but not all circumstances, we may be entitled to certain legal protections or indemnifications from our
customers, either through U.S. Government indemnifications under Public Law 85-804 or the Price-Anderson Act, qualification
of our products and services by the Department of Homeland Security under the SAFETY Act provisions of the Homeland
Security Act of 2002, contractual provisions or otherwise. We endeavor to obtain insurance coverage from established
insurance carriers to cover these risks and liabilities. The amount of insurance coverage that we maintain may not be adequate
to cover all claims or liabilities. Existing coverage may be canceled while we remain exposed to the risk and it is not possible to
obtain insurance to protect against all operational risks, natural hazards and liabilities. For example, we are limited in the
amount of insurance we can obtain to cover certain natural hazards such as earthquakes, fires or extreme weather conditions.
We have significant operations in geographic areas prone to these risks, such as in California, Florida and Texas. Even if
insurance coverage is available, we may not be able to obtain it in an amount, at a price or on terms acceptable to us. Some
insurance providers may be unable or unwilling to provide us insurance given the nature of our business or products.
Additionally, disputes with insurance carriers over coverage terms or the insolvency of one or more of our insurance carriers
may significantly affect the amount or timing of our cash flows.
Substantial costs resulting from an accident; failure of or defect in our products or services; natural catastrophe or other
incident; or liability arising from our products and services in excess of any legal protection, indemnity, and our insurance
coverage (or for which indemnity or insurance is not available or not obtained) could adversely impact our financial condition,
cash flows, and operating results. Any accident, failure of, or defect in our products or services, even if fully indemnified or
insured, could negatively affect our reputation among our customers and the public and make it more difficult for us to compete
effectively. It also could affect the cost and availability of adequate insurance in the future.
Environmental costs could adversely affect our future earnings as well as the affordability of our products and services.
Our operations are subject to and affected by a variety of federal, state, local and foreign environmental protection laws and
regulations. We are involved in environmental remediation at some of our current and former facilities and at third-party-owned
sites where we have been designated a potentially responsible party as a result of our prior activities and those of our
predecessor companies. In addition, we could be affected by future regulations imposed or claims asserted in response to
concerns over climate change, other aspects of the environment or natural resources. We have an ongoing, comprehensive
sustainability program to reduce the effects of our operations on the environment.
We manage and have managed various U.S. Government-owned facilities on behalf of the U.S. Government. At such
facilities, environmental compliance and remediation costs historically have been the responsibility of the U.S. Government.
We have relied, and continue to rely with respect to past practices, on U.S. Government funding to pay such costs,
notwithstanding efforts by some U.S. Government representatives to limit this responsibility. Although the U.S. Government
remains responsible for capital and operating costs associated with environmental compliance, responsibility for fines and
penalties associated with environmental noncompliance typically is borne by either the U.S. Government or the contractor,
depending on the contract and the relevant facts. Some environmental laws include criminal provisions. A conviction under
environmental law could affect our ability to be awarded future or perform under existing U.S. Government contracts.
We have incurred and will continue to incur liabilities under various federal, state, local and foreign statutes for
environmental protection and remediation. The extent of our financial exposure cannot in all cases be reasonably estimated at
this time. Among the variables management must assess in evaluating costs associated with these cases and remediation sites
generally are the status of site assessment, extent of the contamination, impacts on natural resources, changing cost estimates,
evolution of technologies used to remediate the site, continually evolving environmental standards and cost allowability issues,
including varying efforts by the U.S. Government to limit allowability of our costs in resolving liability at third-party-owned
sites. For information regarding these matters, including current estimates of the amounts that we believe are required for
environmental remediation to the extent probable and estimable, see “Critical Accounting Policies - Environmental Matters” in
Management’s Discussion and Analysis of Financial Condition and Results of Operations and “Note 15 – Legal Proceedings,
Commitments and Contingencies” included in our Notes to Consolidated Financial Statements.
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We are involved in a number of legal proceedings. We cannot predict the outcome of litigation and other contingencies with
certainty.
Our business may be adversely affected by the outcome of legal proceedings and other contingencies that cannot be
predicted with certainty. As required by U.S. GAAP, we estimate loss contingencies and establish reserves based on our
assessment of contingencies where liability is deemed probable and reasonably estimable in light of the facts and circumstances
known to us at a particular point in time. Subsequent developments in legal proceedings may affect our assessment and
estimates of the loss contingency recorded as a liability or as a reserve against assets in our financial statements. For a
description of our current legal proceedings, see Item 3 - Legal Proceedings along with “Note 15 – Legal Proceedings,
Commitments and Contingencies” included in our Notes to Consolidated Financial Statements.
Risks Related to Ownership of our Common Stock
There can be no assurance that we will continue to increase our dividend or to repurchase shares of our common stock at
current levels.
Cash dividend payments and share repurchases are subject to limitations under applicable laws and the discretion of our
Board of Directors and are determined after considering then-existing conditions, including earnings, other operating results
and capital requirements and cash deployment alternatives. Our payment of dividends and share repurchases could vary from
historical practices or our stated expectations. Decreases in asset values or increases in liabilities, including liabilities associated
with benefit plans and assets and liabilities associated with taxes, can reduce net earnings and stockholders’ equity. A deficit in
stockholders’ equity could limit our ability to pay dividends and make share repurchases under Maryland state law in the future.
In addition, the 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 and applicable law.
Actual financial results could differ from our judgments and estimates. See “Critical Accounting Policies” in
Management’s Discussion and Analysis of Financial Condition and Results of Operations and “Note 1 – Significant Accounting
Policies” included in our Notes to Consolidated Financial Statements for a complete discussion of our significant accounting
policies and use of estimates.
ITEM 1B.
Unresolved Staff Comments
None.
ITEM 2.
Properties
At December 31, 2020, we owned or leased building space (including offices, manufacturing plants, warehouses, service
centers, laboratories and other facilities) at approximately 385 locations primarily in the U.S. Additionally, we manage or
occupy approximately 15 government-owned facilities under lease and other arrangements. At December 31, 2020, we had
significant operations in the following locations:
Aeronautics - Palmdale, California; Marietta, Georgia; Greenville, South Carolina; and Fort Worth, Texas.
•
• Missiles and Fire Control - Camden, Arkansas; Ocala and Orlando, Florida; Lexington, Kentucky; and Grand Prairie,
Texas.
Rotary and Mission Systems - Shelton and Stratford, Connecticut; Orlando, Florida; Moorestown/Mt. Laurel, New
Jersey; Owego and Syracuse, New York; Manassas, Virginia; and Mielec, Poland.
Space - Huntsville, Alabama; Sunnyvale, California; Denver, Colorado; Cape Canaveral, Florida; Valley Forge,
Pennsylvania; and Reading, England.
Corporate activities - Bethesda, Maryland.
•
•
•
24
The following is a summary of our square feet of floor space owned, leased, or utilized by business segment at
December 31, 2020 (in millions):
Aeronautics
Missiles and Fire Control
Rotary and Mission Systems
Space
Corporate activities
Total
Owned
5.1
7.0
11.3
8.9
2.5
34.8
Leased
3.0
3.1
5.8
2.7
0.9
15.5
Government-
Owned
14.5
1.7
0.6
5.4
—
22.2
Total
22.6
11.8
17.7
17.0
3.4
72.5
We believe our facilities are in good condition and adequate for their current use. We may improve, replace or reduce
facilities as considered appropriate to meet the needs of our operations.
ITEM 3.
Legal Proceedings
We are a party to or have property subject to litigation and other proceedings that arise in the ordinary course of our
business, including matters arising under provisions relating to the protection of the environment, and are subject to
contingencies related to certain businesses we previously owned. These types of matters could result in fines, penalties, cost
reimbursements or contributions, compensatory or treble damages or non-monetary sanctions or relief. We believe the
probability is remote that the outcome of each of these matters will have a material adverse effect on the corporation as a whole,
notwithstanding that the unfavorable resolution of any matter may have a material effect on our net earnings in any particular
interim reporting period. We cannot predict the outcome of legal or other proceedings with certainty.
We are subject to federal, state, local and foreign requirements for the protection of the environment, including those for
discharge of hazardous materials and remediation of contaminated sites. Due in part to the complexity and pervasiveness of
these requirements, we are a party to or have property subject to various lawsuits, proceedings and remediation obligations. The
extent of our financial exposure cannot in all cases be reasonably estimated at this time.
For information regarding the matters discussed above, including current estimates of the amounts that we believe are
required for remediation or clean-up to the extent estimable, see “Critical Accounting Policies - Environmental Matters” in
Management’s Discussion and Analysis of Financial Condition and Results of Operations and “Note 15 – Legal Proceedings,
Commitments and Contingencies” included in our Notes to Consolidated Financial Statements.
As a U.S. Government contractor, we are subject to various audits and investigations by the U.S. Government to determine
whether our operations are being conducted in accordance with applicable regulatory requirements. U.S. Government
investigations of us, whether relating to government contracts or conducted for other reasons, could result in administrative,
civil, or criminal liabilities, including repayments, fines or penalties being imposed upon us, suspension, proposed debarment,
debarment from eligibility for future U.S. Government contracting, or suspension of export privileges. Suspension or debarment
could have a material adverse effect on us because of our dependence on contracts with the U.S. Government. U.S. Government
investigations often take years to complete and many result in no adverse action against us. We also provide products and
services to customers outside of the U.S., which are subject to U.S. and foreign laws and regulations and foreign procurement
policies and practices. Our compliance with local regulations or applicable U.S. Government regulations also may be audited or
investigated.
ITEM 4.
Mine Safety Disclosures
Not applicable.
25
ITEM 4(a).
Information about our Executive Officers
Our executive officers as of January 28, 2021 are listed below, with their ages on that date, positions and offices currently
held, and principal occupation and business experience during at least the last five years. There were no family relationships
among any of our executive officers and directors. All officers serve at the discretion of the Board of Directors.
Richard F. Ambrose (age 62), Executive Vice President - Space
Mr. Ambrose has served as Executive Vice President of Space since April 2013.
Brian P. Colan (age 60), Vice President, Controller, and Chief Accounting Officer
Mr. Colan has served as Vice President, Controller, and Chief Accounting Officer since August 2014.
Scott T. Greene (age 62), Executive Vice President - Missiles and Fire Control
Mr. Greene has served as Executive Vice President of Missiles and Fire Control (MFC) since August 2019. He previously
served as Vice President, Tactical and Strike Missiles in our MFC segment from August 2017 to August 2019; Vice President,
Precision Fires and Combat Maneuver Systems in our MFC segment from January 2016 to August 2017; and Vice President,
Program Management in our MFC segment from 2011 to January 2016.
Marillyn A. Hewson (age 67), Executive Chairman
Ms. Hewson has served as Executive Chairman since June 2020. She previously served as Chairman, President and Chief
Executive Officer from January 2014 to June 2020.
Stephanie C. Hill (age 56), Executive Vice President - Rotary and Mission Systems
Ms. Hill has served as Executive Vice President of Rotary and Mission Systems (RMS) since June 2020. She previously
served as Senior Vice President, Enterprise Business Transformation from June 2019 to June 2020. Prior to that, she was
Deputy Executive Vice President of RMS from October 2018 to June 2019; Senior Vice President for Corporate Strategy and
Business Development from September 2017 to October 2018; and Vice President and General Manager of the former Cyber,
Ships and Advanced Technologies line of business for RMS from June 2015 to September 2017.
Maryanne R. Lavan (age 61), Senior Vice President, General Counsel and Corporate Secretary
Ms. Lavan has served as Senior Vice President, General Counsel and Corporate Secretary since September 2010.
John W. Mollard (age 63), Vice President and Treasurer
Mr. Mollard has served as Vice President and Treasurer since April 2016. He previously served as Vice President,
Corporate Financial Planning and Analysis from 2003 to April 2016.
Kenneth R. Possenriede (age 60), Chief Financial Officer
Mr. Possenriede has served as Chief Financial Officer since February 2019. He previously served as Vice President of
Finance and Program Management in our Aeronautics segment from April 2016 to February 2019. Prior to that, he served as
Vice President and Treasurer from 2011 through April 2016.
Frank A. St. John (age 54), Chief Operating Officer
Mr. St. John has served as Chief Operating Officer since June 2020. He previously served as Executive Vice President of
RMS from August 2019 to June 2020. Prior to that, he served as Executive Vice President of MFC from January 2018 to
August 2019; Executive Vice President and Deputy, Programs in our MFC segment from June 2017 to January 2018; and Vice
President, Orlando Operations and Tactical Missiles/Combat Maneuver Systems business in our MFC segment from 2011 to
May 2017.
James D. Taiclet (age 60), President and Chief Executive Officer
Mr. Taiclet has served as President and Chief Executive Officer of Lockheed Martin since June 2020. He previously was
chairman, president and chief executive officer of American Tower Corporation from February 2004 until March 2020 and
executive chairman from March 2020 to May 2020.
26
Gregory M. Ulmer (age 56), Acting Executive Vice President - Aeronautics
Mr. Ulmer has served as Acting Executive Vice President, Aeronautics since December 1, 2020 and as Vice President and
General Manager, F-35 Lightning II Program since March 2018. Prior to that he served as Vice President, F-35 Aircraft
Production business unit from March 2016 to March 2018. He previously served as Vice President of Operations for Advanced
Development Programs, also known as Skunk Works®, from January 2014 to March 2016.
27
PART II
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
At January 22, 2021, we had 24,929 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.
Stockholder Return Performance Graph
The following graph compares the total return on a cumulative basis through December 31, 2020 of $100 invested in
Lockheed Martin common stock on December 31, 2015 to the Standard and Poor’s (S&P) 500 Index and the S&P Aerospace &
Defense Index.
The S&P Aerospace & Defense Index comprises General Dynamics Corporation, Howmet Aerospace Inc., Huntington
Ingalls Industries, L3Harris Technologies, Inc., Lockheed Martin Corporation, Northrop Grumman Corporation, Raytheon
Technologies Corporation, Teledyne Technologies Incorporated, Textron Inc., The Boeing Company, and Transdigm Group
Inc. The stockholder return performance indicated on the graph is not a guarantee of future performance.
This graph is not deemed to be “filed” with the U.S. Securities and Exchange Commission or subject to the liabilities of
Section 18 of the Securities Exchange Act of 1934 (the Exchange Act), and should not be deemed to be incorporated by
reference into any of our prior or subsequent filings under the Securities Act of 1933 or the Exchange Act.
28
Lockheed Martin Common StockS&P 500 IndexS&P Aerospace & Defense IndexDec-15Mar-16Jun-16Sep-16Dec-16Mar-17Jun-17Sep-17Dec-17Mar-18Jun-18Sep-18Dec-18Mar-19Jun-19Sep-19Dec-19Mar-20Jun-20Sep-20Dec-20050100150200250
Purchases of Equity Securities
There were no sales of unregistered equity securities during the quarter ended December 31, 2020.
The following table provides information about our repurchases of our common stock registered pursuant to Section 12 of
the Exchange Act of 1934 during the quarter ended December 31, 2020.
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
Approximate Dollar
Value of Shares That
May Yet be Purchased
Under the Plans or
Programs (b)
(in millions)
September 28, 2020 – October 25, 2020
October 26, 2020 – November 29, 2020
November 30, 2020 – December 31, 2020
Total (c)
— $
—
87 $
350.79
9,900 $
366.61
9,987 $
366.47
— $
— $
— $
—
3,011
3,011
3,011
(b)
(a) We close our books and records on the last Sunday of each month to align our financial closing with our business processes, except for
the month of December, as our fiscal year ends on December 31. As a result, our fiscal months often differ from the calendar months.
For example, October 26, 2020 was the first day of our November 2020 fiscal month.
In October 2010, our Board of Directors approved a share repurchase program pursuant to which we are authorized to repurchase our
common stock in privately negotiated transactions or in the open market at prices per share not exceeding the then-current market prices.
From time to time, our Board of Directors authorizes increases to our share repurchase program. The total remaining authorization for
future common share repurchases under our share repurchase program was $3.0 billion as of December 31, 2020. Under the program,
management has discretion to determine the dollar amount of shares to be repurchased and the timing of any repurchases in compliance
with applicable law and regulation. This includes purchases pursuant to Rule 10b5-1 plans, including accelerated share repurchases. The
program does not have an expiration date.
(c) During the quarter ended December 31, 2020, the total number of shares purchased included 9,987 shares that were transferred to us by
employees in satisfaction of tax withholding obligations associated with the vesting of restricted stock units. These purchases were made
pursuant to a separate authorization by our Board of Directors and are not included within the program.
29
ITEM 6.
Selected Financial Data
(In millions, except per share data)
Operating results
Net sales
Operating profit (a)(b)(c)(d)(e)(f)
Net earnings from continuing operations (a)(b)(d)(e)(f)(g)(h)
Net (loss) earnings from discontinued operations (i)
Net earnings (b)(c)(d)(e)(f)(g)(h)
Earnings from continuing operations per common share
Basic (a)(b)(d)(e)(f)(g)(h)
Diluted (a)(b)(d)(e)(f)(g)(h)
Earnings (loss) from discontinued operations per common
share
Basic
Diluted
Earnings per common share
Basic (a)(b)(d)(e)(f)(g)(h)
Diluted (a)(b)(d)(e)(f)(g)(h)
2020
2019
2018
2017
2016
8,644
6,888
$ 65,398 $ 59,812 $ 53,762 $ 49,960 $ 47,290
5,888
3,661
1,512
5,173
8,545
6,230
—
6,230
7,334
5,046
—
5,046
6,744
1,890
73
1,963
(55)
6,833
24.60
24.50
22.09
21.95
17.74
17.59
(0.20)
(0.20)
—
—
—
—
6.56
6.50
0.26
0.25
12.23
12.08
5.05
4.99
24.40
24.30
9.80 $
22.09
21.95
9.00 $
17.74
17.59
8.20 $
6.82
6.75
7.46 $
17.28
17.07
6.77
$
$
772 $
16,103
10,769
44,876
14,398
14,104
43,427
1,449
281
1,837
14,780
10,764
47,560
12,456
14,282
46,083
1,477
289
2,861 $
17,505
10,807
46,620
12,913
14,263
47,396
3,160 $
19,378
10,806
50,710
13,933
12,169
44,672
6,038
279
1,514 $
17,095
10,604
47,528
13,972
12,654
44,357
3,171
280
Cash dividends declared per common share
Balance sheet
Cash, cash equivalents and short-term investments (b)
Total current assets
Goodwill
Total assets (b)
Total current liabilities
Total debt, net
Total liabilities (b)(k)
Total equity (deficit) (b)(g)
Common shares in stockholders’ equity at year-end
Cash flow information
Net cash provided by operating activities (b)(c)
5,189
Net cash used for investing activities
(985)
Net cash (used for) provided by financing activities
(3,457)
Backlog
$ 147,131 $ 143,981 $ 130,468 $ 105,493 $ 103,458
(a) Our operating profit and net earnings from continuing operations and earnings per share from continuing operations were affected by
severance charges of $27 million ($21 million, or $0.08 per share, after-tax) in 2020 primarily related to corporate functions, severance
and restructuring charges of $96 million ($76 million, or $0.26 per share, after-tax) in 2018 and severance charges of $80 million ($52
million, or $0.17 per share, after-tax) in 2016.
The impact of our postretirement benefit plans can cause our operating profit, net earnings, cash flows and certain amounts recorded on
our consolidated balance sheets to fluctuate. Accordingly, our net earnings were affected by a net FAS/CAS pension adjustment of
$2.1 billion in 2020, $1.5 billion in 2019, $1.0 billion in 2018, $876 million in 2017, and $902 million in 2016. We made pension
contributions of $1.0 billion in 2020, $1.0 billion in 2019, $5.0 billion in 2018, $46 million in 2017, and $23 million in 2016, and these
contributions caused fluctuations in our operating cash flows and cash balance between each of those years. See “Critical Accounting
Policies - Postretirement Benefit Plans” in Management’s Discussion and Analysis of Financial Condition and Results of Operations for
more information.
8,183 $
(2,010)
(4,527)
6,476 $
(1,147)
(4,305)
7,311 $
(1,241)
(5,328)
3,138 $
(1,075)
(4,152)
(776)
284
$
(b)
(c) Cash generated from operations for the year ended December 31, 2020 reflects the receipt of approximately $1.2 billion of net
accelerated progress payments due to the U.S. Government's increase in the progress payment rate from 80 percent to 90 percent and the
deferral of $460 million for the employer portion of payroll taxes to 2021 and 2022 pursuant to the CARES Act. We used the accelerated
progress payments from the U.S. Government plus cash on hand to accelerate $2.1 billion of payments to our suppliers as of
December 31, 2020 that are due by their terms in future periods.
In 2019 and 2017, we recorded a previously deferred non-cash gain of $51 million ($38 million, or $0.13 per share, after-tax) and
$198 million ($122 million, or $0.42 per share, after-tax) related to properties sold in 2015 as a result of completing our remaining
obligations.
(d)
30
(e)
(f)
(g)
For the year ended December 31, 2019, net earnings include a gain of $34 million (approximately $0 after-tax) for the sale of our
Distributed Energy Solutions business.
For the year ended December 31, 2020 and 2018, operating profit includes a non-cash asset impairment charge of $128 million ($96
million, or $0.34 per share, after-tax) and $110 million ($83 million, or $0.29 per share, after-tax) related to our equity method investee,
Advanced Military Maintenance, Repair and Overhaul Center LLC (AMMROC). For the year ended December 31, 2017, operating
profit includes a $64 million ($40 million, or $0.14 per share, after-tax) charge, which represents our portion of a non-cash asset
impairment charge recorded by AMMROC. See “Note 1 – Significant Accounting Policies” included in our Notes to Consolidated
Financial Statements for more information.
In 2017, we recorded a net one-time tax charge of $2.0 billion ($6.77 per share), substantially all of which was non-cash, primarily
related to the estimated impact of the Tax Cuts and Jobs Act of 2017 (see “Note 10 – Income Taxes” included in our Notes to
Consolidated Financial Statements). This charge along with our annual re-measurement adjustment related to our postretirement benefit
plans of $1.4 billion resulted in a deficit in our total equity as of December 31, 2017.
(h) Net earnings for the year ended December 31, 2019 include benefits of $127 million ($0.45 per share) for additional tax deductions for
the prior year, primarily attributable to foreign derived intangible income treatment based on proposed tax regulations released on March
4, 2019 and a change in our tax accounting method. Net earnings for the year ended December 31, 2018 include benefits of $146 million
($0.51 per share) for additional tax deductions for the prior year, primarily attributable to true-ups to the net one-time charges related to
the Tax Cuts and Jobs Act enacted on December 22, 2017 and our change in tax accounting method (see “Note 10 – Income Taxes”
included in our Notes to Consolidated Financial Statements).
(j)
(i) Discontinued operations for the year ended December 31, 2020 include a $55 million ($0.20 per share) non-cash charge resulting from
the resolution of certain tax matters related to the former Information Systems & Global Solutions (IS&GS) business divested in 2016.
Discontinued operations for the year ended December 31, 2016 include a $1.2 billion net gain related to the divestiture of our IS&GS
business in 2016.
Effective January 1, 2019, we adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). As of December 31, 2019,
right-of-use operating lease assets were $1.0 billion and operating lease liabilities were $1.1 billion. Approximately $855 million of
operating lease liabilities were classified as noncurrent. There was no impact to our consolidated statements of earnings or cash flows as
a result of adopting this standard. Prior periods were not restated for the adoption of ASU 2016-02. See “Note 9 – Leases” included in
our Notes to Consolidated Financial Statements.
31
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is
intended to help the reader understand our results of operations and financial condition. The MD&A is provided as a
supplement to, and should be read in conjunction with, our consolidated financial statements and notes thereto included in Item
8 - Financial Statements and Supplementary Data.
The MD&A generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions
of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in
“Management’s Discussion and Analysis of Financial Condition and Results or Operations” in the Company’s Annual Report
on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on February 7, 2020.
We are a global security and aerospace company principally engaged in the research, design, development, manufacture,
integration and sustainment of advanced technology systems, products and services. We also provide a broad range of
management, engineering, technical, scientific, logistics, system integration and cybersecurity services. We serve both U.S. and
international customers with products and services that have defense, civil and commercial applications, with our principal
customers being agencies of the U.S. Government. In 2020, 74% of our $65.4 billion in net sales were from the U.S.
Government, either as a prime contractor or as a subcontractor (including 64% from the Department of Defense (DoD)), 25%
were from international customers (including foreign military sales (FMS) contracted through the U.S. Government) and 1%
were from U.S. commercial and other customers. Our main areas of focus are in defense, space, intelligence, homeland security
and information technology, including cybersecurity.
We operate in four business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS)
and Space. We organize our business segments based on the nature of the products and services offered.
We operate in an environment characterized by both complexity in global security and continuing economic pressures in
the U.S. and globally. A significant component of our strategy in this environment is to focus on program execution, improving
the quality and predictability of the delivery of our products and services, and placing security capability quickly into the hands
of our U.S. and international customers at affordable prices. Recognizing that our customers are resource constrained, we are
endeavoring to develop and extend our portfolio domestically in a disciplined manner with a focus on adjacent markets close to
our core capabilities, as well as growing our international sales. We continue to focus on affordability initiatives. We also
expect to continue to innovate and invest in technologies to fulfill new mission requirements for our customers, including
through acquisitions, and invest in our people so that we have the technical skills necessary to succeed.
COVID-19
The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health
Organization and a national emergency by the U.S. Government in March 2020 and has negatively affected the U.S. and global
economies, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures
and orders to “shelter-in-place” and quarantine restrictions. We have taken measures to protect the health and safety of our
employees, work with our customers and suppliers to minimize disruptions and support our community in addressing the
challenges posed by this ongoing global pandemic. The pandemic has presented unprecedented business challenges, and we
have experienced impacts in each of our business areas related to COVID-19, primarily in increased coronavirus-related costs,
delays in supplier deliveries, impacts of travel restrictions, site access and quarantine requirements, and the impacts of remote
work and adjusted work schedules.
Despite these challenges, Lockheed Martin and the U.S. Government’s pro-active efforts, especially with regard to the
supply chain, helped to partially mitigate the disruptions caused by COVID-19 on our operations in 2020. In addition, favorable
contract award timing, strong operational performance and lower travel and overhead expenditures due to COVID-19
restrictions partially offset the impacts of COVID-19 on our financial results in 2020. However, the ultimate impact of
COVID-19 on our operations and financial performance in future periods, including our ability to execute our programs in the
expected timeframe, remains uncertain and will depend on future pandemic related developments, including the duration of the
pandemic, any potential subsequent waves of COVID-19 infection, the effectiveness, distribution and acceptance of COVID-19
vaccines, and related government actions to prevent and manage disease spread, all of which are uncertain and cannot be
predicted. The long-term impacts of COVID-19 on government budgets and other funding priorities, including international
priorities, that impact demand for our products and services and our business are also difficult to predict but could negatively
affect our future results of operations. For additional risks to the corporation related to the COVID-19 pandemic, see Item 1A -
Risk Factors.
32
In accordance with the Department of Homeland Security’s identification of the Defense Industrial Base as a critical
infrastructure sector in March 2020, our U.S. production facilities have continued to operate in support of essential products and
services required to meet national security commitments to the U.S. Government and the U.S. military. Although we are
designated as a critical infrastructure workforce, operations have been adjusted in response to the pandemic, including, most
significantly, a reduction in the F-35 production rate primarily due to supplier delays. The reduction delayed 2020 F-35
deliveries by 18 aircraft. Due to the supplier delays, we implemented a temporary schedule adjustment for the F-35 production
workforce in Fort Worth, Texas. While the F-35 production workforce resumed their pre-COVID-19 work schedule in the third
quarter of 2020, staffing levels at our facilities, our customer facilities, and our supplier facilities have and could continue to
fluctuate as a result of COVID-19, which could negatively impact our business. In addition, countries other than the U.S. have
different responses to the pandemic that can affect our international operations and the operations of our suppliers and
customers. Base closures, travel restrictions, and quarantine requirements both within and outside the U.S. have affected our
normal operations and resulted in some schedule delays and future or prolonged occurrences of these could adversely affect our
ability to achieve future contract milestones and our results of operations.
The U.S. Government has taken actions in response to COVID-19 to increase the progress payment rates in new and
existing contracts and accelerate contract awards to provide cash flow and liquidity for companies in the Defense Industrial
Base, including large prime contractors like Lockheed Martin and smaller suppliers. We continue to proactively monitor our
supply chain and have implemented multiple actions to help mitigate the effects of COVID-19, including accelerating payments
to suppliers within our global supply base as a result of the actions taken by the DoD in changing the progress payment policy.
We plan to continue to accelerate payments to the supply chain assuming the continuation of the current DoD progress payment
policy in order to mitigate COVID-19 risks, prioritizing impacted suppliers and small businesses. As described in Item 1A, Risk
Factors of our Annual Report on Form 10-K, we rely on other companies and the U.S. Government to provide materials, major
components and products, and to perform a portion of the services that are provided to our customers under the terms of most of
our contracts. Many of these suppliers also supply parts for commercial aviation businesses which have been more significantly
impacted by the pandemic due to the impacts on these markets. Global supply chain disruption caused by the response to
COVID-19 has impacted some of our programs and could impact our ability to perform on our contracts, in particular in
instances where there is not a qualified second source of supply. We have identified a number of suppliers that have
experienced delivery impacts due to COVID-19 and have been working to manage those impacts. However, if alternatives or
other mitigations are not effective, deliveries and other milestones on affected programs could be adversely impacted.
Our work in production facilities and labs has continued throughout the pandemic, consistent with guidance from federal,
state and local officials to minimize the spread of COVID-19. We have taken actions to equip employees with personal
protective equipment, establish minimum staffing and social distancing policies, sanitize workspaces more frequently, adopt
alternate work schedules and institute other measures aimed to sustain production and related services while minimizing the
transmission of COVID-19. In addition, we have implemented a flexible teleworking policy for employees who can meet our
customer commitments remotely, and a significant portion of our workforce is currently teleworking. It remains uncertain when
and on what scale teleworking employees will return to work in person. We have not previously experienced such a significant
portion of our workforce working remotely for a prolonged period, so its effects on our long-term operations are unknown.
Coronavirus-related costs for us and our suppliers are significant and we are seeking reimbursement of coronavirus-related
costs under our U.S. Government contracts through a combination of equitable adjustments to the contract price and
reimbursement of the costs under Section 3610 of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), which
allows federal agencies to reimburse contractors at the minimum applicable contract billing rate for costs arising from certain
paid leave, including sick leave a contractor provides to keep its employees or subcontractors in a ready state, as well as to
protect the life and safety of government and contractor personnel from March 27, 2020 through March 31, 2021.
Reimbursement of any costs under Section 3610 of the CARES Act increases sales, but is not expected to be at a profit or fee
and so would have the effect of reducing our margins in future periods. These cost increases, including costs for employees
whose jobs cannot be performed remotely and for certain costs incurred prior to March 27, 2020, may not be fully recoverable
under our contracts, particularly fixed-price contracts, or adequately covered by insurance. We also have no assurance that
Congress will appropriate funds to cover the reimbursement of defense contractors authorized by the CARES Act, which could
reduce funds available for other U.S. Government defense priorities. We also deferred certain payroll taxes in 2020 as provided
for in the CARES Act, which has the effect of increasing our cash from operations in 2020, but reducing cash from operations
in 2021 and 2022.
We continue to work with our customers, employees, suppliers and communities to address the impacts of COVID-19 and
to take actions in an effort to mitigate adverse consequences.
33
2021 Financial Trends
We expect our 2021 net sales to increase by approximately 4% from 2020 levels. The projected growth is driven by
increases across all four business areas. Specifically, the increased growth is driven by F-35, F-16 and classified programs at
Aeronautics, increased volume within integrated air and missile defense at MFC, increased volume on Sikorsky helicopter
program and training and logistics solutions programs at RMS, and hypersonics volume (including an acquisition of Integration
Innovation Inc.’s (i3) hypersonics portfolio in November 2020) at Space. Total business segment operating margin in 2021 is
expected to be approximately 11.0% and cash from operations is expected to be greater than or equal to $8.3 billion, net of $1.0
billion of planned pension contributions. The preliminary outlook for 2021 reflects the UK Ministry of Defense’s intent to re-
nationalize the Atomic Weapons Establishment program (AWE program) on June 30, 2021. It does not incorporate the pending
acquisition of Aerojet Rocketdyne Holdings, Inc. announced on December 20, 2020. The outlook for 2021 assumes continued
support and funding of our programs, known impacts of COVID-19, and a statutory tax rate of 21%. Additionally, it assumes
that there will not be significant reductions in customer budgets, changes in funding priorities and that the U.S. Government
will not operate under a continuing resolution for an extended period in which new contract and program starts are restricted.
Changes in circumstances may require us to revise our assumptions, which could materially change our current estimate of
2021 net sales, operating margin and cash flows.
We expect a total net FAS/CAS pension benefit of approximately $2.3 billion in 2021 based on a 2.50% discount rate (a 75
basis point decrease from the end of 2019), an approximate 16.5% return on plan assets in 2020, and a 7.00% expected long-
term rate of return on plan assets in future years, among other assumptions. We expect to make contributions of approximately
$1.0 billion to our qualified defined benefit pension plans in 2021 and anticipate recovering approximately $2.1 billion of CAS
pension cost.
Portfolio Shaping Activities
We continuously strive to strengthen our portfolio of products and services to meet the current and future needs of our
customers. We accomplish this in part by our independent research and development activities and through acquisition,
divestiture and internal realignment activities.
We selectively pursue the acquisition of businesses and investments at attractive valuations that will expand or complement
our current portfolio and allow access to new customers or technologies. We also may explore the divestiture of businesses that
no longer meet our needs or strategy or that could perform better outside of our organization. In pursuing our business strategy,
we routinely conduct discussions, evaluate targets and enter into agreements regarding possible acquisitions, divestitures, joint
ventures and equity investments.
Acquisitions
On December 20, 2020 we entered into an agreement to acquire Aerojet Rocketdyne Holdings, Inc. (Aerojet Rocketdyne)
for $56 per share in cash, which is expected to be reduced to $51 per share after Aerojet Rocketdyne pays a pre-closing special
dividend to its stockholders on March 24, 2021. This represents a post-dividend equity value of approximately $4.6 billion, on a
fully diluted as-converted basis, and a transaction value of approximately $4.4 billion after the assumption of Aerojet
Rocketdyne’s projected net cash balance. We expect to finance the acquisition through a combination of cash on hand and new
debt issuances. The acquisition provides the corporation the opportunity to integrate Aerojet Rocketdyne’s propulsion systems
more effectively into its products, generate cost and revenue synergies, and improve efficiencies in Aerojet Rocketdyne's
production operations. The transaction will also allow customers incorporating Aerojet Rocketdyne products to offer more
timely, innovative and affordable solutions, and reduce the prices paid by the U S. Government for systems it buys. The
transaction is expected to close in the second half of 2021 and is subject to the satisfaction of customary closing conditions,
including regulatory approvals and approval by Aerojet Rocketdyne’s stockholders. For risks related to the transaction, see Item
1A - Risk Factors. For more information regarding the acquisition terms, see Item 1.01 in our Current Report on Form 8-K filed
with the SEC on December 21, 2020 for a description and copy of the merger agreement.
Additionally, in the fourth quarter of 2020, we paid approximately $282 million for the acquisitions of Integration
Innovation Inc.’s (i3) hypersonics portfolio and Allcomp Inc. The purchase price for each was allocated to the estimated fair
value of net tangible and intangible assets acquired, with any excess purchase price recorded as goodwill. As a result, we
recorded goodwill of $173 million at our Space business segment and $16 million at our Aeronautics business segment. 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 respective acquisition date. The operating results of the businesses acquired have been included within our
operating results since their respective acquisition dates.
34
Industry Considerations
U.S. Government Funding
On December 27, 2020, the President signed the fiscal year (FY) 2021 Consolidated Appropriations Act, providing annual
funding for the DoD, other government agencies, and COVID-19 relief. The appropriations provide $741 billion in
discretionary funding for national defense (includes DoD funding and defense-related spending in energy and water
development, homeland security, and military construction appropriations), of which $671 billion is in base funding and $69
billion is Overseas Contingency Operations (OCO)/emergency funding (OCO and emergency supplemental funding do not
count toward discretionary spending caps). Of the $741 billion, the DoD was allocated $704 billion, composed of $635 billion
in base funding and $69 billion in OCO and emergency funding. The appropriations adhere to the Bipartisan Budget Act of
2019 (BBA 2019), which increased the spending limits for both defense and non-defense discretionary funds for the final two
years (FY 2020 and FY 2021) of the Budget Control Act of 2011 (BCA).
The Appropriations Act also provides stimulus funds to individuals, businesses, and hospitals in response to the economic
distress caused by the coronavirus (COVID-19) pandemic. Additionally, it extends Section 3610 of the CARES Act until March
31, 2021, which gives DoD and federal agencies discretion to reimburse contractors for any paid leave, including sick leave, a
contractor provides during the pandemic to keep its employees in a ready state.
International Business
A key component of our strategic plan is to grow our international sales. To accomplish this growth, we continue to focus
on strengthening our relationships internationally through partnerships and joint technology efforts. We conduct business with
international customers through each of our business segments through either FMS or direct sales to international customers.
See Item 1A - Risk Factors for a discussion of risks related to international sales.
International customers accounted for 31% of Aeronautics’ 2020 net sales. There continues to be strong international
interest in the F-35 program, which includes commitments from the U.S. Government and seven international partner countries
and six international customers, as well as expressions of interest from other countries. The U.S. Government and the partner
countries continue to work together on the design, testing, production, and sustainment of the F-35 program. Other areas of
international expansion at our Aeronautics business segment include the F-16 and C-130J programs. Aeronautics received
contracts in 2020 with Bulgaria and Taiwan for new F-16 aircraft, extending work beyond 2025. The C-130J Super Hercules
aircraft continued to draw interest from various international customers, including a contract in 2020 from New Zealand.
In 2020, international customers accounted for 25% of MFC’s net sales. Our MFC business segment continues to generate
significant international interest, most notably in the air and missile defense product line, which produces the Patriot Advanced
Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD) systems. The PAC-3 family of missiles are the only
combat proven Hit-to-Kill interceptors that defend against incoming threats, including tactical ballistic missiles, cruise missiles
and aircraft. Fourteen nations have chosen PAC-3 Cost Reduction Initiative (CRI) and PAC-3 Missile Segment Enhancement
(MSE) to provide missile defense capabilities. THAAD is an integrated system designed to protect against high altitude ballistic
missile threats. Additionally, we continue to see international demand for our tactical missile and fire control products, where
we received orders for precision fires systems from Poland and Romania; and Apache and Low Altitude Navigation and
Targeting Infrared for Night (LANTIRN®) systems for Qatar.
In 2020, international customers accounted for 25% of RMS’ net sales. Our RMS business segment continues to experience
international interest in the Aegis Ballistic Missile Defense System (Aegis) for which we perform activities in the development,
production, modernization, ship integration, test and lifetime support for ships of international customers such as Japan, Spain,
Republic of Korea, and Australia. We have ongoing combat systems programs associated with different classes of surface
combatant ships for customers in Canada, Chile, and New Zealand. Our Multi-Mission Surface Combatant (MMSC) program
provides surface combatant ships for international customers, such as the Kingdom of Saudi Arabia, designed to operate in
shallow waters and the open ocean. In our training and logistics solutions portfolio, we have active programs and pursuits in the
United Kingdom, the Kingdom of Saudi Arabia, Canada, Singapore, Australia, Germany and France. We have active
development, production, and sustainment support of the S-70i Black Hawk® and MH-60 Seahawk® aircraft to foreign military
customers, including Chile, Australia, Denmark, Taiwan, the Kingdom of Saudi Arabia, Colombia, and Greece. Commercial
aircraft are sold to international customers to support search and rescue missions as well as VIP and offshore oil and gas
transportation.
International customers accounted for 13% of Space’s 2020 net sales. The majority of our Space business segment
international sales are from our majority share of AWE Management Limited (AWE), which operates the United Kingdom’s
nuclear deterrent program. The work at AWE covers the entire life cycle, from initial concept, assessment and design, through
35
component manufacture and assembly, in-service support and decommissioning, and disposal. On November 2, 2020, the UK
Ministry of Defense (MOD) announced its intention to re-nationalize the program on June 30, 2021. We are working with the
MOD to transition operations.
Status of the F-35 Program
The F-35 program primarily consists of production contracts, sustainment activities, and new development efforts.
Production of the aircraft is expected to continue for many years given the U.S. Government’s current inventory objective of
2,456 aircraft for the U.S. Air Force, U.S. Marine Corps, and U.S. Navy; commitments from our seven international partner
countries and six international customers; as well as expressions of interest from other countries.
During 2020, the F-35 program completed several milestones both domestically and internationally. The U.S.
Government continued testing the aircraft, including ship trials, mission and weapons systems evaluations, and the F-35 fleet
recently surpassed 355,000 flight hours. During the second half of 2020, the U.S. Government awarded the production of 18
F-35 Block Buy aircraft in addition to the 448 aircraft previously awarded. Since program inception, we have delivered 611
production F-35 aircraft, demonstrating the F-35 program’s continued progress and longevity. The first 611 F-35 aircraft
delivered to U.S. and international customers include 438 F-35A variants, 128 F-35B variants, and 45 F-35C variants.
During 2020, we delivered 120 production aircraft to our U.S. and international partner countries, and we have 356
production aircraft in backlog, including orders from our international partner countries.
In response to COVID-19 F-35 supplier delays and in conjunction with the F-35 Joint Program Office, we have tapered
our production rate, and we anticipate resuming a pre-COVID-19 production rate in 2021. The delays resulted in 18 fewer
deliveries than originally planned in 2020. See the discussion in Business Overview - COVID-19 and Item 1A, Risk Factors.
As a result of Turkey accepting delivery of the Russian S-400 air and missile defense system, the U.S. Government
removed Turkey from the F-35 program in 2019 and in December 2020 imposed sanctions on Turkey’s defense procurement
agency (SSB) and certain of the agency’s officers under the Countering America’s Adversaries Through Sanctions Act
(CAATSA). The primary sanction imposed was a restriction on all new U.S. export licenses and authorizations for any goods or
technology transferred to the SSB, but does not apply to current, valid export licenses and authorizations. Lockheed Martin
expects the U.S. Government to continue to engage Turkey on these issues, but we have no indication that the sanctions will be
removed, that additional sanctions will not be imposed or that Turkey will not issue reciprocal sanctions. While we do not
expect the current sanctions to have a material effect on our current programs, additional sanctions, reciprocal sanctions or other
actions, could be material to our operations, operating results, financial position or cash flows.
In addition to having committed to purchase up to 100 F-35 aircraft, six of which had completed production at the time of
removal, Turkish suppliers continue to produce component parts for the F-35 program, some of which are single-sourced. To
minimize the risks of disruption of our supply chain and ensure continuity of F-35 production, we have been working closely
with the DoD and supporting activities to identify and engage alternate suppliers for the component parts produced by Turkish
suppliers. We have made significant progress transitioning to non-Turkish suppliers, but due to the procedure to qualify new
parts and suppliers, this collaborative process between DoD and Lockheed Martin is ongoing. During 2020, the DoD publicly
confirmed that Turkish suppliers would be permitted to provide certain components for the F-35 through 2022. While the
transition timeline is an important first step, it is equally important that our replacement capacity is re-established so that
production is not impacted. Efforts to date have significantly reduced our risk, but final resolution on a limited number of
remaining components could affect F-35 deliveries, and any accelerated work stoppage would impact cost. We will continue to
follow official U.S. Government guidance as it relates to completed Turkish aircraft and the export and import of component
parts from the Turkish supply chain.
The effects on the F-35 program of the U.S. Government sanctions on the SSB and Turkey’s removal from the F-35
program do not appear to be significant at this time. However, unforeseen actions could impact the timing of orders, disrupt the
production of aircraft, delay delivery of aircraft, disrupt delivery of sustainment components produced in Turkey and impact
funding on the F-35 program to include the result of any reprogramming of funds that may be necessary to mitigate the impact
of alternate sources for component parts made in Turkey. While, in the case of the F-35 program, we expect that these costs
ultimately would be recovered from the U.S. Government, the availability or timing of any recovery could adversely affect our
cash flows and results of operations. For additional discussion, including the risk of sanctions on other programs involving sales
to Turkey or work with Turkish industry, see Item 1A - Risk Factors.
Given the size and complexity of the F-35 program, we anticipate that there will be continual reviews related to aircraft
performance, program schedule, cost, and requirements as part of the DoD, Congressional, and international partner countries’
oversight and budgeting processes. Current program challenges include, but are not limited to, supplier and partner
36
performance, software development, level of cost associated with life cycle operations and sustainment and warranties,
receiving funding for contracts on a timely basis, executing future flight tests, and findings resulting from testing and operating
the aircraft.
Backlog
At December 31, 2020, our backlog was $147.1 billion compared with $144.0 billion at December 31, 2019. Backlog at
December 31, 2020 was reduced by $1.0 billion to reflect the impact of the U.K. Ministry of Defense’s intent to re-nationalize
the AWE program on June 30, 2021. Backlog is converted into sales in future periods as work is performed or deliveries are
made. We expect to recognize approximately 39% of our backlog over the next 12 months and approximately 61% over the
next 24 months as revenue, with the remainder recognized thereafter.
Our backlog includes both funded (firm orders for our products and services for which funding has been both authorized
and appropriated by the customer) and unfunded (firm orders for which funding has not been appropriated) amounts. We do not
include unexercised options or potential orders under indefinite-delivery, indefinite-quantity agreements in our backlog. If any
of our contracts with firm orders were to be terminated, our backlog would be reduced by the expected value of the unfilled
orders of such contracts. Funded backlog was $102.3 billion at December 31, 2020, as compared to $94.5 billion at
December 31, 2019. For backlog related to each of our business segments, see “Business Segment Results of Operations” in
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
37
Consolidated Results of Operations
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. Consequently, the results of operations of a
particular year, or year-to-year comparisons of sales and profits, may not be indicative of future operating results. The
following discussions of comparative results among years should be reviewed in this context. All per share amounts cited in
these discussions are presented on a “per diluted share” basis, unless otherwise noted. Our consolidated results of operations
were as follows (in millions, except per share data):
Net sales
Cost of sales
Gross profit
Other (expense) income, net
Operating profit (a)(b)(c)(d)
Interest expense
Other non-operating income (expense), net
Earnings from continuing operations before income taxes
Income tax expense (e)
Net earnings from continuing operations
Net loss from discontinued operations (f)
Net earnings
Diluted earnings (loss) per common share
Continuing operations
Discontinued operations
Total diluted earnings per common share
2020
2019
(10)
(56,744)
8,654
2018
$ 65,398 $ 59,812 $ 53,762
(46,488)
7,274
60
7,334
(668)
(828)
5,838
(792)
5,046
—
5,046
(51,445)
8,367
178
8,545
(653)
(651)
7,241
(1,011)
6,230
—
6,230 $
8,644
(591)
182
8,235
(1,347)
6,888
(55)
6,833 $
$
$
$
24.50 $
(0.20)
24.30 $
21.95 $
—
21.95 $
17.59
—
17.59
(a)
(b)
(c)
(d)
For the years ended December 31, 2020 and 2018, operating profit include a non-cash asset impairment charge of $128 million and
$110 million related to AMMROC. See “Note 1 – Significant Accounting Policies” included in our Notes to Consolidated Financial
Statements for more information.
For the year ended December 31 , 2020, operating profit includes $27 million of severance charges primarily related to corporate
functions. For the year ended December 31, 2018, operating profit includes $96 million of severance and restructuring charges.
For the year ended December 31, 2019, operating profit includes a previously deferred non-cash gain of approximately $51 million
related to properties sold in 2015.
For the year ended December 31, 2019, operating profit includes a gain of $34 million for the sale of our Distributed Energy Solutions
business.
(e) Net earnings for the year ended December 31, 2019 include benefits of $127 million ($0.45 per share) for additional tax deductions for
the prior year, primarily attributable to foreign derived intangible income treatment based on proposed tax regulations released on March
4, 2019 and our change in tax accounting method. Net earnings for the year ended December 31, 2018 include benefits of $146 million
($0.51 per share) for additional tax deductions for the prior year, primarily attributable to true-ups to the net one-time charges related to
the Tax Cuts and Jobs Act enacted on December 22, 2017 and our change in tax accounting method. See “Income Tax Expense” section
below and “Note 10 – Income Taxes” included in our Notes to Consolidated Financial Statements for additional information.
(f) Discontinued operations for the year ended December 31, 2020 includes a $55 million ($0.20 per share) non-cash charge resulting from
the resolution of certain tax matters related to the former Information Systems & Global Solutions business divested in 2016.
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 our discussion of our
business segment results of operations.
38
Net Sales
We generate sales from the delivery of products and services to our customers. Our consolidated net sales were as follows
(in millions):
Products
% of total net sales
Services
% of total net sales
Total net sales
2020
$ 54,928
2019
$ 50,053
2018
$ 45,005
84.0 %
83.7 %
10,470
9,759
16.0 %
16.3 %
83.7 %
8,757
16.3 %
$ 65,398
$ 59,812
$ 53,762
Substantially all of our contracts are accounted for using the percentage-of-completion cost-to-cost method. Under the
percentage-of-completion cost-to-cost method, we record net sales on contracts over time based upon our progress towards
completion on a particular contract, as well as our estimate of the profit to be earned at completion. The following discussion of
material changes in our consolidated net sales should be read in tandem with the subsequent discussion of changes in our
consolidated cost of sales and our business segment results of operations because changes in our sales are typically
accompanied by a corresponding change in our cost of sales due to the nature of the percentage-of-completion cost-to-cost
method.
Product Sales
Product sales increased $4.9 billion, or 10%, in 2020 as compared to 2019, primarily due to higher product sales of
$2.0 billion at Aeronautics, $1.4 billion at MFC, $945 million at Space and $540 million at RMS. The increase in product sales
at Aeronautics was primarily due to higher production volume for the F-35 program and classified development contracts. The
increase in product sales at MFC was primarily due to increased volume for integrated air and missile defense programs
(primarily PAC-3 and THAAD) and tactical and strike missile programs (primarily Guided Multiple Launch Rocket Systems
(GMLRS) and High Mobility Artillery Rocket System (HIMARS)). The increase in product sales at Space was primarily due to
higher volume for government satellite programs (primarily Next Gen OPIR) and strategic and missile defense programs
(primarily hypersonic development programs). The increase in product sales at RMS was primarily due to higher volume for
Sikorsky helicopter programs (primarily Seahawk, VH-92A, and Combat Rescue Helicopter (CRH) production contracts),
C6ISR programs (primarily on undersea combat systems programs), and integrated warfare systems and sensors (IWSS)
programs (primarily Aegis), partially offset by lower volume on various TLS programs.
Service Sales
Service sales increased $711 million, or 7%, in 2020 as compared to 2019. The increase in service sales was primarily due
to higher sales of approximately $565 million at Aeronautics and $325 million at RMS, partially offset by lower sales of
$255 million at MFC. The increase in service sales at Aeronautics was primarily due to higher sustainment volume for the F-35
and F-16 programs. The increase in service sales at RMS was primarily due to higher volume for Sikorsky helicopter programs
(primarily a Seahawk sustainment program) and IWSS programs (primarily radar surveillance systems programs). The decrease
in service sales at MFC was primarily due to lower volume on energy programs due to the divestiture of the Distributed Energy
Solutions business, sensors and global sustainment programs (primarily Apache sensors program), and integrated air and
missile defense development programs (primarily PAC-3).
39
Cost of Sales
Cost of sales, 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 were as follows (in millions):
Cost of sales – products
% of product sales
Cost of sales – services
% of service sales
Severance charges
Other unallocated, net
Total cost of sales
2020
$ (48,996)
2019
$ (44,589)
2018
$ (40,293)
89.2 %
89.1 %
89.5 %
(9,371)
(8,731)
(7,738)
89.5 %
(27)
1,650
$ (56,744)
89.5 %
—
1,875
$ (51,445)
88.4 %
(96)
1,639
$ (46,488)
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
Product costs increased approximately $4.4 billion, or 10%, in 2020 as compared to 2019. The increase in product costs
was primarily due to higher product costs of approximately $1.8 billion at Aeronautics, $1.2 billion at MFC, $1.0 billion at
Space and $430 million at RMS. The increase in product costs at Aeronautics was primarily due to higher production volume
for the F-35 program and classified contracts. The increase in product costs at MFC was primarily due to increased volume for
integrated air and missile defense programs (primarily PAC-3 and THAAD) and tactical and strike missile programs (primarily
GMLRS and HIMARS). The increase in product costs at Space was primarily due to increased volume for government satellite
programs (primarily Next Gen OPIR) and strategic and missile defense programs (primarily hypersonic development
programs). The increase in product costs at RMS was primarily due to higher volume for Sikorsky helicopter programs
(primarily Seahawk, VH-92A, and CRH production contracts), C6ISR programs (primarily on undersea combat systems
programs), and IWSS programs (primarily Aegis), partially offset by lower volume on various TLS programs.
Service Costs
Service costs increased approximately $640 million, or 7%, in 2020 compared to 2019. The increase in service costs was
primarily due to higher service costs of approximately $485 million at Aeronautics and $245 million at RMS, partially offset by
lower service costs of approximately $180 million at MFC. The increase in service costs at Aeronautics was primarily due to
higher sustainment volume for the F-35 and F-16 programs. The increase in service costs at RMS was primarily due to higher
volume for Sikorsky helicopter programs (primarily a Seahawk sustainment program) and IWSS programs (primarily radar
surveillance systems programs), partially offset by charges for an army sustainment program in 2019 not repeated in 2020. The
decrease in service costs at MFC was primarily due to lower volume on energy programs due to the divestiture of the
Distributed Energy Solutions business, sensors and global sustainment programs (primarily Apache sensors program), and
integrated air and missile defense development programs (primarily PAC-3).
Severance Charges
During 2020, we recorded severance charges totaling $27 million ($21 million, or $0.08 per share, after-tax) related to the
planned elimination of certain positions primarily at our corporate functions. Upon separation, terminated employees 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.
Other Unallocated, Net
Other unallocated, net primarily includes the FAS/CAS operating adjustment as described in the “Business Segment
Results of Operations” section below, stock-based compensation expense and other corporate costs. These items are not
allocated to the business segments and, therefore, are not allocated to cost of sales for products or services. Other unallocated,
net reduced cost of sales by $1.7 billion in 2020, compared to $1.9 billion in 2019.
40
The decrease in net reduction in expense from 2019 to 2020 was primarily attributable to a decrease in our FAS/CAS
operating adjustment and fluctuations in other costs associated with various corporate items, none of which were individually
significant. See “Business Segment Results of Operations” and “Critical Accounting Policies - Postretirement Benefit Plans”
discussion below for more information on our pension cost.
Other (Expense) Income, Net
Other (expense) income, net primarily includes our share of earnings or losses from equity method investees and gains or
losses for acquisitions and divestitures. Other expense, net in 2020 was $10 million, compared to other income, net of
$178 million in 2019. Other expense, net in 2020 included a non-cash asset impairment charge of $128 million ($96 million, or
$0.34 per share, after-tax) for our international equity method investee, AMMROC. Other income, net in 2019 included the
recognition of a previously deferred non-cash gain of approximately $51 million ($38 million, or $0.13 per share, after-tax)
related to properties sold in 2015 as a result of completing our remaining obligations and a $34 million gain (approximately $0
after-tax) for the sale of our Distributed Energy Solutions business.
In July 2020, we entered into an agreement to sell our ownership interest in AMMROC to our joint venture partner for
$307 million, subject to certain closing conditions. Accordingly, we adjusted the carrying value of our investment to the selling
price of $307 million, which resulted in the recognition of a noncash impairment charge of $128 million ($96 million, or $0.34
per share, after-tax) in our results of operations. The sale was completed on November 25, 2020. The purchase price is required
to be paid in cash installments in 2021 and is guaranteed by an irrevocable letter of credit issued by a third-party financial
institution.
Interest Expense
Interest expense in 2020 was $591 million, compared to $653 million in 2019. The decrease in interest expense in 2020
resulted primarily from our scheduled repayment of $900 million of debt during 2019. See “Capital Structure, Resources and
Other” included within “Liquidity and Cash Flows” discussion below and “Note 11 – Debt” included in our Notes to
Consolidated Financial Statements for a discussion of our debt.
Other Non-Operating Income (Expense), Net
Other non-operating income (expense), net primarily includes the non-service cost components of FAS pension and other
postretirement benefit plan income (expense) (i.e., interest cost, expected return on plan assets, net actuarial gains or losses, and
amortization of prior service cost or credits). Other non-operating income, net in 2020 was $182 million, compared to other
non-operating expense, net of $651 million in 2019. The increase in 2020 was primarily due to a reduction in non-service FAS
pension expense for our qualified defined benefit pension plans. The increase was primarily due to FAS pension income in
2020, compared to FAS pension expense in 2019, as a result of completing the planned freeze of our salaried pension plans
effective January 1, 2020 that was previously announced on July 1, 2014.
Income Tax Expense
Our effective income tax rate from continuing operations was 16.4% for 2020 and 14.0% for 2019. The rate for 2019 was
lower than the rate for 2020 primarily due to $98 million additional tax deductions for 2018 attributable to foreign derived
intangible income treatment, which lowered the rate 1.4%, and $51 million additional research and development credits, which
reduced our effective tax rate by 0.8%.
The rates for both 2020 and 2019 benefited from additional tax deductions based on proposed tax regulations released on
March 4, 2019, which clarified that foreign military sales qualify for foreign derived intangible income treatment. On July 9,
2020, the U.S. Treasury Department issued final tax regulations related to foreign derived intangible income. The final tax
regulations confirm foreign military sales qualify for foreign derived intangible income treatment.
The rates for 2020 and 2019 also benefited from the research and development tax credit, dividends paid to the
corporation’s defined contribution plans with an employee stock ownership plan feature, and tax deductions for employee
equity awards.
On March 27, 2020, President Trump signed into law the CARES Act, which, along with earlier issued IRS guidance,
provides for deferral of certain taxes. The CARES Act, among other things, also contains numerous other provisions which
impact Lockheed Martin. The CARES Act and the projected annual financial impact of COVID-19 did not have a material
impact on our effective tax rate for the year ended December 31, 2020.
41
Changes in U.S. (federal or state) or foreign tax laws and regulations, or their interpretation and application, including
those with retroactive effect, including the amortization for research or experimental expenditures, could significantly impact
our provision for income taxes, the amount of taxes payable, our deferred tax asset and liability balances, and stockholders’
equity. Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development
expenditures currently and requires taxpayers to amortize them over five years. While it is possible that Congress may modify
or repeal this provision before it takes effect and we continue to have ongoing discussions with members of Congress, both on
our own and with other industries through coalitions, we have no assurance that these provisions will be modified or repealed.
Furthermore, we are continuing to work with our advisors to refine our legal interpretation of this provision prior to
implementation in 2022. If these provisions are not repealed and based on current interpretations of the law, initially this would
materially decrease our cash from operations based on current assumptions beginning in 2022 by approximately $2.0 billion;
and increase our net deferred tax assets by a similar amount. The largest impact would be on 2022 cash from operations, which
would depend on the amount of research and development expenses paid or incurred in 2022 and other factors. The impact,
however, would continue over the five year amortization period but would decrease over the period and be immaterial in year
six. The amount of net deferred tax assets will change periodically based on several factors, including the measurement of our
postretirement benefit plan obligations, actual cash contributions to our postretirement benefit plans, and future changes in tax
laws. In addition, we are regularly under audit or examination by tax authorities, including foreign tax authorities (including in,
amongst others, Australia, Canada, India, Italy, Japan, Poland, and the United Kingdom). The final determination of tax audits
and any related litigation could similarly result in unanticipated increases in our tax expense and affect profitability and cash
flows.
Net Earnings from Continuing Operations
We reported net earnings from continuing operations of $6.9 billion ($24.50 per share) in 2020 and $6.2 billion ($21.95 per
share) in 2019. Both net earnings and earnings per share were affected by the factors mentioned above. Earnings per share also
benefited from a net decrease of approximately 1.2 million common shares outstanding from December 31, 2020 to
December 31, 2019 as a result of share repurchases, partially offset by share issuances under our stock-based awards and
certain defined contribution plans.
Net Loss from Discontinued Operations
In 2020, we recognized a $55 million ($0.20 per share) non-cash charge resulting from the resolution of certain tax matters
related to the former Information Systems & Global Solutions business divested in 2016.
Business Segment Results of Operations
We operate in four business segments: Aeronautics, MFC, RMS and Space. We organize our business segments based on
the nature of products and services offered.
Net sales and operating profit of our business segments exclude intersegment sales, cost of sales, and profit as these
activities are eliminated in consolidation. Business segment operating profit includes our share of earnings or losses from equity
method investees as the operating activities of the equity method investees are closely aligned with the operations of our
business segments. United Launch Alliance (ULA), results of which are included in our Space business segment, is one of our
largest equity method investees.
Business segment operating profit also excludes the FAS/CAS operating adjustment described below, a portion of
corporate costs not considered allowable or allocable to contracts with the U.S. Government under the applicable U.S.
government cost accounting standards (CAS) or federal acquisition regulations (FAR), and other items not considered part of
management’s evaluation of segment operating performance such as a portion of management and administration costs, legal
fees and settlements, environmental costs, stock-based compensation expense, retiree benefits, significant severance actions,
significant asset impairments, gains or losses from significant divestitures, and other miscellaneous corporate activities.
Excluded items are included in the reconciling item “Unallocated items” between operating profit from our business
segments and our consolidated operating profit. See “Note 1 – Significant Accounting Policies” included in our Notes to
Consolidated Financial Statements 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 CAS pension cost. We
recover CAS pension and other postretirement benefit plan cost through the pricing of our products and services on U.S.
Government contracts and, therefore, recognize CAS cost in each of our business segment’s net sales and cost of sales. Our
consolidated financial statements must present FAS pension and other postretirement benefit plan expense calculated in
42
accordance with FAS requirements under U.S. GAAP. The operating portion of the net FAS/CAS pension adjustment
represents the difference between the service cost component of FAS pension expense and total CAS pension cost. The non-
service FAS pension cost component is included in other non-operating expense, net in our consolidated statements of earnings.
As a result, to the extent that CAS pension cost exceeds the service cost component of FAS pension expense we have a
favorable FAS/CAS operating adjustment.
Summary operating results for each of our business segments were as follows (in millions):
2020
2019
2018
Net sales
Aeronautics
Missiles and Fire Control
Rotary and Mission Systems
Space
Total net sales
Operating profit
Aeronautics
Missiles and Fire Control
Rotary and Mission Systems
Space
Total business segment operating profit
Unallocated items
FAS/CAS operating adjustment (a)
Stock-based compensation
Severance and restructuring charges (b)
Other, net (c)
Total unallocated, net
Total consolidated operating profit
$ 26,266 $ 23,693 $ 21,242
8,462
14,250
9,808
$ 65,398 $ 59,812 $ 53,762
10,131
15,128
10,860
11,257
15,995
11,880
$
$
2,843 $
1,545
1,615
1,149
7,152
1,876
(221)
(27)
(136)
1,492
8,644 $
2,521 $
1,441
1,421
1,191
6,574
2,049
(189)
—
111
1,971
8,545 $
2,272
1,248
1,302
1,055
5,877
1,803
(173)
(96)
(77)
1,457
7,334
(a) The FAS/CAS operating adjustment represents the difference between the service cost component of FAS pension income (expense) and
total pension costs recoverable on U.S. Government contracts as determined in accordance with CAS. For a detail of the FAS/CAS
operating adjustment and the total net FAS/CAS pension adjustment, see the table below.
(b) See “Consolidated Results of Operations – Severance Charges” discussion above for information on charges related to certain severance
actions across our organization.
(c) Other, net in 2020 includes a non-cash impairment charge of $128 million recognized on our investment in the international equity
method investee, AMMROC. Other, net in 2019 includes a previously deferred non-cash gain of $51 million related to properties sold in
2015 as a result of completing our remaining obligations and a gain of $34 million for the sale of our Distributed Energy Solutions
business. Other, net in 2018 includes a non-cash asset impairment charge of $110 million related to our equity method investee,
AMMROC (see “Note 1 – Significant Accounting Policies” included in our Notes to Consolidated Financial Statements for more
information).
Total net FAS/CAS pension adjustments, including the service and non-service cost components of FAS pension income
(expense), were as follows (in millions):
2020
2019
2018
Total FAS income (expense) and CAS costs
FAS pension income (expense)
Less: CAS pension cost
Net FAS/CAS pension adjustment
Service and non-service cost reconciliation
FAS pension service cost
Less: CAS pension cost
FAS/CAS operating adjustment
Non-operating FAS pension income (expense)
Net FAS/CAS pension adjustment
43
$
118 $ (1,093) $ (1,431)
2,433
$ 2,095 $ 1,472 $ 1,002
1,977
2,565
(101)
1,977
1,876
219
(630)
2,433
1,803
(801)
$ 2,095 $ 1,472 $ 1,002
(516)
2,565
2,049
(577)
We recover CAS pension and other postretirement benefit plan cost through the pricing of our products and services on
U.S. Government contracts and, therefore, recognize CAS cost in each of our business segment’s net sales and cost of sales.
Our consolidated financial statements must present FAS pension and other postretirement benefit plan expense calculated in
accordance with FAS requirements under U.S. GAAP. The operating portion of the net FAS/CAS pension adjustment
represents the difference between the service cost component of FAS pension income (expense) and total CAS pension cost.
The non-service FAS pension income (expense) component is included in other non-operating income (expense), net in our
consolidated statements of earnings. As a result, to the extent that CAS pension cost exceeds the service cost component of FAS
pension income (expense), we have a favorable FAS/CAS operating adjustment.
The following segment discussions also include information relating to backlog for each segment. Backlog was
approximately $147.1 billion and $144.0 billion at December 31, 2020 and 2019. These amounts included both funded backlog
(firm orders for which funding has been both authorized and appropriated by the customer) and unfunded backlog (firm orders
for which funding has not yet been appropriated). Backlog does not include unexercised options or task orders to be issued
under indefinite-delivery, indefinite-quantity contracts. Funded backlog was approximately $102.3 billion at December 31,
2020, as compared to $94.5 billion at December 31, 2019. If any of our contracts with firm orders were to be terminated, our
backlog would be reduced by the expected value of the unfilled orders of such contracts.
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 a wing-box on an aircraft) and for services would
align to the type of work being performed (such as aircraft sustainment). Our contracts generally allow for the recovery of costs
in the pricing of our products and services. Most of our contracts are bid and negotiated with our customers under
circumstances in which we are required to disclose our estimated total costs to provide the product or service. This approach for
negotiating contracts with our U.S. Government customers generally allows for recovery of our actual costs plus a reasonable
profit margin. We also may enter into long-term supply contracts for certain materials or components to coincide with the
production schedule of certain products and to ensure their availability at known unit prices.
Many of our contracts span several years and include highly complex technical requirements. At the outset of a contract,
we identify and monitor risks to the achievement of the technical, schedule and cost aspects of the contract and assess the
effects of those risks on our estimates of total costs to complete the contract. The estimates consider the technical requirements
(e.g., a newly-developed product versus a mature product), the schedule and associated tasks (e.g., the number and type of
milestone events) and costs (e.g., material, labor, subcontractor, overhead and the estimated costs to fulfill our industrial
cooperation agreements, sometimes referred to as offset agreements, required under certain contracts with international
customers). The initial profit booking rate of each contract considers risks surrounding the ability to achieve the technical
requirements, schedule and costs in the initial estimated total costs to complete the contract. Profit booking rates may increase
during the performance of the contract if we successfully retire risks surrounding 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.
We have a number of programs that are designated as classified by the U.S. Government which cannot be specifically
described. The operating results of these classified programs are included in our consolidated and business segment results and
are subjected to the same oversight and internal controls as our other programs.
Our net sales are primarily derived from long-term contracts for products and services provided to the U.S. Government as
well as FMS contracted through the U.S. Government. We recognize revenue as performance obligations are satisfied and the
customer obtains control of the products and services. For performance obligations to deliver products with continuous transfer
of control to the customer, revenue is recognized based on the extent of progress towards completion of the performance
obligation, generally using the percentage-of-completion cost-to-cost measure of progress for our contracts because it best
depicts the transfer of control to the customer as we incur costs on our contracts. For performance obligations in which control
does not continuously transfer to the customer, we recognize revenue at the point in time in which each performance obligation
is fully satisfied.
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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.
In addition, comparability of our segment sales, operating profit and operating margin may be impacted favorably or
unfavorably by changes in profit booking rates on our contracts for which we recognize revenue over time using the
percentage-of-completion cost-to-cost method to measure progress towards completion. Increases in the profit booking rates,
typically referred to as risk retirements, usually relate to revisions in the estimated total costs to fulfill the performance
obligations that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may
deteriorate, resulting in an increase in the estimated total costs to fulfill the performance obligations and a reduction in the profit
booking rate. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date
effect of such changes. Segment operating profit and margin may also be impacted favorably or unfavorably by other items,
which may or may not impact sales. Favorable items may include the positive resolution of contractual matters, cost recoveries
on severance and restructuring charges, insurance recoveries and gains on sales of assets. Unfavorable items may include the
adverse resolution of contractual matters; restructuring charges, except for significant severance actions, which are excluded
from segment operating results; reserves for disputes; certain asset impairments; and losses on sales of certain assets.
As previously disclosed, we are responsible for a program to design, develop and construct a ground-based radar at our
RMS business segment. The program has experienced performance issues for which we have periodically accrued reserves. In
2020, we revised our estimated costs to complete the program and recorded charges of approximately $45 million ($34 million,
or $0.12 per share, after-tax) at our RMS business segment, which resulted in cumulative losses of approximately $250
million on this program as of December 31, 2020. We may continue to experience issues related to customer requirements and
our performance under this contract and have to record additional charges. However, based on the losses previously recorded
and our current estimate of the sales and costs to complete the program, at this time we do not anticipate that additional losses,
if any, would be material to our operating results or financial condition.
As previously disclosed, we have a program, EADGE-T, to design, integrate, and install an air missile defense command,
control, communications, computers – intelligence (C4I) system for an international customer that has experienced performance
issues and for which we have periodically accrued reserves at our RMS business segment. As of December 31, 2020,
cumulative losses remained at approximately $260 million. We continue to monitor program requirements and our
performance. At this time, we do not anticipate additional charges that would be material to our operating results or financial
condition.
As previously disclosed, we are responsible for designing, developing and installing an upgraded turret for the Warrior
Capability Sustainment Program. As of December 31, 2020, cumulative losses remained at approximately $140 million on this
program. We may continue to experience issues related to customer requirements and our performance under this contract and
may have to record additional reserves. However, based on the losses already recorded and our current estimate of the sales and
costs to complete the program, at this time we do not anticipate that additional losses, if any, would be material to our operating
results or financial condition.
Our consolidated net adjustments not related to volume, including net profit booking rate adjustments and other matters,
increased segment operating profit by approximately $1.8 billion in 2020 and $1.9 billion in 2019. The consolidated net
adjustments in 2020 compared to 2019 decreased primarily due to decreases in profit booking rate adjustments at Space and
MFC offset by an increase in Aeronautics and RMS. The consolidated net adjustments for 2020 are inclusive of approximately
$745 million in unfavorable items, which include reserves for various programs at RMS, government satellite programs at
Space and performance matters on a sensors and global sustainment international military program at MFC. The consolidated
net adjustments for 2019 are inclusive of approximately $930 million in unfavorable items, which include reserves for various
programs at RMS, the F-16 program at Aeronautics, performance matters on a sensors and global sustainment international
military program at MFC and government satellite programs at Space.
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Aeronautics
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 the F-35 Lightning II Joint Strike Fighter, C‑130 Hercules, F-16 Fighting
Falcon and F-22 Raptor. Aeronautics’ operating results included the following (in millions):
Net sales
Operating profit
Operating margin
Backlog at year-end
2020
$ 26,266
2,843
2019
$ 23,693
2,521
2018
$ 21,242
2,272
10.8 %
10.6 %
10.7 %
$ 56,551
$ 55,636
$ 55,601
Aeronautics’ net sales in 2020 increased $2.6 billion, or 11% compared to 2019. The increase was primarily
attributable to higher net sales of approximately $1.8 billion for the F-35 program due to increased volume on
sustainment, production, and development contracts; about $450 million for higher volume on classified
development contracts; and about $300 million for the F-16 program due to increased volume on international
production and sustainment contracts.
Aeronautics’ operating profit in 2020 increased $322 million, or 13%, compared to 2019. Operating profit increased
approximately $240 million for the F-35 program due to higher volume and risk retirements on development and
sustainment contracts and higher volume on production contracts; about $70 million for the C-130 program due to
higher risk retirements on sustainment contracts; and approximately $20 million for classified development
contracts due to higher risk retirements. Operating profit on the F-16 program was comparable as higher volume
was offset by lower risk retirements. Adjustments not related to volume, including net profit booking rate
adjustments, were $90 million higher in 2020 compared to 2019.
Backlog
Backlog increased in 2020 compared to 2019 primarily due to higher orders on F-16 production and various classified
activities.
Trends
We expect Aeronautics’ 2021 net sales to increase in the mid-single digit percentage range from 2020 levels driven by
increased volume on F-35, F-16 and classified programs. Operating profit is expected to increase in the mid-to-high single digit
percentage range above 2020 levels. Operating profit margin for 2021 is expected to be slightly higher than 2020 levels.
Missiles and Fire Control
Our MFC business segment provides air and missile defense systems; tactical missiles and air-to-ground precision strike
weapon systems; logistics; fire control systems; mission operations support, readiness, engineering support and integration
services; manned and unmanned ground vehicles; and energy management solutions. MFC’s major programs include PAC‑3,
THAAD, Multiple Launch Rocket System (MLRS), Hellfire, Joint Air-to-Surface Standoff Missile (JASSM), Javelin, Apache,
Sniper Advanced Targeting Pod (SNIPER®), LANTIRN and Special Operations Forces Global Logistics Support Services
(SOF GLSS). MFC’s operating results included the following (in millions):
Net sales
Operating profit
Operating margin
Backlog at year-end
2020
2019
2018
$ 11,257
$ 10,131
$ 8,462
1,545
1,441
1,248
13.7 %
14.2 %
14.7 %
$ 29,183
$ 25,796
$ 21,363
MFC’s net sales in 2020 increased $1.1 billion, or 11%, compared to the same period in 2019. The increase was primarily
attributable to higher net sales of approximately $725 million for integrated air and missile defense programs due to increased
volume (THAAD and PAC-3); and about $605 million for tactical and strike missile programs due to increased volume
(primarily GMLRS, HIMARS, JASSM, and hypersonics). These increases were partially offset by a decrease of approximately
$80 million for sensors and global sustainment programs due to lower volume on the Apache sensors program; and about $120
million as a result of the divestiture of the Distributed Energy Solutions business.
46
MFC’s operating profit in 2020 increased $104 million, or 7%, compared to 2019. Operating profit increased
approximately $90 million for tactical and strike missile programs due to higher volume (primarily JASSM,
hypersonics, GMLRS, and HIMARS); and approximately $30 million for integrated air and missile defense
programs due to increased volume (THAAD and PAC-3), which was partially offset by lower risk retirements
(THAAD and PAC-3). These increases were partially offset by a decrease of approximately $40 million for sensors
and global sustainment programs primarily due to lower risk retirements and a reduction in the profit booking rate
on the Apache sensors program. Adjustments not related to volume, including net profit booking rate adjustments,
were $40 million lower in 2020 compared to 2019.
Backlog
Backlog increased in 2020 compared to 2019 primarily due to higher orders on PAC-3 and tactical and strike missiles
programs.
Trends
We expect MFC’s 2021 net sales to increase in the mid-single digit percentage range from 2020 levels driven by higher
volume in the integrated air and missile defense business, primarily PAC-3. Operating profit is also expected to increase in the
mid-single digit percentage range above 2020 levels. Operating profit margin for 2021 is expected to be slightly lower than
2020 levels.
Rotary and Mission Systems
RMS designs, manufactures, services and supports various military and commercial helicopters, surface ships, sea and
land-based missile defense systems, radar systems, sea and air-based mission and combat systems, command and control
mission solutions, cyber solutions, and simulation and training solutions. RMS’ major programs include Aegis Combat System,
Littoral Combat Ship (LCS), Multi-Mission Surface Combatant (MMSC), Black Hawk® and Seahawk® helicopters, CH-53K
King Stallion helicopter, Combat Rescue helicopter, VH-92A helicopter, and the C2BMC contract. RMS’ operating results
included the following (in millions):
Net sales
Operating profit
Operating margin
Backlog at year-end
2020
2019
2018
$ 15,995
$ 15,128
$ 14,250
1,615
1,421
1,302
10.1 %
9.4 %
9.1 %
$ 36,249
$ 34,296
$ 31,320
RMS’ net sales in 2020 increased $867 million, or 6%, compared to 2019. The increase was primarily attributable to
higher net sales of approximately $570 million for Sikorsky helicopter programs due to higher volume on
production contracts (primarily Seahawk, VH-92A, CRH, and CH-53K), which was partially offset by lower
volume on Black Hawk production programs; about $175 million for IWSS programs due to higher volume
(primarily Aegis); and approximately $165 million for C6ISR programs due to higher volume (primarily undersea
combat systems). These increases were partially offset by a $55 million decrease for various TLS programs due to
lower volume.
RMS’ operating profit in 2020 increased $194 million, or 14%, compared to 2019. Operating profit increased
approximately $90 million for TLS programs due to $80 million in charges for an army sustainment program in
2019 not repeated in 2020; about $70 million for Sikorsky helicopter programs primarily due to higher volume on
production contracts (primarily VH-92A, Seahawk, CRH, and CH-53K); and about $35 million for IWSS programs
primarily due to higher volume and higher risk retirements on TPQ-53 and Advanced Hawkeye and lower charges
on a ground-based radar program. Operating profit on C6ISR programs was comparable as higher volume was
offset by lower risk retirements. Adjustments not related to volume, including net profit booking rate adjustments,
were $15 million higher in 2020 compared to 2019.
Backlog
Backlog increased in 2020 compared to 2019 primarily due to higher orders on Sikorsky programs.
47
Trends
We expect RMS’ 2021 net sales to increase in the low-single digit percentage range from 2020 levels driven by higher
volume on Sikorsky helicopter programs and TLS programs. Operating profit is also expected to increase in the low-single digit
percentage range above 2020 levels. Operating profit margin for 2021 is expected to be in line with 2020 levels.
Space
Our Space business segment is engaged in the research and development, design, engineering and production of satellites,
strategic and defensive missile systems and space transportation systems. Space provides network-enabled situational
awareness and integrates complex space and ground-based global systems to help our customers gather, analyze, and securely
distribute critical intelligence data. Space is also responsible for various classified systems and services in support of vital
national security systems. Space’s major programs include the Trident II D5 Fleet Ballistic Missile (FBM), AWE program,
Orion Multi-Purpose Crew Vehicle (Orion), Space Based Infrared System (SBIRS) and Next Generation Overhead Persistent
Infrared (Next Gen OPIR) system, Global Positioning System (GPS) III, Advanced Extremely High Frequency (AEHF), and
hypersonics programs. Operating profit for our Space business segment includes our share of earnings for our investment in
ULA, which provides expendable launch services to the U.S. Government. Space’s operating results included the following (in
millions):
Net sales
Operating profit
Operating margin
Backlog at year-end
2020
$ 11,880
1,149
2019
$ 10,860
1,191
9.7 %
11.0 %
2018
$ 9,808
1,055
10.8 %
$ 25,148
$ 28,253
$ 22,184
Space’s net sales in 2020 increased $1.0 billion, or 9%, compared to 2019. The increase was primarily attributable to
higher net sales of approximately $525 million for government satellite programs due to higher volume (primarily
Next Gen OPIR); and about $430 million for strategic and missile defense programs due to higher volume
(primarily hypersonic development programs, inclusive of impacts due to the acquisition of i3's hypersonics
portfolio in November 2020).
Space’s operating profit in 2020 decreased $42 million, or 4%, compared to 2019. Operating profit decreased
approximately $90 million for government satellite programs due to lower risk retirements on the various programs
(primarily AEHF) that were partially offset by higher risk retirements and volume on the Next Gen OPIR program.
This decrease was partially offset by increases of $40 million for commercial satellite programs due to charges
recorded for performance matters in 2019 not repeated in 2020. Operating profit for strategic and missile defense
programs was comparable as higher risk retirements and volume on hypersonic development programs were offset
by lower risk retirements and volume on fleet ballistic missile programs. Adjustments not related to volume,
including net profit booking rate adjustments, were $100 million lower in 2020 compared to 2019.
Equity earnings
Total equity earnings recognized by Space (primarily ULA) represented approximately $135 million and $145 million, or
12% of this business segment’s operating profit during both 2020 and 2019.
Backlog
Backlog decreased in 2020 compared to 2019 primarily due to higher sales on multi-year contracts awarded in prior years.
Additionally, backlog as of December 31, 2020 reflects a decrease due to the UK Ministry of Defense’s intent to assume 100%
ownership of the program on June 30, 2021.
Trends
We expect Space’s 2021 net sales to increase in the low-single digit percentage range from 2020 levels driven by higher
volume on hypersonics programs and on government satellite programs (primarily Next Gen OPIR), partially offset by lower
volume at AWE due to the UK Ministry of Defense’s intent to re-nationalize the program on June 30, 2021. Operating profit is
expected to decrease in the low-single digit percentage range from 2020 levels. Operating profit margin for 2021 is expected to
be lower than 2020 levels.
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Liquidity and Cash Flows
As of December 31, 2020, we had a cash balance of $3.2 billion and no commercial paper borrowings outstanding under
our $2.5 billion revolving credit facility (the credit facility), which is also available for borrowings in the event of a lack of
short-term commercial paper availability. To date, the effects of COVID-19 have not had a significant negative impact on our
liquidity, cash flows or capital resources. Actions taken by the U.S. Government to increase the rate of progress payments had
the effect of increasing our cash from operations, but we used all of this benefit to accelerate payments to our suppliers. The
effects of COVID-19 have, at times, led to disruption and volatility in the global capital markets, which, depending on future
developments, could impact our capital resources and liquidity in the future. The economic impacts of COVID-19 have also
caused volatility in the equity capital markets and investment return on our pension assets. Changes in returns on plan assets
may affect our plan funding, cash flows and stockholders’ equity. Differences between the actual plan asset return and the
expected long-term rate of return on plan assets (7.00% as of December 31, 2020) impact the measurement of the following
year’s Financial Accounting Standards (FAS) pension expense and pension funding requirements.
Cash received from customers, either from the payment of invoices for work performed or for advances from non-U.S.
Government customers in excess of costs incurred, is our primary source of cash. We generally do not begin work on contracts
until funding is appropriated by the customer. However, we may determine to fund customer programs ourselves pending
government appropriations. If we incur costs in excess of funds obligated on the contract, we may be at risk for reimbursement
of the excess costs.
Billing timetables and payment terms on our contracts vary based on a number of factors, including the contract type. We
generally bill and collect cash more frequently under cost-reimbursable contracts, which represented approximately 40% of the
sales we recorded in 2020, as we are authorized to bill as the costs are incurred. A number of our fixed-price contracts may
provide for performance-based payments, which allow us to bill and collect cash as we perform on the contract. The amount of
performance-based payments and the related milestones are encompassed in the negotiation of each contract. The timing of
such payments may differ from the timing of the costs incurred related to our contract performance, thereby affecting our cash
flows.
The U.S. Government has indicated that it would consider progress payments as the baseline for negotiating payment terms
on fixed-price contracts, rather than performance-based payments. In contrast to negotiated performance-based payment terms,
progress payment provisions correspond to a percentage of the amount of costs incurred during the performance of the contract.
Our cash flows may be affected if the U.S. Government decides to withhold payments on our billings. While the impact of
withholding payments delays the receipt of cash, the cumulative amount of cash collected during the life of the contract will not
vary.
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 selective business acquisitions and investments;
returned cash to stockholders through dividends and share repurchases; and actively managed our debt levels and maturities,
interest rates, and pension obligations.
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. Our
strong operating cash flows enabled our Board of Directors to approve two key cash deployment initiatives in September 2020.
First, we increased our dividend rate in the fourth quarter by $0.20 to $2.60 per share. Second, the Board of Directors approved
a $1.3 billion increase to our share repurchase program. Inclusive of this increase, the total remaining authorization for future
common share repurchases under our program was $3.0 billion as of December 31, 2020.
We expect our cash from operations will continue to be sufficient to support our operations and anticipated capital
expenditures for the foreseeable future. We also have access to credit markets, if needed, for liquidity or general corporate
purposes, and letters of credit to support customer advance payments and for other trade finance purposes such as guaranteeing
our performance on particular contracts. See our “Capital Structure, Resources and Other” section below for a discussion on
financial resources available to us, including the issuance of commercial paper.
The majority of our capital expenditures for 2020 and those planned for 2021 are for equipment, facilities infrastructure
and information technology. Expenditures for equipment and facilities infrastructure are generally incurred to support new and
existing programs across all of our business segments. For example, we have projects underway in our Aeronautics business
segment for facilities and equipment to support higher production of the F-35 combat aircraft, and we have projects underway
to modernize certain of our facilities. We also incur capital expenditures for information technology to support programs and
49
general enterprise information technology infrastructure, inclusive of costs for the development or purchase of internal-use
software.
We made discretionary contributions of $1.0 billion to our qualified defined benefit pension plans in both 2020 and 2019
using cash on hand. We expect to make contributions of approximately $1.0 billion to our qualified defined benefit pension
plans in 2021.
The CARES Act, provides a deferral of payroll tax payments from which we benefited by deferring cash outlays of
$460 million during 2020. This will have the effect of increasing cash outlays for payroll taxes during 2021 and 2022. The
CARES Act, among other things, also contains numerous other provisions which may impact Lockheed Martin. We continue to
review ongoing government guidance related to COVID-19 that may be issued.
The following table provides a summary of our cash flow information followed by a discussion of the key elements
(in millions):
Cash and cash equivalents at beginning of year
Operating activities
Net earnings
Non-cash adjustments
Changes in working capital
Other, net
Net cash provided by operating activities
Net cash used for investing activities
Net cash used for financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at end of year
Operating Activities
2020
1,514 $
2019
772 $
2018
2,861
$
6,833
1,726
101
(477)
8,183
(2,010)
(4,527)
1,646
3,160 $
6,230
1,549
(672)
204
7,311
(1,241)
(5,328)
742
1,514 $
5,046
1,186
(1,401)
(1,693)
3,138
(1,075)
(4,152)
(2,089)
772
$
Net cash provided by operating activities increased $872 million in 2020 compared to 2019 primarily due to cash generated
from working capital in 2020 compared to a use of cash in 2019, and the deferral of tax payments. The $773 million
improvement in cash flows related to working capital (defined as receivables, contract assets, and inventories less accounts
payable and contract liabilities) was primarily attributable to timing of cash payments for accounts payable (primarily
Aeronautics) and liquidation of inventories (primarily classified programs at Aeronautics and Sikorsky helicopter programs at
RMS), partially offset by timing of production and billing cycles affecting contract assets and contract liabilities (primarily the
F-35 program at Aeronautics). During 2020, we made net cash tax payments of approximately $1.4 billion compared to $940
million in 2019.
In addition, net cash provided by operating activities in 2020 included the receipt of approximately $1.2 billion of net
accelerated progress payments due to the U.S. Government's increase in the progress payment rate from 80% to 90%, and the
deferral of $460 million for the employer portion of payroll taxes to 2021 and 2022 pursuant to the CARES Act. We used the
accelerated progress payments from the U.S. Government plus cash on hand to accelerate $2.1 billion of payments to our
suppliers as of December 31, 2020 that are due by their terms in future periods.
Investing Activities
Net cash used for investing activities increased $769 million in 2020 compared to 2019, primarily due to an increase in
capital expenditures and cash payments for various acquisitions, partially offset by net cash proceeds from various divestitures
and acquisitions in 2019, and cash received for various other items, none of which were individually significant. Capital
expenditures totaled $1.8 billion in 2020 and $1.5 billion in 2019. The majority of our capital expenditures were for equipment
and facilities infrastructure that generally are incurred to support new and existing programs across all of our business
segments. We also incur capital expenditures for information technology to support programs and general enterprise
information technology infrastructure, inclusive of costs for the development or purchase of internal-use software.
50
Financing Activities
Net cash used for financing activities decreased $801 million in 2020 compared to 2019, primarily due to net repayments
of $600 million for commercial paper in 2019 which did not recur in 2020, decreased repayments of long-term debt in 2020 and
decreased repurchases of common stock, partially offset by higher dividend payments.
In October 2020, we repaid $500 million of long-term notes with a fixed interest rate of 2.50% due November 2020. In
November 2019, we repaid $900 million of long-term notes with a fixed interest rate of 4.25% according to their scheduled
maturities.
On May 20, 2020, we received net cash proceeds of $1.1 billion from the issuance of senior unsecured notes, consisting of
$400 million aggregate principal amount of 1.85% Notes due in 2030 and $750 million aggregate principal amount of 2.80%
Notes due in 2050. On June 16, 2020, we used the net proceeds from the offering plus cash on hand to redeem $750 million of
the outstanding $1.25 billion in aggregate principal amount of our 2.50% Notes due in 2020 and $400 million of the outstanding
$900 million in aggregate principal amount of our 3.35% Notes due in 2021, each at their redemption price.
For additional information about our debt financing activities see the “Capital Structure, Resources and Other” discussion
below and “Note 11 – Debt” included in our Notes to Consolidated Financial Statements.
We paid dividends totaling $2.8 billion ($9.80 per share) in 2020 and $2.6 billion ($9.00 per share) in 2019. We paid
quarterly dividends of $2.40 per share during each of the first three quarters of 2020 and $2.60 per share during the fourth
quarter of 2020. We paid quarterly dividends of $2.20 per share during each of the first three quarters of 2019 and $2.40 per
share during the fourth quarter of 2019.
We paid $1.1 billion to repurchase 3.0 million shares of our common stock during 2020, which includes the $500 million
paid to repurchase 1.4 million shares pursuant to the accelerated share repurchase (ASR) agreement entered into in 2020. We
paid $1.2 billion to repurchase 3.5 million shares of our common stock during 2019. See “Note 13 – Stockholders’ Equity”
included in our Notes to Consolidated Financial Statements for additional information about our repurchases of common stock.
Capital Structure, Resources and Other
At December 31, 2020, we held cash and cash equivalents of $3.2 billion that was generally available to fund ordinary
business operations without significant legal, regulatory, or other restrictions.
Our outstanding debt, net of unamortized discounts and issuance costs, amounted to $12.2 billion at December 31, 2020
and mainly is in the form of publicly-issued notes that bear interest at fixed rates. As of December 31, 2020, we had
$500 million of short-term borrowings due within one year, which are scheduled to mature in September 2021. As of
December 31, 2019, we had $1.3 billion of short-term borrowings due within one year, which were scheduled to mature in
November 2020. As of December 31, 2020, we were in compliance with all covenants contained in our debt and credit
agreements.
We actively seek to finance our business in a manner that preserves financial flexibility while minimizing borrowing costs
to the extent practicable. We review changes in financial market and economic conditions to manage the types, amounts and
maturities of our indebtedness. We may at times refinance existing indebtedness, vary our mix of variable-rate and fixed-rate
debt or seek alternative financing sources for our cash and operational needs.
Revolving Credit Facilities
At December 31, 2020, we had a $2.5 billion revolving credit facility (the credit facility) with various banks that is
available for general corporate purposes. Effective August 24, 2019, we extended the expiration date of the credit facility from
August 24, 2023 to August 24, 2024. The undrawn portion of the credit facility also serves as a backup facility for the issuance
of commercial paper. The total amount outstanding at any point in time under the combination of our commercial paper
program and the credit facility cannot exceed the amount of the credit facility. We may request and the banks may grant, at their
discretion, an increase in the borrowing capacity under the credit facility of up to an additional $500 million. There were no
borrowings outstanding under the credit facility as of December 31, 2020 and 2019.
Borrowings under the credit facility are unsecured and bear interest at rates based, at our option, on a Eurodollar Rate or a
Base Rate, as defined in the credit facility’s agreement. Each bank’s obligation to make loans under the credit facility is subject
to, among other things, our compliance with various representations, warranties and covenants, including covenants limiting
51
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 credit facility agreement.
Long-Term Debt
In May 2020, we issued a total of $1.2 billion of senior unsecured notes, consisting of $400 million aggregate principal
amount of 1.85% Notes due in 2030 (the “2030 Notes”) and $750 million aggregate principal amount of 2.80% Notes due in
2050 (the “2050 Notes” and, together with the 2030 Notes, the “Notes”). Interest on the Notes is payable semi-annually in
arrears on June 15 and December 15 of each year beginning on December 15, 2020. We may, at our option, redeem the Notes
of any series in whole or in part at any time and from time to time at a redemption price equal to the greater of 100% of the
principal amount of the notes to be redeemed or an applicable “make-whole” amount, plus accrued and unpaid interest to the
date of redemption.
In June 2020, we used the net proceeds from the offering plus cash on hand to redeem $750 million of the outstanding
$1.25 billion in aggregate principal amount of our 2.50% Notes due in 2020, and $400 million of the outstanding $900 million
in aggregate principal amount of our 3.35% Notes due in 2021 at their redemption price. We have an effective shelf registration
statement on Form S-3 on file with the U.S. Securities and Exchange Commission to provide for the issuance of an
indeterminate amount of debt securities.
In October 2020, we repaid $500 million of long-term notes with a fixed interest rate of 2.50% due November 2020. In
November 2019, we repaid $900 million of long-term notes with a fixed interest rate of 4.25% according to their scheduled
maturities. In November 2018, we repaid $750 million of long-term notes with a fixed interest rate of 1.85% according to their
scheduled maturities.
Total Equity
Our total equity was $6.0 billion at December 31, 2020, an increase of $2.9 billion from December 31, 2019. The increase
was primarily attributable to net earnings of $6.8 billion, recognition of previously deferred postretirement benefit plan amounts
of $440 million, and employee stock activity of $479 million (including the impacts of stock option exercises, issuances of
shares under the employee stock ownership plan and stock-based compensation), partially offset by the annual December 31
re-measurement adjustment related to our postretirement benefit plans of $1.1 billion, dividends declared of $2.8 billion during
the year, and the repurchase of 3.0 million common shares for $1.1 billion.
As we repurchase our common shares, we reduce common stock for the $1 of par value of the shares repurchased, with the
excess purchase price over par value recorded as a reduction of additional paid-in capital. If additional paid-in capital is reduced
to zero, we record the remainder of the excess purchase price over par value as a reduction of retained earnings. During 2020,
we repurchased $3.0 million of our common shares, which were recognized as a reduction to common stock for the par value
with the excess purchase price recorded as a reduction of additional paid-in capital of $256 million and $841 million recorded
as a reduction of retained earnings.
52
Contractual Commitments and Off-Balance Sheet Arrangements
At December 31, 2020, 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. Financing lease obligations
were not material. Payments due under these obligations and commitments are as follows (in millions):
Payments Due By Period
Years
2 and 3
Less Than
1 Year
Years
4 and 5
After
5 Years
Total
Total debt
Interest payments
Other liabilities
Operating lease obligations
Purchase obligations:
Operating activities
Capital expenditures
Total contractual cash obligations
$
$
13,299 $
9,382
3,021
1,275
500 $
554
280
301
625 $
1,067
440
356
50,728
818
78,523 $
26,852
562
29,049 $
19,735
166
22,389 $
1,060 $
989
367
215
3,930
35
6,596 $
11,114
6,772
1,934
403
211
55
20,489
The table above excludes estimated minimum funding requirements for our qualified defined benefit pension plans. For
additional information about our future minimum contributions for these plans, see “Note 12 – Postretirement Benefit Plans”
included in our Notes to Consolidated Financial Statements. Amounts related to other liabilities represent the contractual
obligations for certain long-term liabilities recorded as of December 31, 2020. Such amounts mainly include expected payments
under non-qualified pension plans, environmental liabilities and deferred compensation plans.
Purchase obligations related to operating activities include agreements and contracts that give the supplier recourse to us
for cancellation or nonperformance under the contract or contain terms that would subject us to liquidated damages. Such
agreements and contracts may, for example, be related to direct materials, obligations to subcontractors and outsourcing
arrangements. Total purchase obligations for operating activities in the preceding table include approximately $46.4 billion
related to contractual commitments entered into as a result of contracts we have with our U.S. Government customers. The U.S.
Government generally would be required to pay us for any costs we incur relative to these commitments if they were to
terminate the related contracts “for convenience” under the FAR, subject to available funding. This also would be true in cases
where we perform subcontract work for a prime contractor under a U.S. Government contract. The termination for convenience
language also may be included in contracts with foreign, state and local governments. We also have contracts with customers
that do not include termination for convenience provisions, including contracts with commercial customers.
Purchase obligations in the preceding table for capital expenditures generally include facilities infrastructure, equipment
and information technology.
We also may enter into industrial cooperation agreements, sometimes referred to as offset agreements, as a condition to
obtaining orders for our products and services from certain customers in foreign countries. These agreements are designed to
enhance the social and economic environment of the foreign country by requiring the contractor to promote investment in the
country. Offset agreements may be satisfied through activities that do not require us to use cash, including transferring
technology, providing manufacturing and other consulting support to in-country projects and the purchase by third parties (e.g.,
our vendors) of supplies from in-country vendors. These agreements also may be satisfied through our use of cash for such
activities as purchasing supplies from in-country vendors, providing financial support for in-country projects, establishment of
joint ventures with local companies and building or leasing facilities for in-country operations. We typically do not commit to
offset agreements until orders for our products or services are definitive. The amounts ultimately applied against our offset
agreements are based on negotiations with the customer and typically require cash outlays that represent only a fraction of the
original amount in the offset agreement. Satisfaction of our offset obligations are included in the estimates of our total costs to
complete the contract and may impact our sales, profitability and cash flows. Our ability to recover investments on our
consolidated balance sheet that we make to satisfy offset obligations is generally dependent upon the successful operation of
ventures that we do not control and may involve products and services that are dissimilar to our business activities. At
December 31, 2020, the notional value of remaining obligations under our outstanding offset agreements totaled approximately
$17.5 billion, which primarily relate to our Aeronautics, MFC and RMS business segments, most of which extend through
2049. To the extent we have entered into purchase or other obligations at December 31, 2020 that also satisfy offset
agreements, those amounts are included in the preceding table. Offset programs usually extend over several years and may
provide for penalties, estimated at approximately $1.8 billion at December 31, 2020, in the event we fail to perform in
accordance with offset requirements. While historically we have not been required to pay material penalties, resolution of offset
requirements are often the result of negotiations and subjective judgments.
53
We have entered into standby letters of credit and surety bonds issued on our behalf by financial institutions, and we have
directly issued guarantees to third parties primarily relating to advances received from customers and the guarantee of future
performance on certain contracts. Letters of credit and surety bonds generally are available for draw down in the event we do
not perform. In some cases, we may guarantee the contractual performance of third parties such as joint venture partners. At
December 31, 2020, we had the following outstanding letters of credit, surety bonds and third-party guarantees (in millions):
Commitment Expiration By Period
Years
2 and 3
Less Than
1 Year
Years
4 and 5
After
5 Years
Total
Commitment
$
Standby letters of credit (a)
46
—
Surety bonds
42
Third-party Guarantees
88
Total commitments
(a) Approximately $859 million of standby letters of credit in the “Less Than 1 Year” category, $219 million in the “Years 2 and 3”
category and $264 million in the “Years 4 and 5” category are expected to renew for additional periods until completion of the
contractual obligation.
2,136 $
357
871
3,364 $
1,090 $
357
605
2,052 $
559 $
—
4
563 $
441 $
—
220
661 $
$
At December 31, 2020, third-party guarantees totaled $871 million, of which approximately 71% related to guarantees of
contractual performance of joint ventures to which we currently are or previously were a party. These amounts represent our
estimate of the maximum amounts we would expect to incur upon the contractual non-performance of the joint venture, joint
venture partners or divested businesses. Generally, we also have cross-indemnities in place that may enable us to recover
amounts that may be paid on behalf of a joint venture partner.
In determining our exposures, we evaluate the reputation, performance on contractual obligations, technical capabilities
and credit quality of our current and former joint venture partners and the transferee under novation agreements all of which
include a guarantee as required by the FAR. At December 31, 2020 and 2019, there were no material amounts recorded in our
financial statements related to third-party guarantees or novation agreements.
Critical Accounting Policies
Contract Accounting / Sales Recognition
The majority of our net sales are generated from long-term contracts with the U.S. Government and international
customers (including FMS contracted through the U.S. Government) for the research, design, development, manufacture,
integration and sustainment of advanced technology systems, products and services. We account for a contract when it has
approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract
has commercial substance and collectability of consideration is probable. For certain contracts that meet the foregoing
requirements, primarily international direct commercial sale contracts, we are required to obtain certain regulatory approvals. In
these cases, we recognize revenue when it is probable that we will receive regulatory approvals based upon all known facts and
circumstances. We provide our products and services under fixed-price and cost-reimbursable contracts.
Under fixed-price contracts, we agree to perform the specified work for a pre-determined price. To the extent our actual
costs vary from the estimates upon which the price was negotiated, we will generate more or less profit or could incur a loss.
Some fixed-price contracts have a performance-based component under which we may earn incentive payments or incur
financial penalties based on our performance.
Cost-reimbursable contracts provide for the payment of allowable costs incurred during performance of the contract plus a
fee up to a ceiling based on the amount that has been funded. Typically, we enter into three types of cost-reimbursable
contracts: cost-plus-award-fee, cost-plus-incentive-fee, and cost-plus-fixed-fee. Cost-plus-award-fee contracts provide for an
award fee that varies within specified limits based on the customer’s assessment of our performance against a predetermined set
of criteria, such as targets based on cost, quality, technical and schedule criteria. Cost-plus-incentive-fee contracts provide for
reimbursement of costs plus a fee, which is adjusted by a formula based on the relationship of total allowable costs to total
target costs (i.e., incentive based on cost) or reimbursement of costs plus an incentive to exceed stated performance targets (i.e.,
incentive based on performance). The fixed-fee in a cost-plus-fixed-fee contract is negotiated at the inception of the contract
and that fixed-fee does not vary with actual costs.
We assess each contract at its inception to determine whether it should be combined with other contracts. When making
this determination, we consider factors such as whether two or more contracts were negotiated and executed at or near the same
54
time or were negotiated with an overall profit objective. If combined, we treat the combined contracts as a single contract for
revenue recognition purposes.
We evaluate the products or services promised in each contract at inception to determine whether the contract should be
accounted for as having one or more performance obligations. The products and services in our contracts are typically not
distinct from one another due to their complex relationships and the significant contract management functions required to
perform under the contract. Accordingly, our contracts are typically accounted for as one performance obligation. In limited
cases, our contracts have more than one distinct performance obligation, which occurs when we perform activities that are not
highly complex or interrelated or involve different product lifecycles. Significant judgment is required in determining
performance obligations, and these decisions could change the amount of revenue and profit recorded in a given period. We
classify net sales as products or services on our consolidated statements of earnings based on the predominant attributes of the
performance obligations.
We determine the transaction price for each contract based on the consideration we expect to receive for the products or
services being provided under the contract. For contracts where a portion of the price may vary, we estimate variable
consideration at the most likely amount, which is included in the transaction price to the extent it is probable that a significant
reversal of cumulative revenue recognized will not occur. We analyze the risk of a significant revenue reversal and if necessary
constrain the amount of variable consideration recognized in order to mitigate this risk.
At the inception of a contract we estimate the transaction price based on our current rights and do not contemplate future
modifications (including unexercised options) or follow-on contracts until they become legally enforceable. Contracts are often
subsequently modified to include changes in specifications, requirements or price, which may create new or change existing
enforceable rights and obligations. Depending on the nature of the modification, we consider whether to account for the
modification as an adjustment to the existing contract or as a separate contract. Generally, modifications to our contracts are not
distinct from the existing contract due to the significant integration and interrelated tasks provided in the context of the contract.
Therefore, such modifications are accounted for as if they were part of the existing contract and recognized as a cumulative
adjustment to revenue.
For contracts with multiple performance obligations, we allocate the transaction price to each performance obligation
based on the estimated standalone selling price of the product or service underlying each performance obligation. The
standalone selling price represents the amount we would sell the product or service to a customer on a standalone basis (i.e., not
bundled with any other products or services). Our contracts with the U.S. Government, including FMS contracts, are subject to
FAR and the price is typically based on estimated or actual costs plus a reasonable profit margin. As a result of these
regulations, the standalone selling price of products or services in our contracts with the U.S. Government and FMS contracts
are typically equal to the selling price stated in the contract.
For non-U.S. Government contracts with multiple performance obligations, we evaluate whether the stated selling prices
for the products or services represent their standalone selling prices. We primarily sell customized solutions unique to a
customer’s specifications. When it is necessary to allocate the transaction price to multiple performance obligations, we
typically use the expected cost plus a reasonable profit margin to estimate the standalone selling price of each product or
service. We occasionally sell standard products or services with observable standalone sales transactions. In these situations, the
observable standalone sales transactions are used to determine the standalone selling price.
We recognize revenue as performance obligations are satisfied and the customer obtains control of the products and
services. In determining when performance obligations are satisfied, we consider factors such as contract terms, payment terms
and whether there is an alternative future use of the product or service. Substantially all of our revenue is recognized over time
as we perform under the contract because control of the work in process transfers continuously to the customer. For most
contracts with the U.S. Government and FMS contracts, this continuous transfer of control of the work in process to the
customer is supported by clauses in the contract that give the customer ownership of work in process and allow the customer to
unilaterally terminate the contract for convenience and pay us for costs incurred plus a reasonable profit. For most non-U.S.
Government contracts, primarily international direct commercial contracts, continuous transfer of control to our customer is
supported because we deliver products that do not have an alternative use to us and if our customer were to terminate the
contract for reasons other than our non-performance we would have the right to recover damages which would include, among
other potential damages, the right to payment for our work performed to date plus a reasonable profit.
For performance obligations to deliver products with continuous transfer of control to the customer, revenue is recognized
based on the extent of progress towards completion of the performance obligation, generally using the percentage-of-
completion cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer as
we incur costs on our contracts. Under the percentage-of-completion cost-to-cost measure of progress, the extent of progress
towards completion is measured based on the ratio of costs incurred to date to the total estimated costs to complete the
55
performance obligation(s). For performance obligations to provide services to the customer, revenue is recognized over time
based on costs incurred or the right to invoice method (in situations where the value transferred matches our billing rights) as
our customer receives and consumes the benefits.
For performance obligations in which control does not continuously transfer to the customer, we recognize revenue at the
point in time in which each performance obligation is fully satisfied. This coincides with the point in time the customer obtains
control of the product or service, which typically occurs upon customer acceptance or receipt of the product or service, given
that we maintain control of the product or service until that point.
Significant estimates and assumptions are made in estimating contract sales and costs, including the profit booking rate.
At the outset of a long-term contract, we identify and monitor risks to the achievement of the technical, schedule and cost
aspects of the contract, as well as variable consideration, and assess the effects of those risks on our estimates of sales and total
costs to complete the contract. The estimates consider the technical requirements (e.g., a newly-developed product versus a
mature product), the schedule and associated tasks (e.g., the number and type of milestone events) and costs (e.g., material,
labor, subcontractor, overhead, general and administrative and the estimated costs to fulfill our industrial cooperation
agreements, sometimes referred to as offset or localization agreements, required under certain contracts with international
customers). The initial profit booking rate of each contract considers risks surrounding the ability to achieve the technical
requirements, schedule and costs in the initial estimated total costs to complete the contract. Profit booking rates may increase
during the performance of the contract if we successfully retire risks surrounding the technical, schedule and cost aspects of the
contract, which decreases the estimated total costs to complete the contract or may increase the variable consideration we
expect to receive on the contract. Conversely, our profit booking rates may decrease if the estimated total costs to complete the
contract increase or our estimates of variable consideration we expect to receive decrease. All of the estimates are subject to
change during the performance of the contract and may affect the profit booking rate. When estimates of total costs to be
incurred on a contract exceed total estimates of the transaction price, a provision for the entire loss is determined at the contract
level and is recorded in the period in which the loss is determined.
Comparability of our segment sales, operating profit and operating margin may be impacted favorably or unfavorably by
changes in profit booking rates on our contracts for which we recognize revenue over time using the percentage-of-completion
cost-to-cost method to measure progress towards completion. Increases in the profit booking rates, typically referred to as risk
retirements, usually relate to revisions in the estimated total costs to fulfill the performance obligations that reflect improved
conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate, resulting in an increase in
the estimated total costs to fulfill the performance obligations and a reduction in the profit booking rate. Increases or decreases
in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes. Segment
operating profit and margin may also be impacted favorably or unfavorably by other items, which may or may not impact sales.
Favorable items may include the positive resolution of contractual matters, cost recoveries on severance and restructuring
charges, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual
matters; restructuring charges, except for significant severance actions, which are excluded from segment operating results;
reserves for disputes; certain asset impairments; and losses on sales of certain assets.
Other Contract Accounting Considerations
The majority of our sales are driven by pricing based on costs incurred to produce products or perform services under
contracts with the U.S. Government. Cost-based pricing is determined under the FAR. The FAR provides guidance on the types
of costs that are allowable in establishing prices for goods and services under U.S. Government contracts. For example, costs
such as those related to charitable contributions, interest expense and certain advertising and public relations activities are
unallowable and, therefore, not recoverable through sales. In addition, we may enter into advance agreements with the U.S.
Government that address the subjects of allowability and allocability of costs to contracts for specific matters. For example,
most of the environmental costs we incur for environmental remediation related to sites operated in prior years are allocated to
our current operations as general and administrative costs under FAR provisions and supporting advance agreements reached
with the U.S. Government.
We closely monitor compliance with and the consistent application of our critical accounting policies related to contract
accounting. Costs incurred and allocated to contracts are reviewed for compliance with U.S. Government regulations by our
personnel and are subject to audit by the Defense Contract Audit Agency.
56
Postretirement Benefit Plans
Overview
Many of our employees and retirees participate in qualified and nonqualified defined benefit pension plans, retiree medical
and life insurance plans and other postemployment plans (collectively, postretirement benefit plans - see “Note 12 –
Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements). The majority of our accrued benefit
obligations 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
consolidated balance sheets. The GAAP funded status represents the difference between the fair value of each plan’s assets and
the benefit obligation of the plan. The GAAP benefit obligation represents the present value of the estimated future benefits we
currently expect to pay to plan participants based on past service.
We completed the final step of the previously announced planned freeze of our qualified and nonqualified defined benefit
pension plans for salaried employees effective January 1, 2020. The freeze took effect in two stages. Effective January 1, 2016,
the pay-based component of the formula used to determine retirement benefits was frozen. Effective January 1, 2020, the
service-based component of the formula was frozen. As a result of these changes, the qualified defined benefit pension plans for
salaried employees are fully frozen effective January 1, 2020. With the freeze complete, the majority of our salaried employees
participate in an enhanced defined contribution retirement savings plan.
Similar to recent years, we continue to take actions to mitigate the effect of our defined benefit pension plans on our
financial results by reducing the volatility of our pension obligations, including entering into additional transactions involving
the purchase of group annuity contracts for portions of our outstanding defined benefit pension obligations using assets from the
pension trust. During December 2020, Lockheed Martin, through its master retirement trust, purchased an irrevocable group
annuity contract from an insurance company (referred to as a buy-out contract) for $1.4 billion to transfer the related,
outstanding defined benefit pension obligations. As a result of this transaction, we were relieved of all responsibility for these
pension obligations and the insurance company is now required to pay and administer the retirement benefits owed to
approximately 13,500 U.S. retirees and beneficiaries, with no change to the amount, timing or form of monthly retirement
benefit payments. Although the transaction was treated as a settlement for accounting purposes, we did not recognize a loss on
the settlement in earnings associated with the transaction because total settlements during 2020 for the affected pension plans
were less than the plans’ service and interest cost in 2020.
A second contract was also purchased from an insurance company for $793 million that will reimburse the plan for all
future benefit payments related to approximately 2,500 U.S. retirees and beneficiaries (referred to as a buy-in contract). The
covered retirees and beneficiaries and buy-in contract were spun-off to the plan established in December 2018 for the contract
purchased at that time similarly structured as a buy-in; the buy-in contracts are the sole assets of that plan. Under the
arrangement, the plan remains responsible for paying the benefits for the covered retirees and beneficiaries and the insurance
company will reimburse the plan as those benefits are paid. As a result, there is no net ongoing cash flow to the plan for the
covered retirees and beneficiaries as the cost of providing the benefits is funded by the buy-in contract; effectively locking in
the cost of the benefits and eliminating future volatility of the benefit obligation, while also providing the option to convert to a
buy-out. The buy-in contract was purchased using assets from the pension trust and is accounted for at fair value as an
investment of the trust. These transactions had no impact on our 2020 FAS pension expense or CAS pension cost.
Since December 2018, Lockheed Martin, through its master retirement trust, has purchased total contracts (both buy-in and
buy-out) for approximately $6.7 billion related to our outstanding defined benefit pension obligations eliminating pension plan
volatility for approximately 77,000 retirees and beneficiaries and annually required Pension Benefit Guarantee Corporation
(PBGC) premiums of approximately $55 million per year.
We expect to continue to look for opportunities to manage our pension liabilities through additional buy-out (and buy-in)
contracts in future years. Future transactions could result in a non-cash settlement charge to earnings, which could be material
to a reporting period.
Notwithstanding these actions, the impact of our postretirement benefit plans on our earnings may be volatile in that the
amount of expense we record and the funded status for our postretirement benefit plans may materially change from year to
year because the calculations are sensitive to funding levels as well as changes in several key economic assumptions, including
interest rates, actual rates of return on plan assets and other actuarial assumptions including participant longevity and employee
turnover, as well as the timing of cash funding.
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Actuarial Assumptions
The plan assets and benefit obligations are measured at the end of each year or more frequently, upon the occurrence of
certain events such as a significant plan amendment, settlement or curtailment. The amounts we record are measured using
actuarial valuations, which are dependent upon key assumptions such as discount rates, the expected long-term rate of return on
plan assets, participant longevity, employee turnover and the health care cost trend rates for our retiree medical plans. The
assumptions we make affect both the calculation of the benefit obligations as of the measurement date and the calculation of net
periodic benefit cost in subsequent periods. When reassessing these assumptions, we consider past and current market
conditions and make judgments about future market trends. We also consider factors such as the timing and amounts of
expected contributions to the plans and benefit payments to plan participants.
We continue to use a single weighted average discount rate approach when calculating our consolidated benefit obligations
related to our defined benefit pension plans resulting in 2.50% at December 31, 2020, compared to 3.25% at December 31,
2019. We utilized a single weighted average discount rate of 2.375% when calculating our benefit obligations related to our
retiree medical and life insurance plans at December 31, 2020, compared to 3.25% at December 31, 2019. We evaluate several
data points in order to arrive at an appropriate single weighted average discount rate, including results from cash flow models,
quoted rates from long-term bond indices and changes in long-term bond rates over the past year. As part of our evaluation, we
calculate the approximate average yields on corporate bonds rated AA or better selected to match our projected postretirement
benefit plan cash flows. The decrease in the discount rate from December 31, 2019 to December 31, 2020 resulted in an
increase in the projected benefit obligations of our qualified defined benefit pension plans of approximately $4.9 billion at
December 31, 2020.
We utilized an expected long-term rate of return on plan assets of 7.00% at both December 31, 2020 and December 31,
2019. The long-term rate of return assumption represents the expected long-term rate of return on the funds invested or to be
invested, to provide for the benefits included in the benefit obligations. This assumption is based on several factors including
historical market index returns, the anticipated long-term allocation of plan assets, the historical return data for the trust funds,
plan expenses and the potential to outperform market index returns. The difference between the long-term rate of return on plan
assets assumption we select and the actual return on plan assets in any given year affects both the funded status of our benefit
plans and the calculation of FAS pension expense in subsequent periods. Although the actual return in any specific year likely
will differ from the assumption, the average expected return over a long-term future horizon should be approximately equal to
the assumption. Any variance each year should not, by itself, suggest that the assumption should be changed. Patterns of
variances are reviewed over time, and then combined with expectations for the future. As a result, changes in this assumption
are less frequent than changes in the discount rate. The actual investment return for our qualified defined benefit plans during
2020 of $5.6 billion based on an actual rate of approximately 16.5% improved plan assets more than the $2.3 billion expected
return based on our 7.00% long-term rate of return assumption.
In October 2020, the Society of Actuaries published revised longevity assumptions that refined its prior studies. We used
the revised assumptions in our December 31, 2020 re-measurement of benefit obligation resulting in an approximate
$426 million decrease in the projected benefit obligations of our qualified defined benefit pension plans.
Our stockholders’ equity has been reduced cumulatively by $16.2 billion from the annual year-end measurements of the
funded status of postretirement benefit plans. The cumulative non-cash, after-tax reduction primarily represents net actuarial
losses resulting from declines in discount rates, investment losses and updated longevity. A market-related value of our plan
assets, determined using actual asset gains or losses over the prior three-year period, is used to calculate the amount of deferred
asset gains or losses to be amortized. These cumulative actuarial losses will be amortized to expense using the corridor method,
where gains and losses are recognized to the extent they exceed 10% of the greater of plan assets or benefit obligations, over an
average period of approximately twenty years as of December 31, 2020. This amortization period extended in 2020 due to the
freeze of our salaried pension plans to use the average remaining life expectancy of the participants instead of average future
service. During 2020, $440 million of these amounts were recognized as a component of postretirement benefit plans expense.
The discount rate and long-term rate of return on plan assets assumptions we select at the end of each year are based on our
best estimates and judgment. A change of plus or minus 25 basis points in the 2.50% discount rate assumption at December 31,
2020, with all other assumptions held constant, would have decreased or increased the amount of the qualified pension benefit
obligation we recorded at the end of 2020 by approximately $1.6 billion, which would result in an after-tax increase or decrease
in stockholders’ equity at the end of the year of approximately $1.3 billion. If the 2.50% discount rate at December 31, 2020
that was used to compute the expected 2021 FAS pension expense for our qualified defined benefit pension plans had been
25 basis points higher or lower, with all other assumptions held constant, the amount of FAS pension expense projected for
2021 would be lower or higher by approximately $15 million. The impact of changes in the discount rate on FAS pension
expense is significantly less than in years prior to the freeze of our salaried pension plans effective January 1, 2020 due to the
resulting service cost reduction and extended loss amortization period discussed above. If the 7.00% expected long-term rate of
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return on plan assets assumption at December 31, 2020 that was used to compute the expected 2021 FAS pension expense for
our qualified defined benefit pension plans had been 25 basis points higher or lower, with all other assumptions held constant,
the amount of FAS pension expense projected for 2021 would be lower or higher by approximately $80 million. Each year,
differences between the actual plan asset return and the expected long-term rate of return on plan assets impacts the
measurement of the following year’s FAS expense. Every 100 basis points difference in return during 2020 between our actual
rate of return of approximately 16.5% and our expected long-term rate of return of 7.00% impacted 2021 expected FAS pension
expense by approximately $15 million.
Funding Considerations
We made contributions of $1.0 billion in both 2020 and 2019 to our qualified defined benefit pension plans. Funding of our
qualified defined benefit pension plans is determined in a manner consistent with CAS and in accordance with the Employee
Retirement Income Security Act of 1974 (ERISA), as amended by the Pension Protection Act of 2006 (PPA). Our goal has been
to fund the pension plans to a level of at least 80%, as determined under the PPA. The ERISA funded status of our qualified
defined benefit pension plans was approximately 86% and 83% as of December 31, 2020 and 2019; which is calculated on a
different basis than under GAAP.
Contributions to our defined benefit pension plans are recovered over time through the pricing of our products and services
on U.S. Government contracts, including FMS, and are recognized in our cost of sales and net sales. CAS govern the extent to
which our pension costs are allocable to and recoverable under contracts with the U.S. Government, including FMS. Pension
cost recoveries under CAS occur in different periods from when pension contributions are made under the PPA. The CAS rules
fully transitioned in 2017 to better align the recovery of pension costs with the minimum funding requirements of the PPA
(referred to as CAS Harmonization).
We recovered $2.0 billion in 2020 and $2.6 billion in 2019 as CAS pension costs. Amounts contributed in excess of the
CAS pension costs recovered under U.S. Government contracts are considered to be prepayment credits under the CAS rules.
Our prepayment credits were approximately $8.3 billion and $8.5 billion at December 31, 2020 and 2019, respectively. The
prepayment credit balance will increase or decrease based on our actual investment return on plan assets.
Trends
We plan to make discretionary contributions of approximately $1.0 billion to our qualified defined benefit pension plans in
2021. We anticipate recovering approximately $2.1 billion of CAS pension cost in 2021 allowing us to recoup a portion of our
CAS prepayment credits.
We project FAS pension income of $265 million in 2021, compared to FAS pension income of $118 million in 2020, and a
net 2021 FAS/CAS pension benefit of $2.3 billion compared to $2.1 billion in 2020.
Environmental Matters
We are a party to various agreements, proceedings and potential proceedings for environmental remediation issues,
including matters at various sites where we have been designated a potentially responsible party (PRP). At December 31, 2020
and 2019, the total amount of liabilities recorded on our consolidated balance sheet for environmental matters was $789 million
and $810 million. We have recorded assets totaling $685 million and $703 million at December 31, 2020 and 2019 for the
portion of environmental costs that are probable of future recovery in pricing of our products and services for agencies of the
U.S. Government, as discussed below. The amount that is expected to be allocated to our non-U.S. Government contracts or
that is determined to not be recoverable under U.S. Government contracts is expensed through cost of sales. We project costs
and recovery of costs over approximately 20 years.
We enter into agreements (e.g., administrative consent orders, consent decrees) that document the extent and timing of
some of our environmental remediation obligations. We also are involved in environmental remediation activities at sites where
formal agreements either do not exist or do not quantify the extent and timing of our obligations. Environmental remediation
activities usually span many years, which makes estimating the costs more judgmental due to, for example, changing
remediation technologies. To determine the costs related to clean up sites, we have to assess the extent of contamination, effects
on natural resources, the appropriate technology to be used to accomplish the remediation, and evolving environmental
standards.
We perform quarterly reviews of environmental remediation sites and record liabilities and receivables in the period it
becomes probable that the liabilities have been incurred and the amounts can be reasonably estimated (see the discussion under
“Environmental Matters” in “Note 1 – Significant Accounting Policies” and “Note 15 – Legal Proceedings, Commitments and
59
Contingencies” included in our Notes to Consolidated Financial Statements). We consider the above factors in our quarterly
estimates of the timing and amount of any future costs that may be required for environmental remediation activities, which
result in the calculation of a range of estimates for each particular environmental remediation 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. Given the
required level of judgment and estimation, it is likely that materially different amounts could be recorded if different
assumptions were used or if circumstances were to change (e.g., a change in environmental standards or a change in our
estimate of the extent of contamination).
Under agreements reached with the U.S. Government, most of the amounts we spend for environmental remediation are
allocated to our operations as general and administrative costs. Under existing U.S. Government regulations, these and other
environmental expenditures relating to our U.S. Government business, after deducting any recoveries received from insurance
or other PRPs, are allowable in establishing prices of our products and services. As a result, most of the expenditures we incur
are included in our net sales and cost of sales according to U.S. Government agreement or regulation, regardless of the contract
form (e.g. cost-reimbursable, fixed-price). We continually evaluate the recoverability of our assets for the portion of
environmental costs that are probable of future recovery by assessing, among other factors, U.S. Government regulations, our
U.S. Government business base and contract mix, our history of receiving reimbursement of such costs, and efforts by some
U.S. Government representatives to limit such reimbursement.
In addition to the proceedings and potential proceedings discussed above, the California State Water Resources Control
Board, a branch of the California Environmental Protection Agency, has indicated it will work to re-establish a maximum level
of the contaminant hexavalent chromium in drinking water after a prior standard of 10 parts per billion (ppb) was challenged
and withdrawn, and is also reevaluating its existing drinking water standard of 6 ppb for perchlorate. The U.S. Environmental
Protection Agency decided in June 2020 not to regulate perchlorate in drinking water at the federal level, although this decision
has been challenged, and is considering whether to regulate hexavalent chromium.
If substantially lower standards are adopted for perchlorate (in California) or for hexavalent chromium (in California or at
the federal level), we expect a material increase in our estimates for environmental liabilities and the related assets for the
portion of the increased costs that are probable of future recovery in the pricing of our products and services for the U.S.
Government. The amount that would be allocable to our non-U.S. Government contracts or that is determined not to be
recoverable under U.S. Government contracts would be expensed, which may have a material effect on our earnings in any
particular interim reporting period.
We also are evaluating the potential impact of existing and contemplated legal requirements addressing a class of
compounds known generally as per- and polyfluoroalkyl compounds (PFAS). PFAS compounds have been used ubiquitously,
such as in fire-fighting foams, manufacturing processes, and stain- and stick-resistant products (e.g., Teflon, stain-resistant
fabrics). Because we have used products and processes over the years containing some of those compounds, they likely exist as
contaminants at many of our environmental remediation sites. Governmental authorities have announced plans, and in some
instances have begun, to regulate certain of these compounds at extremely low concentrations in drinking water, which could
lead to increased cleanup costs at many of our environmental remediation sites.
As disclosed above, we may record changes in the amount of environmental remediation liabilities as a result of our
quarterly reviews of the status of our environmental remediation sites, which would result in a change to the corresponding
amount that is probable of future recovery and a charge to earnings. For example, if we were to determine that the liabilities
should be increased by $100 million, the corresponding amount that is probable of future recovery would be increased by
approximately $87 million, with the remainder recorded as a charge to earnings. This allocation is determined annually, based
upon our existing and projected business activities with the U.S. Government.
We cannot reasonably determine the extent of our financial exposure at all environmental remediation sites with which we
are involved. There are a number of former operating facilities we are monitoring or investigating for potential future
environmental remediation. In some cases, although a loss may be probable, it is not possible at this time to reasonably estimate
the amount of any obligation for remediation activities because of uncertainties (e.g., assessing the extent of the contamination).
During any particular quarter, such uncertainties may be resolved, allowing us to estimate and recognize the initial liability to
remediate a particular former operating site. The amount of the liability could be material. Upon recognition of the liability, a
portion will be recognized as a receivable with the remainder charged to earnings, which may have a material effect in any
particular interim reporting period.
If we are ultimately found to have liability at those sites where we have been designated a PRP, we expect that the actual
costs of environmental remediation will be shared with other liable PRPs. Generally, PRPs that are ultimately determined to be
responsible parties are strictly liable for site remediation and usually agree among themselves to share, on an allocated basis, the
costs and expenses for environmental investigation and remediation. Under existing environmental laws, responsible parties are
60
jointly and severally liable and, therefore, we are potentially liable for the full cost of funding such remediation. In the unlikely
event that we were required to fund the entire cost of such remediation, the statutory framework provides that we may pursue
rights of cost recovery or contribution from the other PRPs. The amounts we record do not reflect the fact that we may recover
some of the environmental costs we have incurred through insurance or from other PRPs, which we are required to pursue by
agreement and U.S. Government regulation.
Goodwill and Intangible Assets
The assets and liabilities of acquired businesses are recorded under the acquisition method of accounting at their estimated
fair values at the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying identifiable
net assets of acquired businesses. Intangible assets from acquired businesses are recognized at fair value on the acquisition date
and consist of customer programs, trademarks, customer relationships, technology and other intangible assets. Customer
programs include values assigned to major programs of acquired businesses and represent the aggregate value associated with
the customer relationships, contracts, technology and trademarks underlying the associated program and are amortized on a
straight-line basis over a period of expected cash flows used to measure fair value, which ranges from nine to 20 years.
Our goodwill balance was $10.8 billion at December 31, 2020 and $10.6 billion at December 31, 2019. We perform an
impairment test of our goodwill at least annually in the fourth quarter or more frequently whenever events or changes in
circumstances indicate the carrying value of goodwill may be impaired. Such events or changes in circumstances may include a
significant deterioration in overall economic conditions, changes in the business climate of our industry, a decline in our market
capitalization, operating performance indicators, competition, reorganizations of our business, U.S. Government budget
restrictions or the disposal of all or a portion of a reporting unit. Our goodwill has been allocated to and is tested for impairment
at a level referred to as the reporting unit, which is our business segment level or a level below the business segment. The level
at which we test goodwill for impairment requires us to determine whether the operations below the business segment constitute
a self-sustaining business for which discrete financial information is available and segment management regularly reviews the
operating results.
We may use both qualitative and quantitative approaches when testing goodwill for impairment. For selected reporting
units where we use the qualitative approach, we perform a qualitative evaluation of events and circumstances impacting the
reporting unit to determine the likelihood of goodwill impairment. Based on that qualitative evaluation, if we determine it is
more likely than not that the fair value of a reporting unit exceeds its carrying amount, no further evaluation is necessary.
Otherwise we perform a quantitative impairment test. We perform quantitative tests for most reporting units at least once every
three years. However, for certain reporting units we may perform a quantitative impairment test every year.
To perform the quantitative impairment test, we compare the fair value of a reporting unit to its carrying value, including
goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the
carrying value of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment loss is recognized in an
amount equal to that excess. We generally estimate the fair value of each reporting unit using a combination of a discounted
cash flow (DCF) analysis and market-based valuation methodologies such as comparable public company trading values and
values observed in recent business acquisitions. Determining fair value requires the exercise of significant judgments, including
the amount and timing of expected future cash flows, long-term growth rates, discount rates and relevant comparable public
company earnings multiples and relevant transaction multiples. The cash flows employed in the DCF analysis are based on our
best estimate of future sales, earnings and cash flows after considering factors such as general market conditions, U.S.
Government budgets, existing firm orders, expected future orders, contracts with suppliers, labor agreements, changes in
working capital, long term business plans and recent operating performance. The discount rates utilized in the DCF analysis are
based on the respective reporting unit’s weighted average cost of capital, which takes into account the relative weights of each
component of capital structure (equity and debt) and represents the expected cost of new capital, adjusted as appropriate to
consider the risk inherent in future cash flows of the respective reporting unit. The carrying value of each reporting unit
includes the assets and liabilities employed in its operations, goodwill and allocations of amounts held at the business segment
and corporate levels.
In the fourth quarter of 2020, we performed our annual goodwill impairment test for each of our reporting units. The results
of that test indicated that for each of our reporting units no impairment existed. As of the date of our annual impairment test, the
fair value of our Sikorsky reporting unit exceeded its carrying value, which included goodwill of $2.7 billion, by a margin of
approximately 30%. The fair value of our Sikorsky reporting unit can be significantly impacted by changes in expected future
orders, general market pressures, including U.S. Government budgetary constraints, discount rates, long term growth rates, and
changes in U.S. (federal or state) or foreign tax laws and regulations, or their interpretation and application, including those
with retroactive effect, along with other significant judgments. Based on our assessment of these circumstances, we have
determined that goodwill at our Sikorsky reporting unit is at risk for impairment should there be a deterioration of projected
cash flows of the reporting unit.
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Impairment assessments inherently involve management judgments regarding a number of assumptions such as those
described above. Due to the many variables inherent in the estimation of a reporting unit’s fair value and the relative size of our
recorded goodwill, differences in assumptions could have a material effect on the estimated fair value of one or more of our
reporting units and could result in a goodwill impairment charge in a future period.
Acquired intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment testing.
This testing compares carrying value to fair value and, when appropriate, the carrying value of these assets is reduced to fair
value. In the fourth quarter of 2020, we performed our annual impairment test, and the results of that test indicated no
impairment existed. Finite-lived intangibles are amortized to expense over the applicable useful lives, ranging from three to 20
years, based on the nature of the asset and the underlying pattern of economic benefit as reflected by future net cash inflows.
We perform an impairment test of finite-lived intangibles whenever events or changes in circumstances indicate their carrying
value may be impaired. If events or changes in circumstances indicate the carrying value of a finite-lived intangible may be
impaired, the sum of the undiscounted future cash flows expected to result from the use of the asset group would be compared
to the asset group’s carrying value. If the asset group’s carrying amount exceed the sum of the undiscounted future cash flows,
we would determine the fair value of the asset group and record an impairment loss in net earnings.
Recent Accounting Pronouncements
See “Note 1 – Significant Accounting Policies” included in our Notes to Consolidated Financial Statements (under the
caption “Recent Accounting Pronouncements”).
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ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk
We maintain active relationships with a broad and diverse group of U.S. and international financial institutions. We believe
that they provide us with sufficient access to the general and trade credit we require to conduct our business. We continue to
closely monitor the financial market environment and actively manage counterparty exposure to minimize the potential impact
from adverse developments with any single credit provider while ensuring availability of, and access to, sufficient credit
resources.
Our main exposure to market risk relates to interest rates, foreign currency exchange rates and market prices on certain
equity securities. Our financial instruments that are subject to interest rate risk principally include fixed-rate long-term debt and
commercial paper, if issued. The estimated fair value of our outstanding debt was $16.9 billion at December 31, 2020 and the
outstanding principal amount was $13.3 billion, excluding unamortized discounts and issuance costs of $1.1 billion. A 10%
change in the level of interest rates would not have a material impact on the fair value of our outstanding debt at December 31,
2020.
We use derivative instruments principally to reduce our exposure to market risks from changes in foreign currency
exchange rates and interest rates. We do not enter into or hold derivative instruments for speculative trading purposes. We
transact business globally and are subject to risks associated with changing foreign currency exchange rates. We enter into
foreign currency hedges such as forward and option contracts that change in value as foreign currency exchange rates change.
Our most significant foreign currency exposures relate to the British pound sterling, the euro, the Canadian dollar and the
Australian dollar. These contracts hedge forecasted foreign currency transactions in order to mitigate fluctuations in our
earnings and cash flows associated with changes in foreign currency exchange rates. As a result, we do not have material
foreign currency transaction exposure, including exposure to the pound sterling or euro should there be material foreign
currency fluctuations due to the United Kingdom departing from the European Union (commonly referred to as Brexit). We
designate foreign currency hedges as cash flow hedges. We also are exposed to the impact of interest rate changes primarily
through our borrowing activities. For fixed rate borrowings, we may use variable interest rate swaps, effectively converting
fixed rate borrowings to variable rate borrowings in order to hedge changes in the fair value of the debt. These swaps are
designated as fair value hedges. For variable rate borrowings, we may use fixed interest rate swaps, effectively converting
variable rate borrowings to fixed rate borrowings in order to mitigate the impact of interest rate changes on earnings. These
swaps are designated as cash flow hedges. We also may enter into derivative instruments that are not designated as hedges and
do not qualify for hedge accounting, which are intended to mitigate certain economic exposures.
The classification of gains and losses resulting from changes in the fair values of derivatives is dependent on our intended
use of the derivative and its resulting designation. Adjustments to reflect changes in fair values of derivatives attributable to
highly effective hedges are either reflected in earnings and largely offset by corresponding adjustments to the hedged items or
reflected net of income taxes in accumulated other comprehensive loss until the hedged transaction is recognized in earnings.
Changes in the fair value of the derivatives that are not highly effective, if any, are immediately recognized in earnings. The
aggregate notional amount of our outstanding interest rate swaps at December 31, 2020 and 2019 was $572 million and
$750 million. The aggregate notional amount of our outstanding foreign currency hedges at December 31, 2020 and 2019 was
$3.4 billion and $3.8 billion. At December 31, 2020 and 2019, the net fair value of our derivative instruments was not material
(see “Note 17 – Fair Value Measurements” included in our Notes to Consolidated Financial Statements). A 10% unfavorable
exchange rate movement of our foreign currency contracts would not have a material impact on the aggregate net fair value of
such contracts or our consolidated financial statements. Additionally, as we enter into foreign currency contracts to hedge
foreign currency exposure on underlying transactions we believe that any movement on our foreign currency contracts would
be offset by movement on the underlying transactions and, therefore, when taken together do not create material risk.
We evaluate the credit quality of potential counterparties to derivative transactions and only enter into agreements with
those deemed to have acceptable credit risk at the time the agreements are executed. Our foreign currency exchange hedge
portfolio is diversified across several banks. We periodically monitor changes to counterparty credit quality as well as our
concentration of credit exposure to individual counterparties. We do not hold or issue derivative financial instruments for
trading or speculative purposes.
We maintain a separate trust that includes investments to fund certain of our non-qualified deferred compensation plans. As
of December 31, 2020, investments in the trust totaled $2.0 billion and are reflected at fair value on our consolidated 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 by the trust is also impacted by changes in the market price of our common stock and certain market indices.
Changes in the value of the liabilities have the effect of partially offsetting the impact of changes in the value of the trust. Both
the change in the fair value of the trust and the change in the value of the liabilities are recognized on our consolidated
statements of earnings in other unallocated, net and were not material for the year ended December 31, 2020.
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ITEM 8.
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
on the Audited Consolidated Financial Statements
Board of Directors and Stockholders
Lockheed Martin Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Lockheed Martin Corporation (the Corporation) as of
December 31, 2020 and 2019, the related consolidated statements of earnings, comprehensive income, equity and cash flows
for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,
the consolidated financial position of the Corporation at December 31, 2020 and 2019, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S.
generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Corporation’s internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) and our report dated January 28, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an
opinion on the Corporation’s financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.
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Description of
the Matter
Revenue recognition based on the percentage of completion method
For the year ended December 31, 2020, the Corporation recorded net sales of $65.4 billion. As more fully
described in Note 1 to the consolidated financial statements, the Corporation generates the majority of its
net sales from long-term contracts with its customers whereby substantially all of the Corporation’s
revenue is recognized over time using the percentage-of-completion cost-to-cost measure of progress.
Under the percentage-of-completion cost-to-cost measure of progress, the Corporation measures progress
towards completion based on the ratio of costs incurred to date to the estimated total costs to complete the
performance obligation(s) (referred to as the estimate-at-completion analysis). The Corporation estimates
profit on these contracts as the difference between total estimated revenues and total estimated cost at
completion.
The percentage-of-completion cost-to-cost method requires management to make significant estimates
and assumptions to estimate contract sales and costs associated with its contracts with customers. At the
outset of a long-term contract, the Corporation identifies risks to the achievement of the technical,
schedule and cost aspects of the contract. Throughout the contract life cycle, the Corporation monitors
and assesses the effects of those risks on its estimates of sales and total costs to complete the contract.
Profit booking rates may increase during the performance of the contract if the Corporation successfully
retires risks surrounding the technical, schedule and cost aspects of the contract, which would decrease
the estimated total costs to complete the contract. Conversely, the profit booking rates may decrease if
the estimated total costs to complete the contract increase. Changes to the profit booking rates resulting
from changes in estimates could have a material effect on the Corporation’s results of operations.
Auditing the Corporation’s estimate-at-completion analyses used in its revenue recognition process was
complex due to the judgment involved in evaluating the significant estimates and assumptions made by
management in the creation and subsequent updates to the Corporation’s estimate-at-completion
analyses. The estimate-at-completion analyses of each contract consider risks surrounding the
Corporation’s ability to achieve the technical, schedule, and cost aspects of the contract.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant
internal controls over the Corporation’s revenue recognition process. For example, we tested internal
controls over management’s review of the estimate-at-completion analyses and the significant
assumptions underlying the estimated contract value and estimated total costs to complete. We also
tested internal controls that management executes to validate the data used in the estimate-at-completion
analyses was complete and accurate.
To test the accuracy of the Corporation’s estimate-at-completion analyses, our audit procedures included,
among others, comparing estimates of labor costs, subcontractor costs, and materials to historical results
of similar contracts, and agreeing the key terms to contract documentation and management’s estimates.
We also performed sensitivity analyses over the significant assumptions to evaluate the change in the
profit booking rates resulting from changes in the assumptions.
Goodwill Impairment Assessment – Sikorsky Reporting Unit
Description of
the Matter
At December 31, 2020, the Corporation’s Sikorsky reporting unit had a goodwill balance of $2.7 billion
which represented approximately 5.2% of total assets. As discussed in Note 1 and Note 4 to the
consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit
level using either a qualitative or quantitative approach. Under the quantitative approach to test for
goodwill impairment, the Corporation compares the fair value of a reporting unit to its carrying amount,
including goodwill. Generally, the Corporation estimates the fair value of its reporting units using a
combination of a discounted cash flows analysis and market-based valuation methodologies.
Auditing management’s annual impairment test over the Sikorsky reporting unit goodwill was complex
and highly judgmental due to the significant estimation required in determining the fair value. In
particular, the fair value estimate was sensitive to significant assumptions, such as revenue growth rates,
operating margins, cash flows, terminal value, and weighted average cost of capital, which are affected
by expectations about future market or economic conditions and expected future operating results of the
Sikorsky business.
65
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant
internal controls over the Corporation’s goodwill impairment review, including controls over
management’s review of the valuation model and significant assumptions described above. We also
tested the internal controls management executes to validate the data used in the valuation model was
complete and accurate.
To test the estimated fair value of the Sikorsky reporting unit, we performed audit procedures that
included, among others, assessing the valuation methodology used by the Corporation, involving our
valuation specialists to assist in testing the significant assumptions described above that are used in the
valuation, and testing the completeness and accuracy of the underlying data the Corporation used in its
analysis. For example, we compared the significant assumptions to current industry, market and
economic trends, historical results of the Sikorsky business, and other relevant factors. We also
performed a sensitivity analysis over the significant assumptions to evaluate the impact that changes in
significant assumptions would have on the fair value of the reporting unit.
Defined Benefit Pension Plan Obligation
Description of
the Matter
At December 31, 2020, the Corporation’s aggregate obligation for its qualified defined benefit pension
plans was $51.3 billion and exceeded the gross fair value of the related plan assets of $38.4 billion,
resulting in a net unfunded qualified defined benefit pension obligation of $12.9 billion. As explained in
Note 12 of the consolidated financial statements, the Corporation remeasures the qualified defined benefit
pension assets and obligations at the end of each year or more frequently upon the occurrence of certain
events. The amounts are measured using actuarial valuations, which depend on key assumptions such as
the discount rate, the expected long-term rate of return on plan assets, and participant longevity.
Auditing the defined benefit pension obligation was complex and required the involvement of specialists
as a result of the judgmental nature of the actuarial assumptions such as discount rate, expected long-term
rate of return on plan assets, and participant longevity, used in the measurement process. These
assumptions have a significant effect on the projected benefit obligation, with the discount rate being the
most sensitive of those assumptions.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant
internal controls over management’s measurement and valuation of the defined benefit pension obligation
calculations. For example, we tested the internal controls over management’s review of the defined
benefit pension obligation calculations, the significant actuarial assumptions and the data inputs provided
to the actuaries.
To test the defined benefit pension obligation, our audit procedures included, among others, evaluating
the methodology used, the significant actuarial assumptions described above and the underlying data used
by the Corporation. We compared the actuarial assumptions used by management to historical trends and
evaluated the change in the defined benefit pension obligation from prior year due to the change in
service cost, interest cost, benefit payments, actuarial gains and losses, contributions, new longevity
assumptions and plan amendments. In addition, we involved our actuarial specialists to assist in
evaluating management’s methodology for determining the discount rate that reflects the maturity and
duration of the benefit payments and is used to measure the defined benefit pension obligation. As part
of this assessment, we compared the projected cash flows to prior year and compared the current year
benefits paid to the prior year projected cash flows.
To evaluate the mortality rate and the longevity, we evaluated management’s selection of mortality base
tables and improvement scales, adjusted for entity-specific factors. We also tested the completeness and
accuracy of the underlying data, including the participant data provided to the Corporation’s actuarial
specialists. Lastly, to evaluate the expected return on plan assets, we assessed whether management’s
assumption was consistent with a range of returns for a portfolio of comparative investments.
/s/ Ernst & Young LLP
We have served as the Corporation’s auditor since 1994.
Tysons, Virginia
January 28, 2021
66
Lockheed Martin Corporation
Consolidated Statements of Earnings
(in millions, except per share data)
Years Ended December 31,
2020
2019
2018
$ 54,928 $ 50,053 $ 45,005
8,757
53,762
10,470
65,398
9,759
59,812
(48,996)
(9,371)
(27)
1,650
(56,744)
8,654
(10)
8,644
(591)
182
8,235
(1,347)
6,888
(55)
6,833 $
(44,589)
(8,731)
—
1,875
(51,445)
8,367
178
8,545
(653)
(651)
7,241
(1,011)
6,230
—
6,230 $
(40,293)
(7,738)
(96)
1,639
(46,488)
7,274
60
7,334
(668)
(828)
5,838
(792)
5,046
—
5,046
24.60 $
(0.20)
24.40 $
22.09 $
—
22.09 $
24.50 $
(0.20)
24.30 $
21.95 $
—
21.95 $
17.74
—
17.74
17.59
—
17.59
$
$
$
$
$
Net sales
Products
Services
Total net sales
Cost of sales
Products
Services
Severance charges
Other unallocated, net
Total cost of sales
Gross profit
Other (expense) income, net
Operating profit
Interest expense
Other non-operating income (expense), net
Earnings from continuing operations before income taxes
Income tax expense
Net earnings from continuing operations
Net loss from discontinued operations
Net earnings
Earnings (loss) per common share
Basic
Continuing operations
Discontinued operations
Basic earnings per common share
Diluted
Continuing operations
Discontinued operations
Diluted earnings per common share
The accompanying notes are an integral part of these consolidated financial statements.
67
Lockheed Martin Corporation
Consolidated Statements of Comprehensive Income
(in millions)
Net earnings
Other comprehensive income (loss), net of tax
Postretirement benefit plans
Net other comprehensive loss recognized during the period, net of tax benefit of
$292 million in 2020, $586 million in 2019 and $136 million in 2018
Amounts reclassified from accumulated other comprehensive loss, net of tax
expense of $119 million in 2020, $247 million in 2019 and $327 million in 2018
Other, net
Other comprehensive income (loss), net of tax
Comprehensive income
The accompanying notes are an integral part of these consolidated financial statements.
Years Ended December 31,
2020
6,833 $
2019
6,230 $
2018
5,046
$
(1,067)
(2,182)
(501)
440
60
(567)
6,266 $
908
41
(1,233)
4,997 $
1,202
(75)
626
5,672
$
68
Lockheed Martin Corporation
Consolidated Balance Sheets
(in millions, except par value)
December 31,
2020
2019
Assets
Current assets
Cash and cash equivalents
Receivables, net
Contract assets
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Deferred income taxes
Other noncurrent assets
Total assets
Liabilities and equity
Current liabilities
Accounts payable
Contract liabilities
Salaries, benefits and payroll taxes
Current maturities of long-term debt
Other current liabilities
Total current liabilities
Long-term debt, net
Accrued pension liabilities
Other noncurrent liabilities
Total liabilities
Stockholders’ equity
Common stock, $1 par value per share
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Noncontrolling interests in subsidiary
Total equity
Total liabilities and equity
The accompanying notes are an integral part of these consolidated financial statements.
69
$
3,160 $
1,978
9,545
3,545
1,150
19,378
7,213
10,806
3,012
3,475
6,826
1,514
2,337
9,094
3,619
531
17,095
6,591
10,604
3,213
3,319
6,706
$ 50,710 $ 47,528
$
880 $
7,545
3,163
500
1,845
13,933
11,669
12,874
6,196
44,672
1,281
7,054
2,466
1,250
1,921
13,972
11,404
13,234
5,747
44,357
279
221
21,636
(16,121)
6,015
23
6,038
280
—
18,401
(15,554)
3,127
44
3,171
$ 50,710 $ 47,528
Lockheed Martin Corporation
Consolidated Statements of Cash Flows
(in millions)
Operating activities
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization
Stock-based compensation
Equity method investment impairment
Tax resolution related to former IS&GS business
Deferred income taxes
Severance charges
Gain on property sale
Changes in assets and liabilities
Receivables, net
Contract assets
Inventories
Accounts payable
Contract liabilities
Postretirement benefit plans
Income taxes
Other, net
Net cash provided by operating activities
Investing activities
Capital expenditures
Acquisitions of businesses
Other, net
Net cash used for investing activities
Financing activities
Repurchases of common stock
Dividends paid
Proceeds from issuance of commercial paper, net
Repayment of commercial paper, net
Repayments of current and long-term debt
Issuance of long-term debt, net of related costs
Other, net
Net cash used for financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
The accompanying notes are an integral part of these consolidated financial statements.
70
Years Ended December 31,
2020
2019
2018
$
6,833 $
6,230 $
5,046
1,290
221
128
55
5
27
—
359
(451)
74
(372)
491
(1,197)
(19)
739
8,183
(1,766)
(282)
38
(2,010)
1,189
189
—
—
222
—
(51)
107
378
(622)
(1,098)
563
81
(151)
274
7,311
(1,484)
—
243
(1,241)
(1,100)
(2,764)
—
—
(1,650)
1,131
(144)
(4,527)
1,646
1,514
3,160 $
(1,200)
(2,556)
—
(600)
(900)
—
(72)
(5,328)
742
772
1,514 $
$
1,161
173
—
—
(244)
96
—
(179)
(1,480)
(119)
914
(537)
(3,574)
1,077
804
3,138
(1,278)
—
203
(1,075)
(1,492)
(2,347)
600
—
(750)
—
(163)
(4,152)
(2,089)
2,861
772
Lockheed Martin Corporation
Consolidated Statements of Equity
(in millions, except per share data)
Common
Stock
Additional
Paid-In
Capital
—
—
284 $
—
Accumulated
Other
Comprehensive
Loss
(12,539)
—
Retained
Earnings
$
11,405 $
5,046
Noncontrolling
Interests in
Subsidiary
74
—
$
Total
Equity
$
(776)
5,046
Total
Stockholders’
Equity
$
$
$
(850)
5,046
626
(1,492)
(2,342)
406
—
—
1,394
6,230
(1,233)
(1,200)
(2,550)
486
—
3,127
6,833
(567)
(1,100)
(2,757)
479
—
$
$
—
—
—
—
—
626
(1,492)
(2,342)
406
—
(19)
55
—
(19)
$ 1,449
6,230
—
—
—
—
(1,233)
(1,200)
(2,550)
486
(11)
44
—
(11)
$ 3,171
6,833
—
—
—
—
(21)
23
(567)
(1,100)
(2,757)
479
(21)
$ 6,038
Balance at December 31, 2017
Net earnings
Other comprehensive loss, net
$
of tax
Repurchases of common stock
Dividends declared ($8.20 per
share)
Stock-based awards, ESOP
activity and other
Reclassification of income tax
effects from tax reform
Net decrease in noncontrolling
interests in subsidiary
Balance at December 31, 2018
Net earnings
Other comprehensive loss, net
of tax
Repurchases of common stock
Dividends declared ($9.00 per
share)
Stock-based awards, ESOP
activity and other
Net decrease in noncontrolling
interests in subsidiary
Balance at December 31, 2019
Net earnings
Other comprehensive loss, net
of tax
Repurchases of common stock
Dividends declared ($9.80 per
share)
Stock-based awards, ESOP
activity and other
Net decrease in noncontrolling
interests in subsidiary
Balance at December 31, 2020
$
$
—
(5)
—
—
(404)
—
(1,083)
—
(2,342)
2
404
—
626
—
—
—
2,408
(2,408)
—
—
281 $
—
—
(4)
—
—
—
—
—
$
—
15,434 $
6,230
—
(483)
—
(713)
—
(2,550)
3
483
—
—
280 $
—
—
(3)
—
—
—
—
—
(256)
$
—
18,401 $
6,833
—
(841)
—
(2,757)
2
477
—
—
—
—
—
(14,321)
—
(1,233)
—
—
—
—
(15,554)
—
(567)
—
—
—
—
The accompanying notes are an integral part of these consolidated financial statements.
71
$
279 $
221
$
21,636 $
(16,121)
$
6,015
$
Lockheed Martin Corporation
Notes to Consolidated Financial Statements
Note 1 – Significant Accounting Policies
Organization – We are a global security and aerospace company principally engaged in the research, design, development,
manufacture, integration and sustainment of advanced technology systems, products and services. We also provide a broad
range of management, engineering, technical, scientific, logistics, system integration and cybersecurity services. We serve both
U.S. and international customers with products and services that have defense, civil and commercial applications, with our
principal customers being agencies of the U.S. Government.
Basis of presentation – Our 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. Our
receivables, inventories, customer advances and amounts in excess of costs incurred and certain amounts in other current
liabilities primarily are attributable to long-term contracts or programs in progress for which the related operating cycles are
longer than one year. In accordance with industry practice, we include these items in current assets and current liabilities.
Unless otherwise noted, we present all per share amounts cited in these consolidated financial statements on a “per diluted
share” basis.
Use of estimates – We prepare our consolidated financial statements in conformity with U.S. generally accepted
accounting principles (GAAP). In doing so, we are required 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,
assets for the portion of environmental costs that are probable of future recovery and liabilities, evaluation of goodwill and
other assets for impairment, income taxes including deferred income taxes, fair value measurements and contingencies.
Revenue Recognition – The majority of our net sales are generated from long-term contracts with the U.S. Government
and international customers (including foreign military sales (FMS) contracted through the U.S. Government) for the research,
design, development, manufacture, integration and sustainment of advanced technology systems, products and services. We
account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment
terms are identified, the contract has commercial substance and collectability of consideration is probable. For certain contracts
that meet the foregoing requirements, primarily international direct commercial sale contracts, we are required to obtain certain
regulatory approvals. In these cases, we recognize revenue when it is probable that we will receive regulatory approvals based
upon all known facts and circumstances. We provide our products and services under fixed-price and cost-reimbursable
contracts.
Under fixed-price contracts, we agree to perform the specified work for a pre-determined price. To the extent our actual
costs vary from the estimates upon which the price was negotiated, we will generate more or less profit or could incur a loss.
Some fixed-price contracts have a performance-based component under which we may earn incentive payments or incur
financial penalties based on our performance.
Cost-reimbursable contracts provide for the payment of allowable costs incurred during performance of the contract plus a
fee up to a ceiling based on the amount that has been funded. Typically, we enter into three types of cost-reimbursable
contracts: cost-plus-award-fee, cost-plus-incentive-fee, and cost-plus-fixed-fee. Cost-plus-award-fee contracts provide for an
award fee that varies within specified limits based on the customer’s assessment of our performance against a predetermined set
of criteria, such as targets based on cost, quality, technical and schedule criteria. Cost-plus-incentive-fee contracts provide for
reimbursement of costs plus a fee, which is adjusted by a formula based on the relationship of total allowable costs to total
target costs (i.e., incentive based on cost) or reimbursement of costs plus an incentive to exceed stated performance targets (i.e.,
incentive based on performance). The fixed-fee in a cost-plus-fixed-fee contract is negotiated at the inception of the contract
and that fixed-fee does not vary with actual costs.
We assess each contract at its inception to determine whether it should be combined with other contracts. When making
this determination, we consider factors such as whether two or more contracts were negotiated and executed at or near the same
time or were negotiated with an overall profit objective. If combined, we treat the combined contracts as a single contract for
revenue recognition purposes.
72
We evaluate the products or services promised in each contract at inception to determine whether the contract should be
accounted for as having one or more performance obligations. The products and services in our contracts are typically not
distinct from one another due to their complex relationships and the significant contract management functions required to
perform under the contract. Accordingly, our contracts are typically accounted for as one performance obligation. In limited
cases, our contracts have more than one distinct performance obligation, which occurs when we perform activities that are not
highly complex or interrelated or involve different product lifecycles. Significant judgment is required in determining
performance obligations, and these decisions could change the amount of revenue and profit recorded in a given period. We
classify net sales as products or services on our consolidated statements of earnings based on the predominant attributes of the
performance obligations.
We determine the transaction price for each contract based on the consideration we expect to receive for the products or
services being provided under the contract. For contracts where a portion of the price may vary, we estimate variable
consideration at the most likely amount, which is included in the transaction price to the extent it is probable that a significant
reversal of cumulative revenue recognized will not occur. We analyze the risk of a significant revenue reversal and if necessary
constrain the amount of variable consideration recognized in order to mitigate this risk.
At the inception of a contract we estimate the transaction price based on our current rights and do not contemplate future
modifications (including unexercised options) or follow-on contracts until they become legally enforceable. Contracts are often
subsequently modified to include changes in specifications, requirements or price, which may create new or change existing
enforceable rights and obligations. Depending on the nature of the modification, we consider whether to account for the
modification as an adjustment to the existing contract or as a separate contract. Generally, modifications to our contracts are not
distinct from the existing contract due to the significant integration and interrelated tasks provided in the context of the contract.
Therefore, such modifications are accounted for as if they were part of the existing contract and recognized as a cumulative
adjustment to revenue.
For contracts with multiple performance obligations, we allocate the transaction price to each performance obligation
based on the estimated standalone selling price of the product or service underlying each performance obligation. The
standalone selling price represents the amount we would sell the product or service to a customer on a standalone basis (i.e., not
bundled with any other products or services). Our contracts with the U.S. Government, including FMS contracts, are subject to
the Federal Acquisition Regulations (FAR) and the price is typically based on estimated or actual costs plus a reasonable profit
margin. As a result of these regulations, the standalone selling price of products or services in our contracts with the U.S.
Government and FMS contracts are typically equal to the selling price stated in the contract.
For non-U.S. Government contracts with multiple performance obligations, we evaluate whether the stated selling prices
for the products or services represent their standalone selling prices. We primarily sell customized solutions unique to a
customer’s specifications. When it is necessary to allocate the transaction price to multiple performance obligations, we
typically use the expected cost plus a reasonable profit margin to estimate the standalone selling price of each product or
service. We occasionally sell standard products or services with observable standalone sales transactions. In these situations, the
observable standalone sales transactions are used to determine the standalone selling price.
We recognize revenue as performance obligations are satisfied and the customer obtains control of the products and
services. In determining when performance obligations are satisfied, we consider factors such as contract terms, payment terms
and whether there is an alternative future use of the product or service. Substantially all of our revenue is recognized over time
as we perform under the contract because control of the work in process transfers continuously to the customer. For most
contracts with the U.S. Government and FMS contracts, this continuous transfer of control of the work in process to the
customer is supported by clauses in the contract that give the customer ownership of work in process and allow the customer to
unilaterally terminate the contract for convenience and pay us for costs incurred plus a reasonable profit. For most non-U.S.
Government contracts, primarily international direct commercial contracts, continuous transfer of control to our customer is
supported because we deliver products that do not have an alternative use to us and if our customer were to terminate the
contract for reasons other than our non-performance we would have the right to recover damages which would include, among
other potential damages, the right to payment for our work performed to date plus a reasonable profit.
For performance obligations to deliver products with continuous transfer of control to the customer, revenue is recognized
based on the extent of progress towards completion of the performance obligation, generally using the percentage-of-
completion cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer as
we incur costs on our contracts. Under the percentage-of-completion cost-to-cost measure of progress, the extent of progress
towards completion is measured based on the ratio of costs incurred to date to the total estimated costs to complete the
performance obligation(s). For performance obligations to provide services to the customer, revenue is recognized over time
based on costs incurred or the right to invoice method (in situations where the value transferred matches our billing rights) as
our customer receives and consumes the benefits.
73
For performance obligations in which control does not continuously transfer to the customer, we recognize revenue at the
point in time in which each performance obligation is fully satisfied. This coincides with the point in time the customer obtains
control of the product or service, which typically occurs upon customer acceptance or receipt of the product or service, given
that we maintain control of the product or service until that point.
Backlog (i.e., unfulfilled or remaining performance obligations) represents the sales we expect to recognize for our
products and services for which control has not yet transferred to the customer. It is converted into sales in future periods as
work is performed or deliveries are made. For our cost-reimbursable and fixed-priced-incentive contracts, the estimated
consideration we expect to receive pursuant to the terms of the contract may exceed the contractual award amount. The
estimated consideration is determined at the outset of the contract and is continuously reviewed throughout the contract period.
In determining the estimated consideration, we consider the risks related to the technical, schedule and cost impacts to complete
the contract and an estimate of any variable consideration. Periodically, we review these risks and may increase or decrease
backlog accordingly. As the risks on such contracts are successfully retired, the estimated consideration from customers may be
reduced, resulting in a reduction of backlog without a corresponding recognition of sales. As of December 31, 2020, our ending
backlog was $147.1 billion. We expect to recognize approximately 39% of our backlog over the next 12 months and
approximately 61% over the next 24 months as revenue, with the remainder recognized thereafter.
For arrangements with the U.S. Government and FMS contracts, we generally do not begin work on contracts until
funding is appropriated by the customer. Billing timetables and payment terms on our contracts vary based on a number of
factors, including the contract type. Typical payment terms under fixed-price contracts with the U.S. Government provide that
the customer pays either performance-based payments (PBPs) based on the achievement of contract milestones or progress
payments based on a percentage of costs we incur. For the majority of our international direct commercial contracts to deliver
complex systems, we typically receive advance payments prior to commencement of work, as well as milestone payments that
are paid in accordance with the terms of our contract as we perform. We recognize a liability for payments in excess of revenue
recognized, which is presented as a contract liability on the balance sheet. The portion of payments retained by the customer
until final contract settlement is not considered a significant financing component because the intent is to protect the customer
from our failure to adequately complete some or all of the obligations under the contract. Payments received from customers in
advance of revenue recognition are not considered to be significant financing components because they are used to meet
working capital demands that can be higher in the early stages of a contract.
For fixed-price and cost-reimbursable contracts, we present revenues recognized in excess of billings as contract assets
on the balance sheet. Amounts billed and due from our customers under both contract types are classified as receivables on the
balance sheet.
Significant estimates and assumptions are made in estimating contract sales and costs, including the profit booking rate.
At the outset of a long-term contract, we identify and monitor risks to the achievement of the technical, schedule and cost
aspects of the contract, as well as variable consideration, and assess the effects of those risks on our estimates of sales and total
costs to complete the contract. The estimates consider the technical requirements (e.g., a newly-developed product versus a
mature product), the schedule and associated tasks (e.g., the number and type of milestone events) and costs (e.g., material,
labor, subcontractor, overhead, general and administrative and the estimated costs to fulfill our industrial cooperation
agreements, sometimes referred to as offset or localization agreements, required under certain contracts with international
customers). The initial profit booking rate of each contract considers risks surrounding the ability to achieve the technical
requirements, schedule and costs in the initial estimated total costs to complete the contract. Profit booking rates may increase
during the performance of the contract if we successfully retire risks surrounding the technical, schedule and cost aspects of the
contract, which decreases the estimated total costs to complete the contract or may increase the variable consideration we
expect to receive on the contract. Conversely, our profit booking rates may decrease if the estimated total costs to complete the
contract increase or our estimates of variable consideration we expect to receive decrease. All of the estimates are subject to
change during the performance of the contract and may affect the profit booking rate. When estimates of total costs to be
incurred on a contract exceed total estimates of the transaction price, a provision for the entire loss is determined at the contract
level and is recorded in the period in which the loss is determined.
Comparability of our segment sales, operating profit and operating margin may be impacted favorably or unfavorably by
changes in profit booking rates on our contracts for which we recognize revenue over time using the percentage-of-completion
cost-to-cost method to measure progress towards completion. Increases in the profit booking rates, typically referred to as risk
retirements, usually relate to revisions in the estimated total costs to fulfill the performance obligations that reflect improved
conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate, resulting in an increase in
the estimated total costs to fulfill the performance obligations and a reduction in the profit booking rate. Increases or decreases
in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes. Segment
operating profit and margin may also be impacted favorably or unfavorably by other items, which may or may not impact sales.
74
Favorable items may include the positive resolution of contractual matters, cost recoveries on severance and restructuring
charges, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual
matters; restructuring charges, except for significant severance actions, which are excluded from segment operating results;
reserves for disputes; certain asset impairments; and losses on sales of certain assets.
Our consolidated net adjustments not related to volume, including net profit booking rate adjustments and other items,
increased segment operating profit by approximately $1.8 billion in 2020 and $1.9 billion in each of 2019 and 2018. These
adjustments increased net earnings by approximately $1.5 billion ($5.33, $5.29 and $5.23 per share) in 2020, 2019 and 2018.
We recognized net sales from performance obligations satisfied in prior periods of approximately $2.0 billion, $2.2 billion and
$2.0 billion in 2020, 2019 and 2018, which primarily relate to changes in profit booking rates that impacted revenue.
As previously disclosed, we are responsible for a program to design, develop and construct a ground-based radar at our
RMS business segment. The program has experienced performance issues for which we have periodically accrued reserves. As
of December 31, 2020, cumulative losses were approximately $250 million on this program. We may continue to experience
issues related to customer requirements and our performance under this contract and have to record additional
charges. However, based on the losses previously recorded and our current estimate of the sales and costs to complete the
program, at this time we do not anticipate that additional losses, if any, would be material to our operating results or financial
condition.
As previously disclosed, we have a program, EADGE-T, to design, integrate, and install an air missile defense command,
control, communications, computers – intelligence (C4I) system for an international customer that has experienced performance
issues and for which we have periodically accrued reserves at our RMS business segment. As of December 31, 2020,
cumulative losses remained at approximately $260 million. We continue to monitor program requirements and our
performance. At this time, we do not anticipate additional charges that would be material to our operating results or financial
condition.
As previously disclosed, we are responsible for designing, developing and installing an upgraded turret for the Warrior
Capability Sustainment Program. As of December 31, 2020, cumulative losses remained at approximately $140 million on this
program. We may continue to experience issues related to customer requirements and our performance under this contract and
may have to record additional reserves. However, based on the losses already recorded and our current estimate of the sales and
costs to complete the program, at this time we do not anticipate that additional losses, if any, would be material to our operating
results or financial condition.
Research and development and similar costs – We conduct research and development (R&D) activities using our own
funds (referred to as company-funded R&D or independent research and development (IR&D)) and under contractual
arrangements with our customers (referred to as customer-funded R&D) to enhance existing products and services and to
develop future technologies. R&D costs include basic research, applied research, concept formulation studies, design,
development, and related test activities. Company-funded R&D costs are allocated to customer contracts as part of the general
and administrative overhead costs and generally recoverable on our customer contracts with the U.S. Government. Customer-
funded R&D costs are charged directly to the related customer contract. Substantially all R&D costs are charged to cost of sales
as incurred. Company-funded R&D costs charged to cost of sales totaled $1.3 billion in each of 2020, 2019 and 2018.
Stock-based compensation – Compensation cost related to all share-based payments is measured at the grant date based
on the estimated fair value of the award. We generally recognize the compensation cost ratably over a three-year vesting period,
net of estimated forfeitures. At each reporting date, the number of shares is adjusted to the number ultimately expected to vest.
Income taxes – We calculate our provision for income taxes using the asset and liability method, under which deferred tax
assets and liabilities are recognized based on the future tax consequences attributable to temporary differences that exist
between the financial statement carrying amount of assets and liabilities and their respective tax bases, as well as from
operating loss and tax credit carry-forwards. We measure deferred tax assets and liabilities using enacted tax rates that will
apply in the years in which we expect the temporary differences to be recovered or paid.
We periodically assess our tax exposures related to periods that are open to examination. Based on the latest available
information, we evaluate our tax positions to determine whether the position will more likely than not be sustained upon
examination by the Internal Revenue Service (IRS) or other taxing authorities. If we cannot reach a more-likely-than-not
determination, no benefit is recorded. If we determine that the tax position is more likely than not to be sustained, we record the
largest amount of benefit that is more likely than not to be realized when the tax position is settled. We record interest and
penalties related to income taxes as a component of income tax expense on our consolidated statements of earnings. Interest and
penalties were not material.
75
Cash and cash equivalents – Cash equivalents include highly liquid instruments with original maturities of 90 days or
less.
Receivables – Receivables, net represent our unconditional right to consideration under the contract and include amounts
billed and currently due from customers. The amounts are stated at their net estimated realizable value. There were no
significant impairment losses related to our receivables in 2020, 2019 or 2018.
Contract assets – Contract assets include unbilled amounts typically resulting from sales under contracts when the
percentage-of-completion cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount
billed to the customer. The amounts may not exceed their estimated net realizable value. Contract assets are classified as current
based on our contract operating cycle.
Inventories – We record inventories at the lower of cost or estimated net realizable value. If events or changes in
circumstances indicate that the utility of our inventories have diminished through damage, deterioration, obsolescence, changes
in price or other causes, a loss is recognized in the period in which it occurs. We capitalize labor, material, subcontractor and
overhead costs as work-in-process for contracts where control has not yet passed to the customer. In addition, we capitalize
costs incurred to fulfill a contract in advance of contract award in inventories as work-in-process if we determine that contract
award is probable. We determine the costs of other product and supply inventories by using the first-in first-out or average cost
methods.
Contract liabilities – Contract liabilities include advance payments and billings in excess of revenue recognized. Contract
liabilities are classified as current based on our contract operating cycle and reported on a contract-by-contract basis, net of
revenue recognized, at the end of each reporting period.
Property, plant and equipment – We record property, plant and equipment at cost. We provide for depreciation and
amortization on plant and equipment generally using accelerated methods during the first half of the estimated useful lives of
the assets and the straight-line method thereafter. The estimated useful lives of our plant and equipment generally range from 10
to 40 years for buildings and five to 15 years for machinery and equipment. No depreciation expense is recorded on
construction in progress until such assets are placed into operation. Depreciation expense related to plant and equipment was
$853 million in 2020, $794 million in 2019 and $759 million in 2018.
We review the carrying amounts of long-lived assets for impairment if events or changes in the facts and circumstances
indicate that their carrying amounts may not be recoverable. We assess impairment by comparing the estimated undiscounted
future cash flows of the related asset grouping to its carrying amount. If an asset is determined to be impaired, we recognize an
impairment charge in the current period for the difference between the fair value of the asset and its carrying amount.
Capitalized software – We capitalize certain costs associated with the development or purchase of internal-use software.
The amounts capitalized are included in other noncurrent assets on our consolidated balance sheets and are amortized on a
straight-line basis over the estimated useful life of the resulting software, which ranges from two to six years. As of
December 31, 2020 and 2019, capitalized software totaled $686 million and $511 million, which were net of accumulated
amortization of $2.2 billion for both periods. No amortization expense is recorded until the software is ready for its intended
use. Amortization expense related to capitalized software was $166 million in 2020, $111 million in 2019 and $106 million in
2018.
Goodwill and Intangible Assets – The assets and liabilities of acquired businesses are recorded under the acquisition
method of accounting at their estimated fair values at the date of acquisition. Goodwill represents costs in excess of fair values
assigned to the underlying identifiable net assets of acquired businesses. Intangible assets from acquired businesses are
recognized at fair value on the acquisition date and consist of customer programs, trademarks, customer relationships,
technology and other intangible assets. Customer programs include values assigned to major programs of acquired businesses
and represent the aggregate value associated with the customer relationships, contracts, technology and trademarks underlying
the associated program and are amortized on a straight-line basis over a period of expected cash flows used to measure fair
value, which ranges from nine to 20 years.
Our goodwill balance was $10.8 billion at December 31, 2020 and $10.6 billion at December 31, 2019. We perform an
impairment test of our goodwill at least annually in the fourth quarter or more frequently whenever events or changes in
circumstances indicate the carrying value of goodwill may be impaired. Such events or changes in circumstances may include a
significant deterioration in overall economic conditions, changes in the business climate of our industry, a decline in our market
capitalization, operating performance indicators, competition, reorganizations of our business, U.S. Government budget
restrictions or the disposal of all or a portion of a reporting unit. Our goodwill has been allocated to and is tested for impairment
at a level referred to as the reporting unit, which is our business segment level or a level below the business segment. The level
76
at which we test goodwill for impairment requires us to determine whether the operations below the business segment constitute
a self-sustaining business for which discrete financial information is available and segment management regularly reviews the
operating results.
We may use either a qualitative or quantitative approach when testing a reporting unit’s goodwill for impairment. For
selected reporting units where we use the qualitative approach, we perform a qualitative evaluation of events and circumstances
impacting the reporting unit to determine the likelihood of goodwill impairment. Based on that qualitative evaluation, if we
determine it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, no further evaluation is
necessary. Otherwise we perform a quantitative impairment test. We perform quantitative tests for most reporting units at least
once every three years. However, for certain reporting units we may perform a quantitative impairment test every year.
For the quantitative impairment test we compare the fair value of a reporting unit to its carrying value, including goodwill.
If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the carrying
value of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment loss is recognized in an amount
equal to that excess. We generally estimate the fair value of each reporting unit using a combination of a discounted cash flow
(DCF) analysis and market-based valuation methodologies such as comparable public company trading values and values
observed in recent business acquisitions. Determining fair value requires the exercise of significant judgments, including the
amount and timing of expected future cash flows, long-term growth rates, discount rates and relevant comparable public
company earnings multiples and relevant transaction multiples. The cash flows employed in the DCF analysis are based on our
best estimate of future sales, earnings and cash flows after considering factors such as general market conditions, U.S.
Government budgets, existing firm orders, expected future orders, contracts with suppliers, labor agreements, changes in
working capital, long term business plans and recent operating performance. The discount rates utilized in the DCF analysis are
based on the respective reporting unit’s weighted average cost of capital, which takes into account the relative weights of each
component of capital structure (equity and debt) and represents the expected cost of new capital, adjusted as appropriate to
consider the risk inherent in future cash flows of the respective reporting unit. The carrying value of each reporting unit
includes the assets and liabilities employed in its operations, goodwill and allocations of certain assets and liabilities held at the
business segment and corporate levels.
During the fourth quarters of 2020, 2019 and 2018, we performed our annual goodwill impairment test for each of our
reporting units. The results of our annual impairment tests of goodwill indicated that no impairment existed.
Acquired intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment testing.
This testing compares carrying value to fair value and, when appropriate, the carrying value of these assets is reduced to fair
value. Finite-lived intangibles are amortized to expense over the applicable useful lives, ranging from three to 20 years, based
on the nature of the asset and the underlying pattern of economic benefit as reflected by future net cash inflows. We perform an
impairment test of finite-lived intangibles whenever events or changes in circumstances indicate their carrying value may be
impaired.
Postretirement benefit plans – Many of our employees are covered by defined benefit pension plans and we provide
certain health care and life insurance benefits to eligible retirees (collectively, postretirement benefit plans). GAAP requires that
the amounts we record related to our postretirement benefit plans be computed, based on service to date, using actuarial
valuations that are based in part on certain key economic assumptions we make, including the discount rate, the expected long-
term rate of return on plan assets and other actuarial assumptions including participant longevity (also known as mortality),
health care cost trend rates and employee turnover, each as appropriate based on the nature of the plans.
A market-related value of our plan assets, determined using actual asset gains or losses over the prior three year period, is
used to calculate the amount of deferred asset gains or losses to be amortized. These asset gains or losses, along with those
resulting from adjustments to our benefit obligation, will be amortized to expense using the corridor method, where gains and
losses are recognized over a period of years to the extent they exceed 10% of the greater of plan assets or benefit obligations.
This amortization period extended in 2020 due to the freeze of our salaried pension plans to use the average remaining life
expectancy of the participants instead of average future service.
We recognize on a plan-by-plan basis the funded status of our postretirement benefit plans under GAAP as either an asset
recorded within other noncurrent assets or a liability recorded within noncurrent liabilities on our consolidated balance sheets.
The GAAP funded status is measured as the difference between the fair value of the plan’s assets and the benefit obligation of
the plan. The funded status under the Employee Retirement Income Security Act of 1974 (ERISA), as amended by the Pension
Protection Act of 2006 (PPA), is calculated on a different basis than under GAAP.
Environmental matters – We record a liability for environmental matters when it is probable that a liability has been
incurred and the amount can be reasonably estimated. The amount of liability recorded is based on our estimate of the costs to
77
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. Our environmental liabilities are recorded on our consolidated
balance sheets within other liabilities, both current and noncurrent. We expect to include a substantial portion of environmental
costs in our net sales and cost of sales in future periods pursuant to U.S. Government agreement or regulation. 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 evaluate the recoverability of our assets for the portion of environmental costs that
are probable of future recovery by assessing, among other factors, U.S. Government regulations, our U.S. Government business
base and contract mix, our history of receiving reimbursement of such costs, and recent efforts by some U.S. Government
representatives to limit such reimbursement. We include the portion of those environmental costs expected to be allocated to
our non-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. Our assets for the portion of environmental costs that are probable of future recovery
are recorded on our consolidated balance sheets within other assets, both current and noncurrent. We project costs and recovery
of costs over approximately 20 years.
Investments in marketable securities – Investments in marketable securities consist of debt and equity securities which
are recorded at fair value. As of December 31, 2020 and 2019, the fair value of our investments totaled $2.0 billion and
$1.8 billion and was included in other noncurrent assets on our consolidated balance sheets. Our investments are held in a
separate trust, which includes investments to fund our deferred compensation plan liabilities. Net gains on these securities were
$231 million and $233 million in 2020 and 2019 compared to net losses on these securities of $67 million in 2018. Gains and
losses on these investments are included in other unallocated, net within cost of sales on our consolidated statements of earnings
in order to align the classification of changes in the market value of investments held for the plan with changes in the value of
the corresponding plan liabilities.
Equity method investments – Investments where we have the ability to exercise significant influence, but do not control,
are accounted for under the equity method of accounting and are included in other noncurrent assets on our consolidated
balance sheets. Significant influence typically exists if we have a 20% to 50% ownership interest in the investee. Under this
method of accounting, our share of the net earnings or losses of the investee is included in operating profit in other income, net
on our consolidated statements of earnings since the activities of the investee are closely aligned with the operations of the
business segment holding the investment. We evaluate our equity method investments for impairment whenever events or
changes in circumstances indicate that the carrying amounts of such investments may be impaired. If a decline in the value of
an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period. As of
December 31, 2020, our equity method investments totaled $784 million, which primarily is composed of our investment in the
United Launch Alliance (ULA) joint venture. As of December 31, 2019, our equity method investments totaled $1.2 billion,
which primarily is composed of our investment in the ULA joint venture and the Advanced Military Maintenance, Repair and
Overhaul Center (AMMROC) joint venture. Our share of net earnings related to our equity method investees was $163 million
in 2020, $154 million in 2019 and $119 million in 2018, of which approximately $135 million, $145 million and $210 million
was included in our Space business segment operating profit.
In July 2020, we entered into an agreement to sell our ownership interest in AMMROC to our joint venture partner for
$307 million, subject to certain closing conditions. Accordingly, we adjusted the carrying value of our investment to the selling
price of $307 million, which resulted in the recognition of a noncash impairment charge of $128 million ($96 million, or $0.34
per share, after-tax) in our results of operations. The sale was completed on November 25, 2020. The purchase price is required
to be paid in cash installments in 2021 and is guaranteed by an irrevocable letter of credit issued by a third-party financial
institution.
Derivative financial instruments – We use derivative instruments principally to reduce our exposure to market risks from
changes in foreign currency exchange rates and interest rates. We do not enter into or hold derivative instruments for
speculative trading purposes. We transact business globally and are subject to risks associated with changing foreign currency
exchange rates. We enter into foreign currency hedges such as forward and option contracts that change in value as foreign
currency exchange rates change. Our most significant foreign currency exposures relate to the British pound sterling, the euro,
the Canadian dollar and the Australian dollar. These contracts hedge forecasted foreign currency transactions in order to
mitigate fluctuations in our earnings and cash flows associated with changes in foreign currency exchange rates. We designate
foreign currency hedges as cash flow hedges. We also are exposed to the impact of interest rate changes primarily through our
borrowing activities. For fixed rate borrowings, we may use variable interest rate swaps, effectively converting fixed rate
borrowings to variable rate borrowings in order to hedge changes in the fair value of the debt. These swaps are designated as
fair value hedges. For variable rate borrowings, we may use fixed interest rate swaps, effectively converting variable rate
borrowings to fixed rate borrowings in order to mitigate the impact of interest rate changes on earnings. These swaps are
78
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.
We record derivatives at their fair value. The classification of gains and losses resulting from changes in the fair values of
derivatives is dependent on our intended use of the derivative and its resulting designation. Adjustments to reflect changes in
fair values of derivatives attributable to highly effective hedges are either reflected in earnings and largely offset by
corresponding adjustments to the hedged items or reflected net of income taxes in accumulated other comprehensive loss until
the hedged transaction is recognized in earnings. Changes in the fair value of the derivatives that are not highly effective, if any,
are immediately recognized in earnings. The aggregate notional amount of our outstanding interest rate swaps at December 31,
2020 and 2019 was $572 million and $750 million. The aggregate notional amount of our outstanding foreign currency hedges
at December 31, 2020 and 2019 was $3.4 billion and $3.8 billion. The fair values of our outstanding interest rate swaps and
foreign currency hedges at December 31, 2020 and 2019 were not significant. Derivative instruments did not have a material
impact on net earnings and comprehensive income during the years ended December 31, 2020, 2019 and 2018. The impact of
derivative instruments on our consolidated statements of cash flows is included in net cash provided by operating activities.
Substantially all of our derivatives are designated for hedge accounting. See “Note 17 – Fair Value Measurements” for more
information on the fair value measurements related to our derivative instruments.
Recent Accounting Pronouncements
Compensation—Retirement Benefits—Defined Benefit Plans—General
Effective January 1, 2020, we adopted Accounting Standards Update (ASU) 2018-14, Compensation—Retirement Benefits
—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements For
Defined Benefit Plans. The new standard modifies the annual disclosure requirements for employers that sponsor defined
benefit pension or other postretirement plans. The guidance requires disclosure changes to be presented on a retrospective basis.
As this standard relates only to financial disclosures, its adoption did not have an impact to our results of operations, financial
position or cash flows.
Financial Instruments—Credit Losses
Effective January 1, 2020, we adopted ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments using the modified retrospective approach. The new standard changes how we account
for credit losses for financial assets and certain other instruments, including trade receivables and contract assets, that are not
measured at fair value through net income. Under legacy standards, we recognized an impairment of receivables when it was
probable that a loss had been incurred. Under the new standard, we are required to recognize estimated credit losses expected to
occur over the estimated life or remaining contractual life of an asset (which includes losses that may be incurred in future
periods) using a broader range of information including reasonable and supportable forecasts about future economic conditions.
The adoption of the standard did not have a significant impact on our results of operations, financial position or cash flows.
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to
submit the rates required to calculate the London Interbank Offered Rate (LIBOR) and other interbank offered rates, which
have been widely used as reference rates for various securities and financial contracts, including loans, debt and derivatives.
This announcement indicates that the continuation of LIBOR on the current basis is not guaranteed after 2021. Regulators in the
U.S. and other jurisdictions have been working to replace these rates with alternative reference interest rates that are supported
by transactions in liquid and observable markets, such as the Secured Overnight Financing Rate (SOFR). Currently, our credit
facility and certain of our debt and derivative instruments reference LIBOR-based rates. The discontinuation of LIBOR will
require these arrangements to be modified in order to replace LIBOR with an alternative reference interest rate, which could
impact our future cost of funds. Our credit facility includes a provision for the determination of a successor LIBOR rate.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting, which temporarily simplifies the accounting for contract modifications,
including hedging relationships, due to the transition from LIBOR and other interbank offered rates to alternative reference
interest rates. For example, entities can elect not to remeasure the contracts at the modification date or reassess a previous
accounting determination if certain conditions are met. Additionally, entities can elect to continue applying hedge accounting
for hedging relationships affected by reference rate reform if certain conditions are met. The new standard was effective upon
issuance and generally can be applied to applicable contract modifications through December 31, 2022. We are currently
evaluating the impact of the transition from LIBOR to alternative reference interest rates, but do not expect a significant impact
to our operating results, financial position or cash flows.
79
Note 2 – Strategic Action
On December 20, 2020, we announced that we entered into an agreement to acquire Aerojet Rocketdyne Holdings, Inc.
(Aerojet Rocketdyne) for $56 per share in cash, which is expected to be reduced to $51 per share after Aerojet Rocketdyne pays
a pre-closing special dividend to its stockholders on March 24, 2021. This represents a post-dividend equity value of
approximately $4.6 billion, on a fully diluted as-converted basis, and a transaction value of approximately $4.4 billion after the
assumption of Aerojet Rocketdyne’s projected net cash. We expect to finance the acquisition through a combination of cash on
hand and new debt issuances. The transaction is expected to close in the second half of 2021 and is subject to the satisfaction of
customary closing conditions, including regulatory approvals and approval by Aerojet Rocketdyne’s stockholders. If the
acquisition agreement is terminated under certain circumstances, Aerojet Rocketdyne will be required to pay us a termination
fee of $150 million. Our financial results will not include Aerojet Rocketdyne’s results until the acquisition is closed.
Note 3 – Earnings Per Share
The weighted average number of shares outstanding used to compute earnings per common share were as follows
(in millions):
Weighted average common shares outstanding for basic computations
Weighted average dilutive effect of equity awards
Weighted average common shares outstanding for diluted computations
2020
280.0
1.2
281.2
2019
282.0
1.8
283.8
2018
284.5
2.3
286.8
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), performance stock units
(PSUs) and exercise of outstanding stock options based on the treasury stock method. There were no significant anti-dilutive
equity awards for the years ended December 31, 2020, 2019 and 2018.
Note 4 – Goodwill and Acquired Intangibles
Changes in the carrying amount of goodwill by segment were as follows (in millions):
Balance at December 31, 2018
Distributed Energy Solutions divestiture
Other
Balance at December 31, 2019
Acquisitions
Other
Balance at December 31, 2020
$
Aeronautics
$
171 $
—
—
171
16
—
187 $
MFC
2,262 $
(175)
2
2,089
—
2
2,091 $
RMS
6,751 $
—
7
6,758
—
10
6,768 $
Space
1,585 $
—
1
1,586
173
1
1,760 $
Total
10,769
(175)
10
10,604
189
13
10,806
80
The gross carrying amounts and accumulated amortization of our acquired intangible assets consisted of the following
(in millions):
Finite-Lived:
Customer programs
Customer relationships
Other
Total finite-lived intangibles
Indefinite-Lived:
Trademark
Total acquired intangibles
2020
2019
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
3,184 $
366
85
3,635
(1,199)
(287)
(24)
(1,510)
$
1,985
79
61
2,125
$
3,184 $
344
53
3,581
(967)
(243)
(45)
(1,255)
$
2,217
101
8
2,326
887
4,522 $
$
—
(1,510)
887
3,012
$
887
4,468 $
$
—
(1,255)
887
3,213
$
Acquired finite-lived intangible assets are amortized to expense primarily on a straight-line basis over the following
estimated useful lives: customer programs, from nine to 20 years; customer relationships, from four to 10 years; and other
intangibles, from three to 10 years.
Amortization expense for acquired finite-lived intangible assets was $271 million, $284 million and $296 million in 2020,
2019 and 2018. Estimated future amortization expense is as follows: $290 million in 2021; $252 million in 2022; $249 million
in 2023; $245 million in 2024; $223 million in 2025 and $866 million thereafter.
81
Note 5 – Information on Business Segments
We operate in four business segments: Aeronautics, MFC, RMS and Space. We organize our business segments based on
the nature of products and services offered. Following is a brief description of the activities of our business segments:
•
Aeronautics – 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.
• Missiles and Fire Control – Provides air and missile defense systems; tactical missiles and air-to-ground precision strike
weapon systems; logistics; fire control systems; mission operations support, readiness, engineering support and integration
services; manned and unmanned ground vehicles; and energy management solutions.
•
•
Rotary and Mission Systems – Designs, manufactures, services and supports various military and commercial helicopters,
surface ships, sea and land-based missile defense systems, radar systems, sea and air-based mission and combat systems,
command and control mission solutions, cyber solutions, and simulation and training solutions.
Space – Engaged in the research and development, design, engineering and production of satellites, space transportation
systems, and strategic, advanced strike, and defensive systems. Space provides network-enabled situational awareness and
integrates complex space and ground global systems to help our customers gather, analyze and securely distribute critical
intelligence data. Space is also responsible for various classified systems and services in support of vital national security
systems. Operating profit for our Space business segment also includes our share of earnings for our 50% ownership
interest in ULA, which provides expendable launch services to the U.S. Government. Our investment in ULA totaled
$691 million and $709 million at December 31, 2020 and 2019.
Net sales of our business segments in the following tables 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. ULA,
results of which are included in our Space business segment, is our primary equity method investee. Operating profit of our
business segments excludes the FAS/CAS operating adjustment for our qualified defined benefit pension plans (described
below); the adjustment from CAS to FAS service cost component for all other postretirement benefit plans; 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 significant severance and restructuring actions and goodwill impairments; 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 1 – Significant Accounting Policies” (under
the caption “Use of 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. Our consolidated operating profit in our consolidated financial statements must present
the service cost component of FAS pension and other postretirement benefit plan expense calculated in accordance with FAS
requirements under U.S. GAAP. The operating portion of the net FAS/CAS operating adjustment represents the difference
between the service cost component of FAS pension expense and the CAS pension cost recorded in our business segments’
results of operations. The non-service FAS pension and other postretirement benefit plan cost component is included in other
non-operating expenses, net on our consolidated statement of earnings.
82
Selected Financial Data by Business Segment
Summary operating results for each of our business segments were as follows (in millions):
Net sales
Aeronautics
Missiles and Fire Control
Rotary and Mission Systems
Space
Total net sales
Operating profit
Aeronautics
Missiles and Fire Control
Rotary and Mission Systems
Space
Total business segment operating profit
Unallocated items
FAS/CAS operating adjustment (a)
Stock-based compensation
Severance and restructuring charges (b)
Other, net (c)
Total unallocated, net
Total consolidated operating profit
2020
2019
2018
$ 26,266 $ 23,693 $ 21,242
8,462
10,131
11,257
14,250
15,128
15,995
11,880
9,808
10,860
$ 65,398 $ 59,812 $ 53,762
$ 2,843 $ 2,521 $ 2,272
1,248
1,302
1,055
5,877
1,441
1,421
1,191
6,574
1,545
1,615
1,149
7,152
1,876
(221)
(27)
(136)
1,492
1,803
(173)
(96)
(77)
1,457
$ 8,644 $ 8,545 $ 7,334
2,049
(189)
—
111
1,971
(a)
The FAS/CAS operating adjustment represents the difference between the service cost component of FAS pension income (expense) and
total pension costs recoverable on U.S. Government contracts as determined in accordance with CAS. For a detail of the FAS/CAS
operating adjustment and the total net FAS/CAS pension adjustment, see the table below.
(b)
See “Note 16 – Severance Charges” discussion for information on charges related to certain severance actions across our organization.
(c) Other, net in 2020 includes a non-cash impairment charge of $128 million recognized in the second quarter of 2020 on our investment in
the international equity method investee, AMMROC, which decreased net earnings from continuing operations by $96 million. Other,
net in 2019 includes a previously deferred non-cash gain of $51 million related to properties sold in 2015 as a result of completing our
remaining obligations and a gain of $34 million for the sale of its Distributed Energy Solutions business. Other, net in 2018 includes a
non-cash asset impairment charge of $110 million related to our equity method investee, AMMROC (see “Note 1 – Significant
Accounting Policies”).
Total net FAS/CAS pension adjustments, including the service and non-service cost components of FAS pension income
(expense), were as follows (in millions):
Total FAS income (expense) and CAS costs
FAS pension income (expense)
Less: CAS pension cost
Net FAS/CAS pension adjustment
Service and non-service cost reconciliation
FAS pension service cost
Less: CAS pension cost
FAS/CAS operating adjustment
Non-operating FAS pension income (expense)
Net FAS/CAS pension adjustment
83
2020
2019
2018
$
118 $ (1,093) $ (1,431)
1,977
2,565
2,433
$ 2,095 $ 1,472 $ 1,002
$
(101) $
(516) $
(630)
1,977
1,876
2,565
2,049
2,433
1,803
219
(801)
$ 2,095 $ 1,472 $ 1,002
(577)
We recover CAS pension and other postretirement benefit plan cost through the pricing of our products and services on
U.S. Government contracts and, therefore, recognize CAS cost in each of our business segment’s net sales and cost of sales.
Our consolidated financial statements must present FAS pension and other postretirement benefit plan expense calculated in
accordance with FAS requirements under U.S. GAAP. The operating portion of the net FAS/CAS pension adjustment
represents the difference between the service cost component of FAS pension income (expense) and total CAS pension cost.
The non-service FAS pension income (expense) component is included in other non-operating income (expense), net in our
consolidated statements of earnings. As a result, to the extent that CAS pension cost exceeds the service cost component of FAS
pension income (expense), we have a favorable FAS/CAS operating adjustment.
2020
2019
2018
$
243 $
217 $
562
1,903
377
515
1,872
352
120
423
1,759
237
$ 3,085 $ 2,956 $ 2,539
$
348 $
318 $
138
476
219
1,181
109
124
464
213
304
105
458
229
1,119
1,096
70
65
$ 1,290 $ 1,189 $ 1,161
$
534 $
526 $
391
311
403
1,639
127
300
272
258
1,356
128
460
244
255
255
1,214
64
$ 1,766 $ 1,484 $ 1,278
Intersegment sales
Aeronautics
Missiles and Fire Control
Rotary and Mission Systems
Space
Total intersegment sales
Depreciation and amortization
Aeronautics
Missiles and Fire Control
Rotary and Mission Systems
Space
Total business segment depreciation and amortization
Corporate activities
Total depreciation and amortization
Capital expenditures
Aeronautics
Missiles and Fire Control
Rotary and Mission Systems
Space
Total business segment capital expenditures
Corporate activities
Total capital expenditures
84
Net Sales by Type
Net sales by total products and services, contract type, customer category and geographic region for each of our business
segments were as follows (in millions):
Net sales
Products
Services
Total net sales
Net sales by contract type
Fixed-price
Cost-reimbursable
Total net sales
Net sales by customer
U.S. Government
International (a)
U.S. commercial and other
Total net sales
Net sales by geographic region
United States
Asia Pacific
Europe
Middle East
Other
Total net sales
Net sales
Products
Services
Total net sales
Net sales by contract type
Fixed-price
Cost-reimbursable
Total net sales
Net sales by customer
U.S. Government
International (a)
U.S. commercial and other
Total net sales
Net sales by geographic region
United States
Asia Pacific
Europe
Middle East
Other
Total net sales
Aeronautics
MFC
2020
RMS
Space
Total
$
$
$
$
$
$
$
$
22,327 $
3,939
26,266 $
9,804 $
1,453
11,257 $
12,748 $
3,247
15,995 $
10,049 $
1,831
11,880 $
18,477 $
7,789
26,266 $
7,587 $
3,670
11,257 $
10,795 $
5,200
15,995 $
2,247 $
9,633
11,880 $
18,175 $
8,012
79
26,266 $
18,254 $
3,162
3,283
1,344
223
26,266 $
8,404 $
2,842
11
11,257 $
8,415 $
280
767
1,749
46
11,257 $
11,596 $
3,986
413
15,995 $
12,009 $
1,666
806
847
667
15,995 $
10,293 $
1,546
41
11,880 $
10,334 $
68
1,478
—
—
11,880 $
54,928
10,470
65,398
39,106
26,292
65,398
48,468
16,386
544
65,398
49,012
5,176
6,334
3,940
936
65,398
Aeronautics
MFC
2019
RMS
Space
Total
$
$
$
$
$
$
$
$
20,319 $
3,374
23,693 $
8,424 $
1,707
10,131 $
12,206 $
2,922
15,128 $
9,104 $
1,756
10,860 $
17,239 $
6,454
23,693 $
6,449 $
3,682
10,131 $
10,382 $
4,746
15,128 $
2,135 $
8,725
10,860 $
14,776 $
8,733
184
23,693 $
14,960 $
3,882
3,224
1,465
162
23,693 $
7,524 $
2,465
142
10,131 $
7,666 $
420
516
1,481
48
10,131 $
10,803 $
3,822
503
15,128 $
11,306 $
1,451
769
979
623
15,128 $
9,322 $
1,511
27
10,860 $
9,349 $
73
1,419
19
—
10,860 $
50,053
9,759
59,812
36,205
23,607
59,812
42,425
16,531
856
59,812
43,281
5,826
5,928
3,944
833
59,812
(a)
International sales include FMS contracted through the U.S. Government, direct commercial sales with international governments and
commercial and other sales to international customers.
85
Net sales
Products
Services
Total net sales
Net sales by contract type
Fixed-price
Cost-reimbursable
Total net sales
Net sales by customer
U.S. Government
International (a)
U.S. commercial and other
Total net sales
Net sales by geographic region
United States
Asia Pacific
Europe
Middle East
Other
Total net sales
Aeronautics
MFC
2018
RMS
Space
Total
$
$
$
$
$
$
$
$
18,207 $
3,035
21,242 $
15,719 $
5,523
21,242 $
13,321 $
7,735
186
21,242 $
13,507 $
3,335
2,837
1,380
183
21,242 $
6,945 $
1,517
8,462 $
11,714 $
2,536
14,250 $
5,653 $
2,809
8,462 $
9,975 $
4,275
14,250 $
6,088 $
2,190
184
8,462 $
6,272 $
427
321
1,404
38
8,462 $
10,083 $
3,693
474
14,250 $
10,557 $
1,433
829
781
650
14,250 $
8,139 $
1,669
9,808 $
1,892 $
7,916
9,808 $
8,224 $
1,538
46
9,808 $
8,270 $
85
1,416
37
—
9,808 $
45,005
8,757
53,762
33,239
20,523
53,762
37,716
15,156
890
53,762
38,606
5,280
5,403
3,602
871
53,762
(a)
International sales include FMS contracted through the U.S. Government, direct commercial sales with international governments and
commercial and other sales to international customers.
Our Aeronautics business segment includes our largest program, the F-35 Lightning II Joint Strike Fighter, an international
multi-role, multi-variant, stealth fighter aircraft. Net sales for the F-35 program represented approximately 28% of our
consolidated net sales during 2020 and 27% during 2019 and 2018.
Total assets for each of our business segments were as follows (in millions):
2020
2019
Assets (a)
Aeronautics
Missiles and Fire Control
Rotary and Mission Systems
Space
Total business segment assets
Corporate assets (b)
$ 9,903 $ 9,109
5,030
4,966
18,751
18,035
5,844
6,451
38,734
39,355
11,355
8,794
$ 50,710 $ 47,528
Total assets
(a) We have no long-lived assets with material carrying values located in foreign countries.
(b) Corporate assets primarily include cash and cash equivalents, deferred income taxes, assets for the portion of environmental costs that
are probable of future recovery and investments held in a separate trust.
Note 6 – Receivables, net, Contract Assets and Contract Liabilities
Receivables, net, contract assets and contract liabilities were as follows (in millions):
Receivables, net
Contract assets
Contract liabilities
2020
2019
$ 1,978 $ 2,337
9,094
7,054
9,545
7,545
Receivables, net consist of approximately $1.2 billion from the U.S. Government and $735 million from other governments
and commercial customers as of December 31, 2020.
Contract assets are net of progress payments and performance based payments from our customers as well as advance
payments from non-U.S. Government customers totaling approximately $39.7 billion and $33.0 billion as of December 31,
86
2020 and 2019. Contract assets increased $451 million during 2020, primarily due to the recognition of revenue related to the
satisfaction or partial satisfaction of performance obligations during 2020 for which we have not yet billed our customers.
There were no significant impairment losses related to our contract assets during 2020 and 2019. We expect to bill our
customers for the majority of the December 31, 2020 contract assets during 2021.
Contract liabilities increased $491 million during 2020, primarily due to payments received in excess of revenue
recognized on these performance obligations. During 2020, we recognized $4.0 billion of our contract liabilities at
December 31, 2019 as revenue. During 2019 and 2018, we recognized $3.9 billion of our contract liabilities at December 31,
2018 and 2017, respectively, as revenue.
Note 7 – Inventories
Inventories consisted of the following (in millions):
Materials, spares and supplies
Work-in-process
Finished goods
Total inventories
$
2020
612 $
2019
532
2,783
304
$ 3,545 $ 3,619
2,693
240
Costs incurred to fulfill a contract in advance of the contract being awarded are included in inventories as work-in-process
if we determine that those costs relate directly to a contract or to an anticipated contract that we can specifically identify and
contract award is probable, the costs generate or enhance resources that will be used in satisfying performance obligations, and
the costs are recoverable (referred to as pre-contract costs). Pre-contract costs that are initially capitalized in inventory are
generally recognized as cost of sales consistent with the transfer of products and services to the customer upon the receipt of the
anticipated contract. All other pre-contract costs, including start-up costs, are expensed as incurred. As of December 31, 2020
and 2019, $583 million and $493 million of pre-contract costs were included in inventories.
Note 8 – Property, Plant and Equipment, net
Property, plant and equipment, net consisted of the following (in millions):
Land
Buildings
Machinery and equipment
Construction in progress
Total property, plant and equipment
Less: accumulated depreciation and amortization
Total property, plant and equipment, net
Note 9 – Leases
2020
142 $
7,425
8,661
1,921
18,149
(10,936)
7,213 $
2019
136
7,013
8,128
1,701
16,978
(10,387)
6,591
$
$
We evaluate whether our contractual arrangements contain leases at the inception of such arrangements. Specifically, we
consider whether we can control the underlying asset and have the right to obtain substantially all of the economic benefits or
outputs from the asset. Substantially all of our leases are long-term operating leases with fixed payment terms. We do not have
significant financing leases. Our right-of-use (ROU) operating lease assets represent our right to use an underlying asset for the
lease term, and our operating lease liabilities represent our obligation to make lease payments. ROU operating lease assets are
recorded in other noncurrent assets in our consolidated balance sheet. Operating lease liabilities are recorded in other current
liabilities or other noncurrent liabilities in our consolidated balance sheet based on their contractual due dates.
Both the ROU operating lease asset and liability are recognized as of the lease commencement date at the present value of
the lease payments over the lease term. Most of our leases do not provide an implicit rate that can readily be determined.
Therefore, we use a discount rate based on our incremental borrowing rate, which is determined using our credit rating and
information available as of the commencement date. ROU operating lease assets include lease payments made at or before the
lease commencement date, net of any lease incentives.
Our operating lease agreements may include options to extend the lease term or terminate it early. We include options to
extend or terminate leases in the ROU operating lease asset and liability when it is reasonably certain we will exercise these
87
options. Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of sales on our
consolidated statement of earnings.
We have operating lease arrangements with lease and non-lease components. The non-lease components in our
arrangements are not significant when compared to the lease components. For all operating leases, we account for the lease and
non-lease components as a single component. Additionally, for certain equipment leases, we apply a portfolio approach to
recognize operating lease ROU assets and liabilities. We evaluate ROU assets for impairment consistent with our property,
plant and equipment policy (see Note 1 – Significant Accounting Policies).
We generally enter into operating lease agreements for facilities, land and equipment. Our ROU operating lease assets were
$1.0 billion at December 31, 2020. Operating lease liabilities were $1.1 billion, of which $841 million were classified as
noncurrent, at December 31, 2020. New ROU operating lease assets and liabilities entered into during 2020 were $193 million.
The weighted average remaining lease term and discount rate for our operating leases were approximately 8.6 years and 2.8% at
December 31, 2020.
We recognized operating lease expense of $223 million, $239 million and $247 million in 2020, 2019 and 2018. In
addition, we made cash payments of $210 million for operating leases during 2020, which are included in cash flows from
operating activities in our consolidated statement of cash flows.
Future minimum lease commitments at December 31, 2020 were as follows (in millions):
Total
Operating leases
$ 1,273
$
Less: imputed interest
$
158
Total
$ 1,115
Note 10 – Income Taxes
2021
300
2022
2023
2024
2025
Thereafter
$
199
$
156
$
126
$
89
$
403
Our provision for federal and foreign income tax expense for continuing operations consisted of the following (in millions):
2020
2019
2018
Federal income tax expense (benefit):
Current
Operations
One-time charge due to tax legislation
Deferred
Operations
One-time charge due to tax legislation
Total federal income tax expense
Foreign income tax expense (benefit):
Current
Deferred
Total foreign income tax expense
Total income tax expense
698 $
—
975
(6)
$ 1,292 $
—
21
—
1,313
235
—
933
50
(16)
34
91
(13)
78
$ 1,347 $ 1,011 $
(194)
(37)
738
67
(13)
54
792
State income taxes are included in our operations as general and administrative costs and, under U.S. Government
regulations, are allowable costs in establishing prices for the products and services we sell to the U.S. Government. Therefore, a
substantial portion of state income taxes is included in 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 consolidated financial statements is disclosed net of
state income taxes. Our total net state income tax expense was $197 million for 2020, $96 million for 2019, and $83 million for
2018.
88
Our reconciliation of the U.S. federal statutory income tax rate of 21.0% to actual income tax expense for continuing
operations is as follows (dollars in millions):
2020
2019
2018
Amount
Rate
Amount
Rate
Amount
Rate
Income tax expense at the U.S. federal statutory tax rate
Foreign derived intangible income deduction
Research and development tax credit
Tax deductible dividends
Excess tax benefits for share-based payment awards
Tax accounting method change (a)
Deferred tax write-down and transition tax (b)
Other, net (c)
$ 1,729
(170)
(97)
(64)
(52)
—
—
1
$ 1,347
Income tax expense
(a) Recognized tax benefit of $15 million and $61 million in 2019 and 2018, from our change in a tax accounting method related to
21.0 % $ 1,521
(122)
(2.1)
(148)
(1.2)
(62)
(0.8)
(63)
(0.6)
(15)
—
—
—
0.1
(100)
16.4 % $ 1,011
21.0 % $ 1,226
(61)
(1.7)
(138)
(2.0)
(59)
(0.9)
(55)
(0.9)
(61)
(0.2)
(43)
—
(17)
(1.3)
792
14.0 % $
21.0 %
(1.0)
(2.4)
(1.0)
(0.9)
(1.0)
(0.7)
(0.4)
13.6 %
restoration of tax basis.
(b)
(c)
Includes a deferred tax re-measurement and transition tax true-up in 2018 primarily due to the re-measurement of certain net deferred tax
assets using the lower U.S. corporate income tax rate and a deemed repatriation tax.
Includes additional $21 million deduction for foreign derived intangible income related to 2019 recognized in 2020. Includes additional
$98 million deduction for foreign derived intangible income related to 2018 recognized in 2019 reflecting proposed tax regulations
released on March 4, 2019.
We recognized a tax benefit of $191 million in 2020 and $220 million in 2019 from the deduction for foreign derived
intangible income enacted by the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The rate for 2020 benefited from $21 million
additional tax deductions for the prior year. The rate for 2019 benefited from $98 million additional tax deductions for 2018,
primarily due to proposed tax regulations released on March 4, 2019.
We recognized less research and development tax credits in 2020 due to reduced qualifying activity.
We receive a tax deduction for dividends paid on shares of our common stock held by certain of our defined contribution
plans with an employee stock ownership plan feature. The amount of the tax deduction has increased as we increased our
dividend over the last three years, partially offset by a decline in the number of shares in these plans.
We participate in the IRS Compliance Assurance Process program. Examinations of the years 2019 and 2020 remain under
IRS review. We are also subject to taxation in various states and foreign jurisdictions including Australia, Canada, India, Italy,
Japan, Poland, and the United Kingdom. We are under, or may be subject to, audit or examination and additional assessments
by the relevant authorities.
89
The primary components of our federal and foreign deferred income tax assets and liabilities at December 31 were as
follows (in millions):
Deferred tax assets related to:
Accrued compensation and benefits
Pensions
Contract accounting methods
Foreign company operating losses and credits
Other (a)
Valuation allowance (b)
Deferred tax assets, net
Deferred tax liabilities related to:
Goodwill and purchased intangibles
Property, plant and equipment
Exchanged debt securities and other (a)
Deferred tax liabilities
Net deferred tax assets
2020
2019
$
926 $
2,994
392
51
509
(13)
4,859
363
481
547
1,391
3,468 $
$
659
3,057
349
49
416
(28)
4,502
330
340
525
1,195
3,307
Includes deferred tax assets and liabilities related to lease liability and ROU asset.
(a)
(b) A valuation allowance was provided against certain foreign company deferred tax assets arising from carryforwards of unused tax
benefits.
As of December 31, 2020 and 2019, our liabilities associated with unrecognized tax benefits were not material.
We and our subsidiaries file federal income tax returns in the U.S. and income tax returns in various foreign jurisdictions.
With few exceptions, the statute of limitations for these jurisdictions is no longer open for audit or examination for the years
before 2015, other than with respect to refunds.
Our federal and foreign income tax payments, net of refunds, were $1.4 billion in 2020 and $940 million in 2019.
Note 11 – Debt
Our total debt consisted of the following (in millions):
2020
2019
Notes
2.50% due 2020
3.35% due 2021
3.10% due 2023
2.90% due 2025
3.55% due 2026
1.85% due 2030
3.60% due 2035
4.50% and 6.15% due 2036
4.07% due 2042
3.80% due 2045
4.70% due 2046
2.80% due 2050
4.09% due 2052
Other notes with rates from 4.85% to 9.13%, due 2022 to 2041
Total debt
Less: unamortized discounts and issuance costs
Total debt, net
Less: current portion
Long-term debt, net
90
$
— $ 1,250
900
500
500
500
750
750
2,000
2,000
—
400
500
500
1,054
1,054
1,336
1,336
1,000
1,000
1,326
1,326
—
750
1,578
1,578
1,618
1,605
13,812
13,299
(1,158)
12,654
(1,250)
$ 11,669 $ 11,404
12,169
(1,130)
(500)
Revolving Credit Facilities
At December 31, 2020, we had a $2.5 billion revolving credit facility (the credit facility) with various banks that is
available for general corporate purposes. Effective August 24, 2019, we extended the expiration date of the credit facility from
August 24, 2023 to August 24, 2024. The undrawn portion of the credit facility also serves as a backup facility for the issuance
of commercial paper. The total amount outstanding at any point in time under the combination of our commercial paper
program and the credit facility cannot exceed the amount of the credit facility. We may request and the banks may grant, at their
discretion, an increase in the borrowing capacity under the credit facility of up to an additional $500 million. There were no
borrowings outstanding under the credit facility as of December 31, 2020 and 2019.
Borrowings under the credit facility are unsecured and bear interest at rates based, at our option, on a Eurodollar Rate or a
Base Rate, as defined in the credit facility’s agreement. Each bank’s obligation to make loans under the credit facility is subject
to, among other things, our compliance with various representations, warranties and covenants, including covenants 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 credit facility agreement. As of December 31, 2020 and 2019, we were in compliance with all covenants
contained in the credit facility agreement, as well as in our debt agreements.
Long-Term Debt
In May 2020, we issued a total of $1.2 billion of senior unsecured notes, consisting of $400 million aggregate principal
amount of 1.85% Notes due in 2030 (the “2030 Notes”) and $750 million aggregate principal amount of 2.80% Notes due in
2050 (the “2050 Notes” and, together with the 2030 Notes, the “Notes”). Interest on the Notes is payable semi-annually in
arrears on June 15 and December 15 of each year beginning on December 15, 2020. We may, at our option, redeem the Notes
of any series in whole or in part at any time and from time to time at a redemption price equal to the greater of 100% of the
principal amount of the notes to be redeemed or an applicable “make-whole” amount, plus accrued and unpaid interest to the
date of redemption.
In June 2020, we used the net proceeds from the offering plus cash on hand to redeem $750 million of the outstanding
$1.25 billion in aggregate principal amount of our 2.50% Notes due in 2020, and $400 million of the outstanding $900 million
in aggregate principal amount of our 3.35% Notes due in 2021 at their redemption price.
In October 2020, we repaid $500 million of long-term notes with a fixed interest rate of 2.50% due November 2020. In
November 2019, we repaid $900 million of long-term notes with a fixed interest rate of 4.25% according to their scheduled
maturities.
We made interest payments of approximately $567 million, $625 million and $635 million during the years ended
December 31, 2020, 2019 and 2018, respectively.
Short-Term Debt and Commercial Paper
As of December 31, 2020, we had $500 million of short-term borrowings due within one year, which are scheduled to
mature in September 2021. As of December 31, 2019, we had $1.3 billion of short-term borrowings due within one year, which
were scheduled to mature in November 2020.
We have agreements in place with financial institutions to provide for the issuance of commercial paper. The outstanding
balance of commercial paper can fluctuate daily and the amount outstanding during the period may be greater or less than the
amount reported at the end of the period. There were no commercial paper borrowings outstanding as of December 31, 2020
and we did not issue or repay any during 2020. We may, as conditions warrant, continue to issue commercial paper backed by
our revolving credit facility to manage the timing of cash flows.
Note 12 – Postretirement Benefit Plans
Defined Benefit Pension Plans and Retiree Medical and Life Insurance Plans
Many of our employees are covered by qualified defined benefit pension plans and we provide certain health care and life
insurance benefits to eligible retirees (collectively, postretirement benefit plans). We also sponsor nonqualified defined benefit
pension plans to provide for benefits in excess of qualified plan limits. Non-union employees hired after December 31, 2005 do
not participate in our qualified defined benefit pension plans, but are eligible to participate in a qualified defined contribution
plan in addition to our other retirement savings plans. They also have the ability to participate in our retiree medical plans, but
we do not subsidize the cost of their participation in those plans as we do with employees hired before January 1, 2006. Over
the last few years, we have negotiated similar changes with various labor organizations such that new union represented
employees do not participate in our defined benefit pension plans. We completed the final step of the previously announced
91
planned freeze of our qualified and nonqualified defined benefit pension plans for salaried employees effective January 1, 2020.
The freeze took effect in two stages. Effective January 1, 2016, the pay-based component of the formula used to determine
retirement benefits was frozen. Effective January 1, 2020, the service-based component of the formula was frozen. As a result
of these changes, the qualified defined benefit pension plans for salaried employees are fully frozen effective January 1, 2020.
With the freeze complete, the majority of our salaried employees participate in an enhanced defined contribution retirement
savings plan.
The rules related to accounting for postretirement benefit plans under GAAP require us to recognize on a plan-by-plan
basis the funded status of our postretirement benefit plans as either an asset or a liability on our consolidated balance sheets.
The funded status is measured as the difference between the fair value of the plan’s assets and the benefit obligation of the plan.
We use December 31 as the measurement date. Benefit obligations as of the end of each year reflect assumptions in effect as of
those dates. Net periodic benefit cost is based on assumptions in effect at the end of the respective preceding year.
The net periodic benefit cost (income) recognized for our qualified defined benefit pension plans and our retiree medical
and life insurance plans each year included the following (in millions):
Service cost
Interest cost
Expected return on plan assets
Recognized net actuarial losses (gains)
Amortization of net prior service (credit) cost
Total net periodic benefit cost (income)
$
$
2019
516 $
Qualified Defined
Benefit Pension Plans (a)
2020
101 $
2018
630
1,740
1,538
(2,395)
(2,264)
1,777
849
(342)
(321)
(118) $ 1,093 $ 1,431
1,806
(2,300)
1,404
(333)
Retiree Medical and
Life Insurance Plans
2020
2019
$
$
13 $
70
(127)
(4)
39
(9) $
14 $
97
(110)
2
42
45 $
2018
19
91
(135)
5
15
(5)
(a)
Total net periodic benefit cost (income) associated with our qualified defined benefit plans represents pension expense calculated in
accordance with GAAP (FAS pension expense). We are required to calculate pension expense in accordance with both GAAP and CAS
rules, each of which results in a different calculated amount of pension expense. The CAS pension cost is recovered through the pricing
of our products and services on U.S. Government contracts and, therefore, is recognized in net sales and cost of sales for products and
services. We include the difference between FAS pension service cost and CAS pension cost, referred to as the FAS/CAS operating
adjustment, as a component of other unallocated, net on our consolidated statements of earnings (see Note 5 – Information on Business
Segments).
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The following table provides a reconciliation of benefit obligations, plan assets and unfunded status related to our qualified
defined benefit pension plans and our retiree medical and life insurance plans (in millions):
Change in benefit obligation
Beginning balance
Service cost
Interest cost
Benefits paid
Settlements
Actuarial losses (gains)
Changes in longevity assumptions
Plan amendments and curtailments
Medicare Part D subsidy
Participants’ contributions
Ending balance
Change in plan assets
Beginning balance at fair value
Actual return on plan assets
Benefits paid
Settlements
Company contributions
Medicare Part D subsidy
Participants’ contributions
Ending balance at fair value
Unfunded status of the plans
Qualified Defined
Benefit Pension Plans
2019
2020
Retiree Medical and
Life Insurance Plans
2019
2020
$ 48,674
101
1,538
(2,188)
(1,392)
5,036
(426)
9
—
—
$ 51,352
$ 35,442
5,594
(2,188)
(1,392)
1,025
—
—
$ 38,481
$ (12,871)
$ 43,305
516
1,806
(2,294)
(1,933)
6,403
860
11
—
—
$ 48,674
$ 32,002
6,667
(2,294)
(1,933)
1,000
—
—
$ 35,442
$ (13,232)
$ 2,226
13
70
(220)
—
135
(18)
(8)
3
70
$ 2,271
$ 1,889
298
(220)
—
45
3
70
$ 2,085
(186)
$
$ 2,348
14
97
(229)
—
(1)
(70)
(6)
2
71
$ 2,226
$ 1,644
342
(229)
—
59
2
71
$ 1,889
(337)
$
During December 2020, Lockheed Martin, through its master retirement trust, purchased an irrevocable group annuity
contract from an insurance company (referred to as a buy-out contract) for $1.4 billion to transfer the related, outstanding
defined benefit pension obligations. As a result of this transaction, we were relieved of all responsibility for these pension
obligations and the insurance company is now required to pay and administer the retirement benefits owed to approximately
13,500 U.S. retirees and beneficiaries, with no change to the amount, timing or form of monthly retirement benefit payments.
Although the transaction was treated as a settlement for accounting purposes, we did not recognize a loss on the settlement in
earnings associated with the transaction because total settlements during 2020 for the affected pension plans were less than the
plans’ service and interest cost in 2020.
A second contract was also purchased from an insurance company for $793 million that will reimburse the plan for all
future benefit payments related to approximately 2,500 U.S. retirees and beneficiaries (referred to as a buy-in contract). The
covered retirees and beneficiaries and buy-in contract were spun-off to the plan established in December 2018 for the contract
purchased at that time similarly structured as a buy-in; the buy-in contracts are the sole assets of that plan. Under the
arrangement, the plan remains responsible for paying the benefits for the covered retirees and beneficiaries and the insurance
company will reimburse the plan as those benefits are paid. As a result, there is no net ongoing cash flow to the plan for the
covered retirees and beneficiaries as the cost of providing the benefits is funded by the buy-in contract; effectively locking in
the cost of the benefits and eliminating future volatility of the benefit obligation, while also providing the option to convert to a
buy-out. The buy-in contract was purchased using assets from the pension trust and is accounted for at fair value as an
investment of the trust. These transactions had no impact on our 2020 FAS pension expense or CAS pension cost. Also, during
December 2019, Lockheed Martin, through its master retirement trust, purchased a buy-out contract for $1.9 billion related to
our outstanding defined benefit pension obligations for approximately 20,000 U.S. retirees and beneficiaries.
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The following table provides amounts recognized on our consolidated balance sheets related to our qualified defined
benefit pension plans and our retiree medical and life insurance plans (in millions):
Prepaid pension asset
Accrued postretirement benefit liabilities
Accumulated other comprehensive loss (pre-tax) related to:
Net actuarial losses
Prior service (credit) cost
Qualified Defined
Benefit Pension Plans
2019
2
$
(13,234)
2020
3
$
(12,874)
Retiree Medical and
Life Insurance Plans
2019
—
(337)
2020
—
(186)
$
$
21,040
(1,235)
$ 19,805
20,609
(1,586)
$ 19,023
(119)
73
(46)
(69)
120
51
Total (a)
(a) Accumulated other comprehensive loss related to postretirement benefit plans, after-tax, of $16.2 billion and $15.5 billion at
December 31, 2020 and 2019 (see “Note 13 – Stockholders’ Equity”) includes $19.8 billion ($15.6 billion, net of tax) and $19.0 billion
($15.0 billion, net of tax) for qualified defined benefit pension plans, $(46) million ($(37) million, net of tax) and $51 million ($39
million, net of tax) for retiree medical and life insurance plans and $782 million ($617 million, net of tax) and $667 million ($527
million, net of tax) for other plans.
$
$
The accumulated benefit obligation (ABO) for all qualified defined benefit pension plans was $51.3 billion and $48.6
billion at December 31, 2020 and 2019. The ABO represents benefits accrued without assuming future compensation increases
to plan participants and is approximately equal to our projected benefit obligation. Plans where ABO was less than plan assets
represent prepaid pension assets, which are included on our consolidated balance sheets in other noncurrent assets. Plans where
ABO was in excess of plan assets represent accrued pension liabilities, which are included on our consolidated balance sheets.
We also sponsor nonqualified defined benefit plans to provide benefits in excess of qualified plan limits. The aggregate
liabilities for these plans at both December 31, 2020 and 2019 were $1.4 billion, which also represent the plans’ unfunded status.
We have set aside certain assets totaling $877 million and $657 million as of December 31, 2020 and 2019 in a separate trust which
we expect to be used to pay obligations under our nonqualified defined benefit plans. In accordance with GAAP, those assets
may not be used to offset the amount of the benefit obligation similar to the postretirement benefit plans in the table above. The
unrecognized net actuarial losses at December 31, 2020 and 2019 were $718 million and $641 million. The unrecognized prior
service credit at December 31, 2020 and 2019 were $21 million and $34 million. The expense associated with these plans totaled
$59 million in 2020, $108 million in 2019 and $123 million in 2018. We also sponsor a small number of other postemployment
plans and foreign benefit plans. The aggregate liability for the other postemployment plans was $42 million as of December 31,
2020 and 2019. The expense for the other postemployment plans, as well as the liability and expense associated with the foreign
benefit plans, was not material to our results of operations, financial position or cash flows. The actuarial assumptions used to
determine the benefit obligations and expense associated with our nonqualified defined benefit plans and postemployment plans
are similar to those assumptions used to determine the benefit obligations and expense related to our qualified defined benefit
pension plans and retiree medical and life insurance plans as described below.
94
The following table provides the amounts recognized in other comprehensive income (loss) related to postretirement
benefit plans, net of tax, for the years ended December 31, 2020, 2019 and 2018 (in millions):
Incurred but Not Yet
Recognized in Net
Periodic Benefit Cost
2020
2019
Gains (losses)
Recognition of
Previously
Deferred Amounts
2018
2020
2019
2018
(Gains) losses
Actuarial gains and losses
Qualified defined benefit pension plans
Retiree medical and life insurance plans
Other plans
Net prior service credit and cost
Qualified defined benefit pension plans
Retiree medical and life insurance plans
Other plans
$ (1,005) $ (2,283) $
43
(104)
(1,066)
238
(133)
(2,178)
Credit (cost)
(7)
6
—
(1)
(8)
4
—
(4)
$ (1,067) $ (2,182) $
(570)
71
83
(416)
(6)
(79)
—
(85)
(501)
$
$
668 $ 1,104 $ 1,396
4
55
1,455
(3)
24
689
2
42
1,148
(Credit) cost
(269)
30
(10)
(249)
440 $
(255)
(263)
12
33
(10)
(10)
(240)
(253)
908 $ 1,202
Actuarial Assumptions
The actuarial assumptions used to determine the benefit obligations at December 31 of each year and to determine the net
periodic benefit cost for each subsequent year, were as follows:
Qualified Defined Benefit
Pension Plans
2019
2020
2018
2.500 % 3.250 % 4.250 %
7.00 %
7.00 % 7.00 %
Weighted average discount rate
Expected long-term rate of return on assets
Health care trend rate assumed for next year
Ultimate health care trend rate
Year that the ultimate health care trend rate is
reached
Retiree Medical and
Life Insurance Plans
2020
2019
2018
2.375 % 3.250 % 4.250 %
7.00 %
7.00 % 7.00 %
8.25 %
7.75 % 8.00 %
5.00 %
4.50 % 4.50 %
2034
2034
2032
The decrease in the discount rate from December 31, 2019 to December 31, 2020 resulted in an increase in the projected
benefit obligations of our qualified defined benefit pension plans of approximately $4.9 billion at December 31, 2020. The
decrease in the discount rate from December 31, 2018 to December 31, 2019 resulted in an increase in the projected benefit
obligations of our qualified defined benefit pension plans of approximately $5.8 billion at December 31, 2019.
In October 2020, the Society of Actuaries published revised longevity assumptions that refined its prior studies. We used
the revised assumptions in our December 31, 2020 re-measurement of benefit obligation resulting in an approximate
$426 million decrease in the projected benefit obligations of our qualified defined benefit pension plans.
The long-term rate of return assumption represents the expected long-term rate of earnings on the funds invested, or to be
invested, to provide for the benefits included in the benefit obligations. That assumption is based on several factors including
historical market index returns, the anticipated long-term allocation of plan assets, the historical return data for the trust funds,
plan expenses and the potential to outperform market index returns. The actual investment return for our qualified defined
benefit plans during 2020 of $5.6 billion based on an actual rate of approximately 16.5% improved plan assets more than the
$2.3 billion expected return based on our 7.00% long-term rate of return assumption.
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Plan Assets
Investment policies and strategies – Lockheed Martin Investment Management Company (LMIMCo), our wholly-owned
subsidiary, has the fiduciary responsibility for making investment decisions related to the assets of our postretirement benefit
plans. LMIMCo’s investment objectives for the assets of these plans are (1) to minimize the net present value of expected
funding contributions; (2) to ensure there is a high probability that each plan meets or exceeds our actuarial long-term rate of
return assumptions; and (3) to diversify assets to minimize the risk of large losses. The nature and duration of benefit
obligations, along with assumptions concerning asset class returns and return correlations, are considered when determining an
appropriate asset allocation to achieve the investment objectives. Investment policies and strategies governing the assets of the
plans are designed to achieve investment objectives within prudent risk parameters. Risk management practices include the use
of external investment managers; the maintenance of a portfolio diversified by asset class, investment approach and security
holdings; and the maintenance of sufficient liquidity to meet benefit obligations as they come due.
LMIMCo’s investment policies require that asset allocations of postretirement benefit plans be maintained within the
following approximate ranges:
Asset Class
Cash and cash equivalents
Equity
Fixed income
Alternative investments:
Private equity funds
Real estate funds
Hedge funds
Commodities
Asset Allocation
Ranges
0-20%
15-65%
10-60%
0-15%
0-10%
0-20%
0-15%
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Fair value measurements – The rules related to accounting for postretirement benefit plans under GAAP require certain
fair value disclosures related to postretirement benefit plan assets, even though those assets are not separately presented on our
consolidated balance sheets. The following table presents the fair value of the assets (in millions) of our qualified defined
benefit pension plans and retiree medical and life insurance plans by asset category and their level within the fair value
hierarchy, which has three levels based on the ability to observe inputs used to determine fair value. Level 1 refers to fair values
determined based on quoted prices in active markets for identical assets, Level 2 refers to fair values estimated using significant
other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs. Certain other
investments are measured at their Net Asset Value (NAV) per share and do not have readily determined values and are thus not
subject to leveling in the fair value hierarchy. The NAV is the total value of the fund divided by the number of the fund’s shares
outstanding. We recognize transfers between levels of the fair value hierarchy as of the date of the change in circumstances that
causes the transfer.
Investments measured at fair value
Cash and cash equivalents (a)
Equity (a):
December 31, 2020
December 31, 2019
Total Level 1 Level 2 Level 3
Total Level 1 Level 2 Level 3
$ 1,109 $ 1,109 $ — $ —
$ 1,961 $ 1,961 $ — $ —
U.S. equity securities
International equity securities
Commingled equity funds
7,535
6,844
1,671
7,467
6,836
442
8
—
1,228
5,732
2,506
—
—
5,730
2,506
—
230
1,773
5,873
$ 31,500 $ 15,891 $ 13,765 $ 1,844
230
4,063
—
37
Fixed income (a):
Corporate debt securities
U.S. Government securities
U.S. Government-sponsored
enterprise securities
Other fixed income investments (b)
Total
Investments measured at NAV (c)
92
Commingled equity funds
541
Other fixed income investments
4,672
Private equity funds
2,650
Real estate funds
1,111
Hedge funds
Total investments measured at NAV 9,066
—
Receivables, net
$ 40,566
Total
60
8
1
2
—
7,189
7,244
1,933
7,182
7,217
582
—
23
1,351
5,208
2,260
—
—
5,206
2,260
7
4
—
2
—
—
530
35
3,134
$ 29,459 $ 16,977 $ 11,505 $
530
2,135
—
964
977
181
32
4,019
2,493
1,069
7,794
78
$ 37,331
(a) Cash and cash equivalents, equity securities and fixed income securities included derivative assets and liabilities whose fair values were
not material as of December 31, 2020 and 2019. LMIMCo’s investment policies restrict the use of derivatives to either establish long or
short exposures for purposes consistent with applicable investment mandate guidelines or to hedge risks to the extent of a plan’s current
exposure to such risks. Most derivative transactions are settled on a daily basis.
Level 3 investments include $1.7 billion at December 31, 2020 and $857 million at December 31, 2019 related to the buy-in contracts
discussed above.
(b)
(c) Certain investments that are valued using the NAV per share (or its equivalent) as a practical expedient have not been classified in the
fair value hierarchy and are included in the table to permit reconciliation of the fair value hierarchy to the aggregate postretirement
benefit plan assets.
As of December 31, 2020 and 2019, the assets associated with our foreign defined benefit pension plans were not material
and have not been included in the table above. Changes in the fair value of plan assets categorized as Level 3 during 2020 and
2019 were insignificant.
Valuation techniques – Cash equivalents are mostly comprised of short-term money-market instruments and are valued at
cost, which approximates fair value.
U.S. equity securities and international equity securities categorized as Level 1 are traded on active national and
international exchanges and are valued at their closing prices on the last trading day of the year. For U.S. equity securities and
97
international equity securities not traded on an active exchange, or if the closing price is not available, the trustee obtains
indicative quotes from a pricing vendor, broker or investment manager. These securities are categorized as Level 2 if the
custodian obtains corroborated quotes from a pricing vendor or categorized as Level 3 if the custodian obtains uncorroborated
quotes from a broker or investment manager.
Commingled equity funds categorized as Level 1 are traded on active national and international exchanges and are valued
at their closing prices on the last trading day of the year. For commingled equity funds not traded on an active exchange, or if
the closing price is not available, the trustee obtains indicative quotes from a pricing vendor, broker or investment manager.
These securities are categorized as Level 2 if the custodian obtains corroborated quotes from a pricing vendor.
Fixed income investments categorized as Level 1 are publicly exchange-traded. Fixed income investments categorized as
Level 2 are valued by the trustee using pricing models that use verifiable observable market data (e.g., interest rates and yield
curves observable at commonly quoted intervals and credit spreads), bids provided by brokers or dealers or quoted prices of
securities with similar characteristics. Fixed income investments are categorized as Level 3 when valuations using observable
inputs are unavailable. The trustee typically obtains pricing based on indicative quotes or bid evaluations from vendors, brokers
or the investment manager. In addition, certain other fixed income investments categorized as Level 3 are valued using a
discounted cash flow approach. Significant inputs include projected annuity payments and the discount rate applied to those
payments.
Certain commingled equity and fixed income funds, consisting of underlying equity and fixed income securities,
respectively, are valued using the NAV practical expedient. The NAV valuations are based on the underlying investments and
typically redeemable within 90 days.
Private equity funds consist of partnership and co-investment funds. The NAV is based on valuation models of the
underlying securities, which includes unobservable inputs that cannot be corroborated using verifiable observable market data.
These funds typically have redemption periods between eight and 12 years.
Real estate funds consist of partnerships, most of which are closed-end funds, for which the NAV is based on valuation
models and periodic appraisals. These funds typically have redemption periods between eight and 10 years.
Hedge funds consist of direct hedge funds for which the NAV is generally based on the valuation of the underlying
investments. Redemptions in hedge funds are based on the specific terms of each fund, and generally range from a minimum of
one month to several months.
Contributions and Expected Benefit Payments
The required funding of our qualified defined benefit pension plans is determined in accordance with ERISA, as amended
by the PPA, and in a manner consistent with CAS and Internal Revenue Code rules. We made contributions to our qualified
defined benefit pension plans of $1.0 billion in 2020. We plan to make contributions of approximately $1.0 billion to our
qualified defined benefit pension plans in 2021.
The following table presents estimated future benefit payments, which reflect expected future employee service, as of
December 31, 2020 (in millions):
Qualified defined benefit pension plans
Retiree medical and life insurance plans
Defined Contribution Plans
$
2021
2,290 $
160
2022
2,350 $
150
2023
2,440 $
150
2024
2,510 $
150
2025
2,570 $
150
2026 – 2030
13,190
660
We maintain a number of defined contribution plans, most with 401(k) features, that cover substantially all of our
employees. Under the provisions of our plans, we match most employees’ eligible contributions at rates specified in the plan
documents. Our contributions are comprised of (i) company match, the majority of which was funded using our common stock,
and (ii) company contributions. Total contributions were $984 million in 2020, $741 million in 2019 and $658 million in 2018.
Our defined contribution plans held approximately 30.5 million and 31.9 million shares of our common stock as of
December 31, 2020 and 2019.
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Note 13 – Stockholders’ Equity
At December 31, 2020 and 2019, our authorized capital was composed of 1.5 billion shares of common stock and
50 million shares of series preferred stock. Of the 280 million shares of common stock issued and outstanding as of
December 31, 2020, 279 million shares were considered outstanding for consolidated balance sheet presentation purposes; the
remaining shares were held in a separate trust. Of the 281 million shares of common stock issued and outstanding as of
December 31, 2019, 280 million shares were considered outstanding for consolidated balance sheet presentation purposes; the
remaining shares were held in a separate trust. No shares of preferred stock were issued and outstanding at December 31, 2020
or 2019.
Repurchases of Common Stock
During 2020, we repurchased 3.0 million shares of our common stock for $1.1 billion. During 2019 and 2018, we paid $1.2
billion and $1.5 billion to repurchase 3.5 million and 4.7 million shares of our common stock.
During 2020, we entered into an accelerated share repurchase (ASR) agreement to repurchase $500 million of our common
stock. We paid $500 million and received 1.4 million shares based on the average price paid per share of $347.16, calculated
with reference to the volume-weighted average price (VWAP) of our common stock over the term of the agreement, less a
negotiated discount. During 2019, we entered into an ASR agreement to repurchase $350 million of our common stock. We
paid $350 million and received 916,249 shares based on the average price paid per share of $381.99, calculated with reference
to VWAP of our common stock over the term of the agreement, less a negotiated discount. These ASR transactions were
accounted for as equity transactions and recognized as a reduction of common stock and additional paid-in-capital, with the
excess purchase price over par value recorded as a reduction of additional paid-in capital.
On September 25, 2020, our Board of Directors approved a $1.3 billion increase to our share repurchase program. Inclusive
of this increase, the total remaining authorization for future common share repurchases under our program was $3.0 billion as
of December 31, 2020. 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. During 2020, we repurchased 3.0 million of our common shares, which were recognized as a reduction to common
stock for the par value with the excess purchase price recorded as a reduction of additional paid-in capital of $256 million and
$841 million recorded as a reduction of retained earnings. In 2019 and 2018, due to the volume of repurchases made under our
share repurchase program, additional paid in-capital was reduced to zero, with the remainder of the excess purchase price over
par value of $713 million and $1.1 billion recorded as a reduction of retained earnings.
Dividends
We paid dividends totaling $2.8 billion ($9.80 per share) in 2020, $2.6 billion ($9.00 per share) in 2019 and $2.3 billion
($8.20 per share) in 2018. We paid quarterly dividends of $2.40 per share during each of the first three quarters of 2020 and
$2.60 per share during the fourth quarter of 2020; $2.20 per share during each of the first three quarters of 2019 and $2.40 per
share during the fourth quarter of 2019; and $2.00 per share during each of the first three quarters of 2018 and $2.20 per share
during the fourth quarter of 2018.
99
Accumulated Other Comprehensive Loss
Changes in the balance of AOCL, net of income taxes, consisted of the following (in millions):
Balance at December 31, 2017
Other comprehensive loss before reclassifications
Amounts reclassified from AOCL
Recognition of net actuarial losses
Amortization of net prior service credits
Other
Total reclassified from AOCL
Total other comprehensive (loss) income
Reclassification of income tax effects from tax reform(b)
Balance at December 31, 2018
Other comprehensive loss before reclassifications
Amounts reclassified from AOCL
Recognition of net actuarial losses
Amortization of net prior service credits
Other
Total reclassified from AOCL
Total other comprehensive income (loss)
Balance at December 31, 2019
Other comprehensive income before reclassifications
Amounts reclassified from AOCL
Recognition of net actuarial losses
Amortization of net prior service credits
Other
Total reclassified from AOCL
Total other comprehensive income
Balance at December 31, 2020
Postretirement
Benefit Plans(a)
$
(12,559) $
(501)
Other, net
20 $
(105)
1,455
(253)
—
1,202
701
(2,396)
(14,254)
(2,182)
1,148
(240)
—
908
(1,274)
(15,528)
(1,067)
689
(249)
—
440
(627)
(16,155) $
$
—
—
30
30
(75)
(12)
(67)
18
—
—
23
23
41
(26)
56
—
—
4
4
60
34 $
AOCL
(12,539)
(606)
1,455
(253)
30
1,232
626
(2,408)
(14,321)
(2,164)
1,148
(240)
23
931
(1,233)
(15,554)
(1,011)
689
(249)
4
444
(567)
(16,121)
(a) AOCL related to postretirement benefit plans is shown net of tax benefits of $4.4 billion at December 31, 2020, $4.2 billion at
December 31, 2019 and $3.9 billion at December 31, 2018. These tax benefits include amounts recognized on our income tax returns as
current deductions and deferred income taxes, which will be recognized on our tax returns in future years. See “Note 10 – Income
Taxes” and “Note 12 – Postretirement Benefit Plans” for more information on our income taxes and postretirement benefit plans.
(b) During 2018, we reclassified the impact of the income tax effects related to the Tax Cuts and Jobs Act of 2017 from AOCL to retained
earnings by the same amount with zero impact to total equity.
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Note 14 – Stock-Based Compensation
During 2020, 2019 and 2018, we recorded non-cash stock-based compensation expense totaling $221 million, $189 million
and $173 million, which is included as a component of other unallocated, net on our consolidated statements of earnings. The
net impact to earnings for the respective years was $175 million, $149 million and $137 million.
As of December 31, 2020, we had $173 million of unrecognized compensation cost related to nonvested awards, which is
expected to be recognized over a weighted average period of 1.8 years. We received cash from the exercise of stock options
totaling $41 million, $66 million and $43 million during 2020, 2019 and 2018. In addition, our income tax liabilities for 2020,
2019 and 2018 were reduced by $63 million, $103 million and $75 million due to recognized tax benefits on stock-based
compensation arrangements.
Stock-Based Compensation Plans
Under plans approved by our stockholders, we are authorized to grant key employees stock-based incentive awards,
including options to purchase common stock, stock appreciation rights, RSUs, PSUs or other stock units. The exercise price of
options to purchase common stock may not be less than the fair market value of our stock on the date of grant. No award of
stock options may become fully vested prior to the third anniversary of the grant and no portion of a stock option grant may
become vested in less than one year. The minimum vesting period for restricted stock or stock units payable in stock is
generally three years. Award agreements may provide for shorter or pro-rated vesting periods or vesting following termination
of employment in the case of death, disability, divestiture, retirement, change of control or layoff. The maximum term of a
stock option or any other award is 10 years.
At December 31, 2020, inclusive of the shares reserved for outstanding stock options, RSUs and PSUs, we had
approximately 11 million shares reserved for issuance under the plans. At December 31, 2020, approximately 8 million of the
shares reserved for issuance remained available for grant under our stock-based compensation plans. We issue new shares upon
the exercise of stock options or when restrictions on RSUs and PSUs have been satisfied.
RSUs
The following table summarizes activity related to nonvested RSUs:
Nonvested at December 31, 2017
Granted
Vested
Forfeited
Nonvested at December 31, 2018
Granted
Vested
Forfeited
Nonvested at December 31, 2019
Granted
Vested
Forfeited
Nonvested at December 31, 2020
Number
of RSUs
(In thousands)
651
406
(470)
(24)
563
581
(523)
(21)
600
533
(383)
(17)
733
$
$
$
Weighted Average
Grant-Date Fair
Value Per Share
220.21
353.99
271.50
282.07
271.23
305.30
269.00
302.78
305.06
383.99
329.63
349.02
348.60
$
In 2020, we granted certain employees approximately 0.5 million RSUs with a weighted average grant-date fair value of
$383.99 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 occurs at least one year from the grant date and most often occurs 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.
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PSUs
In 2020, we granted certain employees PSUs with an aggregate target award of approximately 0.1 million shares of our
common stock. The PSUs generally vest three years from the grant date based on continuous service, with the number of shares
earned (0% to 200% of the target award) depending upon the extent to which we achieve certain financial and market
performance targets measured over the period from January 1, 2020 through December 31, 2022. About half of the PSUs were
valued at a weighted average grant-date fair value of $383.85 per PSU in a manner similar to RSUs mentioned above as the
financial targets are based on our operating results. The remaining PSUs were valued at a weighted-average grant-date fair
value of $484.50 per PSU using a Monte Carlo model as the performance target is related to our total shareholder return relative
to our peer group. We recognize the grant-date fair value of these awards, less estimated forfeitures, as compensation expense
ratably over the vesting period.
Note 15 – Legal Proceedings, Commitments and Contingencies
We are a party to or have property subject to litigation and other proceedings that arise in the ordinary course of our
business, including matters arising under provisions relating to the protection of the environment, and are subject to
contingencies related to certain businesses we previously owned. These types of matters could result in fines, penalties, cost
reimbursements or contributions, compensatory or treble damages or non-monetary sanctions or relief. We believe the
probability is remote that the outcome of each of these matters, including the legal proceedings described below, will have a
material adverse effect on the corporation as a whole, notwithstanding that the unfavorable resolution of any matter may have a
material effect on our net earnings in any particular interim reporting period. Among the factors that we consider in this
assessment are the nature of existing legal proceedings and claims, the asserted or possible damages or loss contingency (if
estimable), the progress of the case, existing law and precedent, the opinions or views of legal counsel and other advisers, our
experience in similar cases and the experience of other companies, the facts available to us at the time of assessment and how
we intend to respond to the proceeding or claim. Our assessment of these factors may change over time as individual
proceedings or claims progress.
Although we cannot predict the outcome of legal or other proceedings with certainty, where there is at least a reasonable
possibility that a loss may have been incurred, GAAP requires us to disclose an estimate of the reasonably possible loss or
range of loss or make a statement that such an estimate cannot be made. We follow a thorough process in which we seek to
estimate the reasonably possible loss or range of loss, and only if we are unable to make such an estimate do we conclude and
disclose that an estimate cannot be made. Accordingly, unless otherwise indicated below in our discussion of legal proceedings,
a reasonably possible loss or range of loss associated with any individual legal proceeding cannot be estimated.
Legal Proceedings
As a result of our acquisition of Sikorsky, we assumed the defense of and any potential liability for two civil False Claims
Act lawsuits pending in the U.S. District Court for the Eastern District of Wisconsin. In October 2014, the U.S. Government
filed a complaint in intervention in the first suit, which was brought by qui tam relator Mary Patzer, a former Derco Aerospace
(Derco) employee. In May 2017, the U.S. Government filed a complaint in intervention in the second suit, which was brought
by qui tam relator Peter Cimma, a former Sikorsky Support Services, Inc. (SSSI) employee. In November 2017, the Court
consolidated the cases into a single action for discovery and trial.
The U.S. Government alleges that Sikorsky and two of its wholly-owned subsidiaries, Derco and SSSI, violated the civil
False Claims Act and the Truth in Negotiations Act in connection with a contract the U.S. Navy awarded to SSSI in June 2006
to support the Navy’s T-34 and T-44 fixed-wing turboprop training aircraft. SSSI subcontracted with Derco, primarily to
procure and manage spare parts for the training aircraft. The U.S. Government contends that SSSI overbilled the Navy on the
contract as the result of Derco’s use of prohibited cost-plus-percentage-of-cost pricing to add profit and overhead costs as a
percentage of the price of the spare parts that Derco procured and then sold to SSSI. The U.S. Government also alleges that
Derco’s claims to SSSI, SSSI’s claims to the Navy, and SSSI’s yearly Certificates of Final Indirect Costs from 2006 through
2012 were false and that SSSI submitted inaccurate cost or pricing data in violation of the Truth in Negotiations Act for a sole-
sourced, follow-on “bridge” contract. The U.S. Government’s complaints assert common law claims for breach of contract and
unjust enrichment.
The U.S. Government further alleged violations of the Anti-Kickback Act and False Claims Act based on a monthly
“chargeback,” through which SSSI billed Derco for the cost of certain SSSI personnel, allegedly in exchange for SSSI’s
permitting a pricing arrangement that was “highly favorable” to Derco. On January 12, 2018, the Corporation filed a partial
motion to dismiss intended to narrow the U.S. Government’s claims, including by seeking dismissal of the Anti-Kickback Act
allegations. The Corporation also moved to dismiss Cimma as a party under the False Claims Act’s first-to-file rule, which
102
permits only the first relator to recover in a pending case. The District Court granted these motions, in part, on July 20, 2018,
dismissing the Government’s claims under the Anti-Kickback Act and dismissing Cimma as a party to the litigation.
The U.S. Government seeks damages of approximately $52 million, subject to trebling, plus statutory penalties. We believe
that we have legal and factual defenses to the U.S. Government’s remaining claims. Although we continue to evaluate our
liability and exposure, we do not currently believe that it is probable that we will incur a material loss. If, contrary to our
expectations, the U.S. Government prevails in this matter and proves damages at or near $52 million and is successful in having
such damages trebled, the outcome could have an adverse effect on our results of operations in the period in which a liability is
recognized and on our cash flows for the period in which any damages are paid.
On February 8, 2019, the Department of Justice (DOJ) filed a complaint in the U.S. District Court for the Eastern District
of Washington alleging, among other counts, civil False Claims Act and civil Anti-Kickback Act violations against Mission
Support Alliance, LLC (MSA), Lockheed Martin, Lockheed Martin Services, Inc. (LMSI) and a current Lockheed Martin vice
president. The dollar amount of damages sought is not specified but DOJ seeks treble damages with respect to the False Claims
Act and penalties that are subject to doubling under the Anti-Kickback Act. The allegations relate primarily to information
technology services performed by LMSI under a subcontract to MSA and the pricing by MSA and LMSI of those services as
well as Lockheed Martin’s payment of standard incentive compensation to certain employees who were seconded to MSA,
including the vice president. MSA is a joint venture that holds a prime contract to provide infrastructure support services at
DOE’s Hanford facility. On April 23, 2019, the parties each filed partial motions to dismiss the U.S. Government’s False
Claims Act and Anti-Kickback Act allegations. On January 13, 2020, the court dismissed the Anti-Kickback Act claim against
all defendants with prejudice and denied the motions to dismiss the False Claims Act claims.
On August 16, 2016, we divested our former Information Systems & Global Solutions (IS&GS) business segment to
Leidos Holdings, Inc. (Leidos) in a transaction that resulted in IS&GS becoming part of Leidos (the Transaction). In the
Transaction, Leidos acquired IS&GS’ interest in MSA and the liabilities related to Lockheed Martin’s participation in MSA.
Included within the liabilities assumed were those associated with this lawsuit. Lockheed Martin transferred to Leidos a reserve
of approximately $38 million established by Lockheed Martin with respect to its potential liability and that of its affiliates and
agreed to indemnify Leidos with respect to the liabilities assumed for damages to Leidos for 100% of amounts in excess of this
reserve up to $64 million and 50% of amounts in excess of $64 million.
We cannot reasonably estimate our exposure at this time, but it is possible that a settlement by or judgment against any of
the defendants could implicate Lockheed Martin’s indemnification obligations as described above. At present, in view of what
we believe to be the strength of the defenses, our belief that Leidos assumed the liabilities, and our view of the structure of the
indemnity, we do not believe it probable that we will incur a material loss and have not taken any reserve.
On April 24, 2009, we filed a declaratory judgment action against the New York Metropolitan Transportation Authority
and its Capital Construction Company (collectively, the MTA) asking the U.S. District Court for the Southern District of New
York to find that the MTA is in material breach of our agreement based on the MTA’s failure to provide access to sites where
work must be performed and the customer-furnished equipment necessary to complete the contract. The MTA filed an answer
and counterclaim alleging that we breached the contract and subsequently terminated the contract for alleged default. The
primary damages sought by the MTA are the costs to complete the contract and potential re-procurement costs. While we are
unable to estimate the cost of another contractor to complete the contract and the costs of re-procurement, we note that our
contract with the MTA had a total value of $323 million, of which $241 million was paid to us, and that the MTA is seeking
damages of approximately $190 million. We dispute the MTA’s allegations and are defending against them. Additionally,
following an investigation, our sureties on a performance bond related to this matter, who were represented by independent
counsel, concluded that the MTA’s termination of the contract was improper. Finally, our declaratory judgment action was later
amended to include claims for monetary damages against the MTA of approximately $95 million. This matter was taken under
submission by the District Court in December 2014, after a five-week bench trial and the filing of post-trial pleadings by the
parties. We continue to await a decision from the District Court. Although this matter relates to our former IS&GS business, we
retained the litigation when we divested IS&GS in 2016.
Environmental Matters
We are involved in proceedings and potential proceedings relating to soil, sediment, surface water, and groundwater
contamination, disposal of hazardous substances, and other environmental matters at several of our current or former facilities,
facilities for which we may have contractual responsibility, and at third-party sites where we have been designated as a
potentially responsible party (PRP). A substantial portion of environmental costs will be included in our net sales and cost of
sales in future periods pursuant to U.S. Government regulations. At the time a liability is recorded for future environmental
costs, we record assets for estimated future recovery considered probable through the pricing of products and services to
agencies of the U.S. Government, regardless of the contract form (e.g., cost-reimbursable, fixed-price). We continually evaluate
103
the recoverability of our assets for the portion of environmental costs that are probable of future recovery by assessing, among
other factors, U.S. Government regulations, our U.S. Government business base and contract mix, our history of receiving
reimbursement of such costs, and efforts by some U.S. Government representatives to limit such reimbursement. We include
the portions of those environmental costs expected to be allocated to our non-U.S. Government contracts, or determined not to
be recoverable under U.S. Government contracts, in our cost of sales at the time the liability is established.
At December 31, 2020 and 2019, the aggregate amount of liabilities recorded relative to environmental matters was
$789 million and $810 million, most of which are recorded in other noncurrent liabilities on our consolidated balance sheets.
We have recorded assets for the portion of environmental costs that are probable of future recovery totaling $685 million and
$703 million at December 31, 2020 and 2019, most of which are recorded in other noncurrent assets on our consolidated
balance sheets, for the estimated future recovery of these costs, as we consider the recovery probable based on the factors
previously mentioned. We project costs and recovery of costs over approximately 20 years.
Environmental remediation activities usually span many years, which makes estimating liabilities a matter of judgment
because of uncertainties with respect to assessing the extent of the contamination as well as such factors as changing
remediation technologies and changing regulatory environmental standards. We are monitoring or investigating a number of
former and present operating facilities for potential future remediation. We perform quarterly reviews of the status of our
environmental remediation sites and the related liabilities and receivables. Additionally, in our quarterly reviews, we consider
these and other factors in estimating the timing and amount of any future costs that may be required for remediation activities,
and we record a liability when it is probable that a loss has occurred or will occur for a particular site and the loss can be
reasonably estimated. The amount of liability recorded is based on our estimate of the costs to be incurred for remediation for
that site. We do not discount the recorded liabilities, as the amount and timing of future cash payments are not fixed or cannot
be reliably determined. We cannot reasonably determine the extent of our financial exposure in all cases as, although a loss may
be probable or reasonably possible, in some cases it is not possible at this time to estimate the reasonably possible loss or range
of loss.
We also pursue claims for recovery of costs incurred or for contribution to site remediation costs against other PRPs,
including the U.S. Government, and are conducting remediation activities under various consent decrees, orders, and
agreements relating to soil, groundwater, sediment, or surface water contamination at certain sites of former or current
operations. Under agreements related to certain sites in California, New York, United States Virgin Islands and Washington, the
U.S. Government and/or a private party reimburses us an amount equal to a percentage, specific to each site, of expenditures for
certain remediation activities in their capacity as PRPs under the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA).
In addition to the proceedings and potential proceedings discussed above, the California State Water Resources Control
Board, a branch of the California Environmental Protection Agency, has indicated it will work to re-establish a maximum level
of the contaminant hexavalent chromium in drinking water after a prior standard of 10 parts per billion (ppb) was challenged
and withdrawn, and is also reevaluating its existing drinking water standard of 6 ppb for perchlorate. The U.S. Environmental
Protection Agency decided in June 2020 not to regulate perchlorate in drinking water at the federal level, although this decision
has been challenged, and is considering whether to regulate hexavalent chromium.
If substantially lower standards are adopted for perchlorate (in California) or for hexavalent chromium (in California or at
the federal level), we expect a material increase in our estimates for environmental liabilities and the related assets for the
portion of the increased costs that are probable of future recovery in the pricing of our products and services for the U.S.
Government. The amount that would be allocable to our non-U.S. Government contracts or that is determined not to be
recoverable under U.S. Government contracts would be expensed, which may have a material effect on our earnings in any
particular interim reporting period.
We also are evaluating the potential impact of existing and contemplated legal requirements addressing a class of
compounds known generally as per- and polyfluoroalkyl compounds (PFAS). PFAS compounds have been used ubiquitously,
such as in fire-fighting foams, manufacturing processes, and stain- and stick-resistant products (e.g., Teflon, stain-resistant
fabrics). Because we have used products and processes over the years containing some of those compounds, they likely exist as
contaminants at many of our environmental remediation sites. Governmental authorities have announced plans, and in some
instances have begun, to regulate certain of these compounds at extremely low concentrations in drinking water, which could
lead to increased cleanup costs at many of our environmental remediation sites.
Letters of Credit, Surety Bonds and Third-Party Guarantees
We have entered into standby letters of credit and surety bonds issued on our behalf by financial institutions, and we have
directly issued guarantees to third parties primarily relating to advances received from customers and the guarantee of future
104
performance on certain contracts. Letters of credit and surety bonds generally are available for draw down in the event we do
not perform. In some cases, we may guarantee the contractual performance of third parties such as joint venture partners. We
had total outstanding letters of credit, surety bonds and third-party guarantees aggregating $3.4 billion and $3.6 billion at
December 31, 2020 and December 31, 2019. Third-party guarantees do not include guarantees issued on behalf of subsidiaries
and other consolidated entities.
At December 31, 2020 and 2019, third-party guarantees totaled $871 million and $996 million, of which approximately
71% and 76% related to guarantees of contractual performance of joint ventures to which we currently are or previously were a
party. These amounts represent our estimate of the maximum amounts we would expect to incur upon the contractual non-
performance of the joint venture, joint venture partners or divested businesses. Generally, we also have cross-indemnities in
place that may enable us to recover amounts that may be paid on behalf of a joint venture partner.
In determining our exposures, we evaluate the reputation, performance on contractual obligations, technical capabilities
and credit quality of our current and former joint venture partners and the transferee under novation agreements all of which
include a guarantee as required by the FAR. At December 31, 2020 and 2019, there were no material amounts recorded in our
financial statements related to third-party guarantees or novation agreements.
Note 16 – Severance Charges
During 2020, we recorded severance charges totaling $27 million ($21 million, or $0.08 per share, after-tax) related to the
planned elimination of certain positions primarily at our corporate functions. Upon separation, terminated employees 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.
Note 17 – Fair Value Measurements
Assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following (in millions):
Assets
Mutual funds
U.S. Government securities
Other securities
Derivatives
Liabilities
Derivatives
Assets measured at NAV
Other commingled funds
December 31, 2020
December 31, 2019
Total
Level 1
Level 2
Total
Level 1
Level 2
$
1,335 $
92
555
52
1,335 $
—
341
—
— $
92
214
52
1,363 $
99
319
18
1,363 $
—
171
—
22
20
—
22
—
23
19
—
99
148
18
23
Substantially all assets measured at fair value, other than derivatives, represent investments held in a separate trust to fund
certain of our non-qualified deferred compensation plans and are recorded in other noncurrent assets on our consolidated
balance sheets. The fair values of mutual funds and certain other securities are determined by reference to the quoted market
price per unit in active markets multiplied by the number of units held without consideration of transaction costs. The fair
values of U.S. Government and other securities are determined using pricing models that use observable inputs (e.g., interest
rates and yield curves observable at commonly quoted intervals), bids provided by brokers or dealers or quoted prices of
securities with similar characteristics. The fair values of derivative instruments, which consist of foreign currency forward
contracts, including embedded derivatives, and interest rate swap contracts, are primarily determined based on the present value
of future cash flows using model-derived valuations that use observable inputs such as interest rates, credit spreads and foreign
currency exchange rates.
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 and commercial paper. The carrying amounts for cash and cash
equivalents, receivables and accounts payable approximated their fair values. The estimated fair value of our outstanding debt
was $16.9 billion and $15.9 billion at December 31, 2020 and 2019. The outstanding principal amount was $13.3 billion and
$13.8 billion at December 31, 2020 and 2019, excluding $1.1 billion and $1.2 billion of unamortized discounts and issuance
costs at December 31, 2020 and 2019. The estimated fair values of our outstanding debt were determined based on quoted
prices for similar instruments in active markets (Level 2).
105
Note 18 – Summary of Quarterly Information (Unaudited)
A summary of quarterly information is as follows (in millions, except per share data):
Net sales
Operating profit
Net earnings from continuing operations
Net loss from discontinued operations
Net earnings
Earnings per common share from continuing operations (b):
Basic
Diluted
Loss per common share from discontinued operations:
Basic
Diluted
Basic earnings per common share (b)
Diluted earnings per common share (b)
$
First
15,651 $
2,122
1,717
—
1,717
2020 Quarters (a)
Second (c)
Third (d)
16,220 $
2,086
1,626
—
1,626
16,495 $
2,147
1,753
(55)
1,698
Fourth (e)
17,032
2,289
1,792
—
1,792
6.10
6.08
—
—
6.10
6.08
5.81
5.79
—
—
5.81
5.79
6.28
6.25
(0.20)
(0.20)
6.08
6.05
6.41
6.38
—
—
6.41
6.38
Fourth
15,878
Net sales
2,149
Operating profit
1,498
Net earnings
Basic earnings per common share (b)
5.32
Diluted earnings per common share (b)
5.29
(a) Quarters are typically 13 weeks in length but, due to our fiscal year ending on December 31, the number of weeks in a reporting period
Third (g)
15,171 $
2,105
1,608
5.70
5.66
First (f)
14,336 $
2,283
1,704
6.03
5.99
$
2019 Quarters (a)
Second
14,427 $
2,008
1,420
5.03
5.00
(b)
(c)
(d)
(e)
(f)
(g)
may vary slightly during the year and for comparable prior year periods.
The sum of the quarterly earnings per share amounts do not equal the earnings per share amounts included on our consolidated
statements of earnings. The difference in 2020 and 2019 relates to the timing of our share repurchases.
The second quarter of 2020 includes a non-cash impairment charge of $128 million ($96 million, or $0.34 per share, after-tax) related to
our equity method investee, AMMROC (see “Note 1 – Significant Accounting Policies”).
The third quarter of 2020 includes a $55 million ($0.20 per share) non-cash charge for discontinued operations resulting from the
resolution of certain tax matters related to the former IS&GS business divested in 2016.
The fourth quarter of 2020 includes $27 million ($21 million, or $0.08 per share, after-tax) of severance charges (see “Note 16 –
Severance Charges”).
The first quarter of 2019 includes a previously deferred non-cash gain of $51 million ($38 million, or $0.13 per share, after-tax) related
to properties sold in 2015 as a result of completing our remaining obligations. The first quarter of 2019 also includes benefits of
$75 million, or $0.26 per share, from additional tax deductions, based on proposed tax regulations released on March 4, 2019, which
clarified that foreign military sales qualify as foreign derived intangible income. Approximately $65 million, or $0.23 per share, of the
total benefit was recorded discretely because it relates to the prior year.
The third quarter of 2019 includes benefits of $62 million, or $0.22 per share, for additional tax deductions for the prior year, primarily
attributable to foreign derived intangible income treatment based on proposed tax regulations released on March 4, 2019 and our change
in tax accounting method.
106
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We performed an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2020. The
evaluation was performed with the participation of senior management of each business segment and key corporate functions,
under the supervision of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Based on this evaluation, the
CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2020.
Management’s Report on Internal Control Over Financial Reporting
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, 2020. 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, management
concluded that our internal control over financial reporting was effective as of December 31, 2020.
Our independent registered public accounting firm has issued a report on the effectiveness of our internal control over
financial reporting, which is below.
Changes in Internal Control Over Financial Reporting
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 December 31, 2020 that
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
107
Report of Independent Registered Public Accounting Firm
Regarding Internal Control Over Financial Reporting
Board of Directors and Stockholders
Lockheed Martin Corporation
Opinion on Internal Control over Financial Reporting
We have audited Lockheed Martin Corporation’s internal control over financial reporting as of December 31, 2020, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Lockheed Martin Corporation (the Corporation)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Corporation as of December 31, 2020 and 2019, the related
consolidated statements of earnings, comprehensive income, equity and cash flows for each of the three years in the period
ended December 31, 2020, and the related notes and our report dated January 28, 2021 expressed an unqualified opinion
thereon.
Basis for Opinion
The Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Corporation’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Tysons, Virginia
January 28, 2021
108
ITEM 9B.
Other Information
None.
ITEM 10. Directors, Executive Officers and Corporate Governance
PART III
The information concerning directors required by Item 401 of Regulation S-K is included under the caption “Proposal 1 -
Election of Directors” in our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of
the fiscal year to which this report relates (the 2021 Proxy Statement), and that information is incorporated by reference in this
Annual Report on Form 10-K (Form 10-K). Information concerning executive officers required by Item 401 of Regulation S-K
is located under Part I, Item 4(a) of this Form 10-K. The information required by Items 407(d)(4) and (d)(5) of Regulation S-K
is included under the captions “Committees of the Board of Directors” and “Audit Committee Report” in the 2021 Proxy
Statement, and that information is incorporated by reference in this Form 10-K.
We have had a written code of ethics in place since our formation in 1995. Setting the Standard, our Code of Ethics and
Business Conduct, applies to all our employees, including our principal executive officer, principal financial officer, and
principal accounting officer and controller, and to members of our Board of Directors. A copy of our Code of Ethics and
Business Conduct is available on our investor relations website: www.lockheedmartin.com/investor. Printed copies of our Code
of Ethics and Business Conduct may be obtained, without charge, by contacting Investor Relations, Lockheed Martin
Corporation, 6801 Rockledge Drive, Bethesda, Maryland 20817. We are required to disclose any change to, or waiver from, our
Code of Ethics and Business Conduct for our Chief Executive Officer and senior financial officers. We use our website to
disseminate this disclosure as permitted by applicable SEC rules.
ITEM 11.
Executive Compensation
The information required by Item 402 of Regulation S-K is included in the text and tables under the captions “Executive
Compensation” and “Director Compensation” in the 2021 Proxy Statement and that information is incorporated by reference in
this Form 10-K. The information required by Item 407(e)(5) of Regulation S-K is included under the caption “Compensation
Committee Report” in the 2021 Proxy Statement, and that information is incorporated by reference in this Form 10-K.
109
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 related to the security ownership of management and certain beneficial owners is
included under the heading “Security Ownership of Management and Certain Beneficial Owners” in the 2021 Proxy Statement,
and that information is incorporated by reference in this Annual Report on Form 10-K.
Equity Compensation Plan Information
The following table provides information about our equity compensation plans that authorize the issuance of shares of
Lockheed Martin common stock to employees and directors. The information is provided as of December 31, 2020.
Plan category
Equity compensation plans approved by
security holders (1)
Equity compensation plans not approved by
security holders (2)
Total
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
2,563,400
688,592
3,251,992
$
$
81.69
—
81.69
8,232,946
2,492,227
10,725,173
(1) Column (a) includes, as of December 31, 2020: 1,437,214 shares that have been granted as restricted stock units (RSUs), 595,190 shares that
could be earned pursuant to grants of performance stock units (PSUs) (assuming the maximum number of PSUs are earned and payable at the
end of the three-year performance period) and 427,886 shares granted as options under the Lockheed Martin Corporation 2020 Incentive
Performance Award Plan (2020 IPA Plan) or predecessor plans and 15,743 shares granted as options and 87,367 stock units payable in stock or
cash under the Lockheed Martin Corporation Amended and Restated Directors Equity Plan (Directors Plan) or predecessor plans for non-
employee directors. Column (c) includes, as of December 31, 2020, 7,837,448 shares available for future issuance under the 2020 IPA Plan as
options, stock appreciation rights, restricted stock awards, RSUs or PSUs and 395,498 shares available for future issuance under the Directors
Plan as stock options and stock units. Vested stock units are payable to directors upon their termination of service from our Board, except that
directors who have satisfied the stock ownership guidelines may elect to have payment of awards made after January 1, 2018 (together with
any dividend equivalents thereon) made on the first business day of April following the one-year anniversary of the grant. The weighted
average price does not take into account shares issued pursuant to RSUs or PSUs.
(2)
The shares represent annual incentive bonuses and Long-Term Incentive Performance (LTIP) payments earned and voluntarily deferred by
employees. The deferred amounts are payable under the Deferred Management Incentive Compensation Plan (DMICP). Deferred amounts are
credited as phantom stock units at the closing price of our stock on the date the deferral is effective. Amounts equal to our dividend are
credited as stock units at the time we pay a dividend. Following termination of employment, a number of shares of stock equal to the number
of stock units credited to the employee’s DMICP account are distributed to the employee. There is no discount or value transfer on the stock
distributed. Distributions may be made from newly issued shares or shares purchased on the open market. Historically, all distributions have
come from shares held in a separate trust and, therefore, do not further dilute our common shares outstanding. As a result, these shares also
were not considered in calculating the total weighted average exercise price in the table. Because the DMICP shares are outstanding, they
should be included in the denominator (and not the numerator) of a dilution calculation.
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by Item 404 and 407(a) of Regulation S-K is included under the captions “Corporate Governance
- Related Person Transaction Policy,” “Corporate Governance - Certain Relationships and Related Person Transactions of
Directors, Executive Officers and 5 Percent Stockholders,” and “Corporate Governance - Director Independence” in the 2021
Proxy Statement, and that information is incorporated by reference in this Form 10-K.
ITEM 14.
Principal Accounting Fees and Services
The information required by this Item 14 is included under the caption “Proposal 2 - Ratification of Appointment of
Independent Auditors” in the 2021 Proxy Statement, and that information is incorporated by reference in this Form 10-K.
110
ITEM 15.
Exhibits and Financial Statement Schedules
List of financial statements filed as part of this Form 10-K
PART IV
The following financial statements of Lockheed Martin Corporation and consolidated subsidiaries are included in Item 8 of
this Annual Report on Form 10-K (Form 10-K) at the page numbers referenced below:
Consolidated Statements of Earnings – Years ended December 31, 2020, 2019 and 2018.................................................
Consolidated Statements of Comprehensive Income – Years ended December 31, 2020, 2019 and 2018..........................
Consolidated Balance Sheets – At December 31, 2020 and 2019........................................................................................
Consolidated Statements of Cash Flows – Years ended December 31, 2020, 2019 and 2018.............................................
Consolidated Statements of Equity – Years ended December 31, 2020, 2019 and 2018.....................................................
Notes to Consolidated Financial Statements.........................................................................................................................
Page
67
68
69
70
71
72
The report of Lockheed Martin Corporation’s independent registered public accounting firm with respect to the above-
referenced financial statements and their report on internal control over financial reporting are included in Item 8 and Item 9A
of this Form 10-K at the page numbers referenced below. Their consent appears as Exhibit 23 of this Form 10-K.
Report of Independent Registered Public Accounting Firm on the Audited Consolidated Financial Statements...............
Report of Independent Registered Public Accounting Firm Regarding Internal Control Over Financial Reporting..........
List of financial statement schedules filed as part of this Form 10-K
Page
64
108
All schedules have been omitted because they are not applicable, not required or the information has been otherwise
supplied in the consolidated financial statements or notes to consolidated financial statements.
Exhibits
2.1
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
Agreement and Plan of Merger by and among Lockheed Martin Corporation, Mizar Sub, Inc. and Aerojet
Rocketdyne Holdings, Inc., dated as of December 20, 2020 (incorporated by reference to Exhibit 2.1 to Lockheed
Martin Corporation’s Current Report on Form 8-K filed with the SEC on December 21, 2020). The schedules and
exhibits to the Merger Agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K, and such
schedules and exhibits will be furnished to the SEC upon request.
Charter of Lockheed Martin Corporation, as amended by Articles of Amendment dated April 23, 2009
(incorporated by reference to Exhibit 3.1 to Lockheed Martin Corporation’s Annual Report on Form 10-K for the
year ended December 31, 2010).
Bylaws of Lockheed Martin Corporation, as amended and restated effective April 8, 2020 (incorporated by
reference to Exhibit 3.1 to Lockheed Martin Corporation’s Current Report on Form 8-K filed with the SEC on
April 9, 2020).
Description of Lockheed Martin Corporation Common Stock (incorporated by reference to Exhibit 4.1 to
Lockheed Martin Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019).
Indenture, dated May 15, 1996, among Lockheed Martin Corporation, Lockheed Martin Tactical Systems, Inc.
and First Trust of Illinois, National Association as Trustee (incorporated by reference to Exhibit 4.1 to Lockheed
Martin Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017).
Indenture, dated as of August 30, 2006, between Lockheed Martin Corporation and The Bank of New York
(incorporated by reference to Exhibit 99.1 to Lockheed Martin Corporation’s Current Report on Form 8-K filed
with the SEC on August 31, 2006).
Indenture, dated as of March 11, 2008, between Lockheed Martin Corporation and The Bank of New York
(incorporated by reference to Exhibit 4.1 to Lockheed Martin Corporation’s Current Report on Form 8-K filed
with the SEC on March 12, 2008).
Indenture, dated as of May 25, 2010, between Lockheed Martin Corporation and U.S. Bank National Association
(incorporated by reference to Exhibit 99.1 to Lockheed Martin Corporation’s Current Report on Form 8-K filed
with the SEC on May 25, 2010).
Indenture, dated as of September 6, 2011, between Lockheed Martin Corporation and U.S. Bank National
Association (incorporated by reference to Exhibit 4.1 to Lockheed Martin Corporation’s Registration Statement
on Form S-3 filed with the SEC on April 24, 2020).
111
4.7
4.8
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
Indenture, dated as of December 14, 2012, between Lockheed Martin Corporation and U.S. Bank National
Association (incorporated by reference to Exhibit 99.1 to Lockheed Martin Corporation’s Current Report on
Form 8-K filed with the SEC on December 17, 2012).
Indenture dated as of September 7, 2017, between Lockheed Martin Corporation and U.S. Bank National
Association, as trustee (incorporated by reference to Exhibit 99.1 of Lockheed Martin's Current Report on Form
8-K filed with the SEC on September 7, 2012).
See also Exhibits 3.1 and 3.2.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of instruments defining the rights of certain holders of
long-term debt are not filed. The Corporation will furnish copies thereof to the SEC upon request.
Five-Year Credit Agreement dated as of August 24, 2018, among Lockheed Martin Corporation, the lenders
listed therein, and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to
Lockheed Martin Corporation’s Current Report on Form 8-K filed with the SEC on August 24, 2018).
Extension Agreement dated as of August 24, 2019 by among Lockheed Martin Corporation, the lenders listed
therein, and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to
Lockheed Martin Corporation’s Current Report on Form 8-K filed with the SEC on August 26, 2019).
Non-Employee Director Compensation Summary (incorporated by reference to Exhibit 10.1 to Lockheed Martin
Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2019).
Lockheed Martin Corporation Directors Deferred Compensation Plan, as amended (incorporated by reference to
Exhibit 10.2 to Lockheed Martin Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2008).
Lockheed Martin Corporation Directors Equity Plan, as amended (incorporated by reference to Exhibit 10.1 to
Lockheed Martin Corporation’s Current Report on Form 8-K filed with the SEC on November 2, 2006).
Lockheed Martin Corporation Amended and Restated Directors Equity Plan (incorporated by reference to Exhibit
10.1 to Lockheed Martin Corporation’s Current Report on Form 8-K filed with the SEC on April 26, 2018).
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.34 to Lockheed Martin
Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009).
Lockheed Martin Corporation Supplemental Savings Plan, as amended and restated effective January 1, 2015
(incorporated by reference to Exhibit 10.4 to Lockheed Martin Corporation’s Quarterly Report on Form 10-Q for
the quarter ended March 29, 2015).
Lockheed Martin Corporation Nonqualified Capital Accumulation Plan, as amended and restated generally
effective as of December 18, 2015 (incorporated by reference to Exhibit 10.22 to Lockheed Martin Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2015).
Amendment to Lockheed Martin Corporation Supplemental Savings Plan and Lockheed Martin Corporation
Nonqualified Capital Accumulation Program, dated December 18, 2019 (incorporated by reference to Exhibit
10.31 to Lockheed Martin Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019).
Lockheed Martin Corporation Deferred Management Incentive Compensation Plan, as amended and restated
effective January 1, 2020 (incorporated by reference to Exhibit 10.8 to Lockheed Martin Corporation’s Annual
Report on Form 10-K for the year ended December 31, 2019).
Amendment No.1 to Lockheed Martin Corporation Deferred Management Incentive Compensation Plan, as
amended and restated effective January 1, 2020.
Lockheed Martin Corporation Amended and Restated 2006 Management Incentive Compensation Plan
(Performance Based), amended and restated effective January 1, 2019 (incorporated by reference to Exhibit 10.4
to Lockheed Martin Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019).
Lockheed Martin Corporation Amended and Restated 2003 Incentive Performance Award Plan (incorporated by
reference to Exhibit 10.17 to Lockheed Martin Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2008).
Form of Stock Option Award Agreement under the Lockheed Martin Corporation 2003 Incentive Performance
Award Plan (incorporated by reference to Exhibit 99.3 of Lockheed Martin Corporation’s Current Report on
Form 8-K filed with the SEC on February 3, 2011).
Lockheed Martin Corporation 2011 Incentive Performance Award Plan, as amended and restated January 24,
2019 (incorporated by reference to Exhibit 10.13 to Lockheed Martin Corporation’s Annual Report on Form 10-
K for the year ended December 31, 2018).
112
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
Forms of Stock Option Award Agreements under the Lockheed Martin Corporation 2011 Incentive 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).
Form of 2018 Annual Restricted Stock Unit Award Agreement under Lockheed Martin Corporation 2011
Incentive Performance Award Plan (incorporated by reference to Exhibit 10.1 to Lockheed Martin Corporation’s
Quarterly Report on Form 10-Q for the quarter ended March 25, 2018).
Form of Performance Stock Unit Award Agreement (2018 - 2020 Performance Period) under Lockheed Martin
Corporation 2011 Incentive Performance Award Plan (incorporated by reference to Exhibit 10.2 to Lockheed
Martin Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 25, 2018).
Form of Long-Term Incentive Performance Award Agreement (2018 - 2020 Performance Period) under
Lockheed Martin Corporation 2011 Incentive Performance Award Plan (incorporated by reference to Exhibit 10.3
to Lockheed Martin Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 25, 2018).
Form of 2019 Annual Restricted Stock Unit Award Agreement under the Lockheed Martin Corporation 2011
Incentive Performance Award Plan (incorporated by reference to Exhibit 10.1 to Lockheed Martin Corporation’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2019).
Form of Performance Stock Unit Award Agreement (2019 - 2021 Performance Period) under the Lockheed
Martin Corporation 2011 Incentive Performance Award Plan (incorporated by reference to Exhibit 10.2 to
Lockheed Martin Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019).
Form of Long Term Incentive Performance Award Agreement (2019 - 2021 Performance Period) under the
Lockheed Martin Corporation 2011 Incentive Performance Award Plan (incorporated by reference to Exhibit 10.3
to Lockheed Martin Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019).
Form of Retention Restricted Stock Unit Award Agreement under the Lockheed Martin Corporation 2011
Incentive Performance Award Plan (incorporated by reference to Exhibit 10.4 to Lockheed Martin Corporation’s
Quarterly Report on Form 10-Q for the quarter ended March 29, 2020).
Form of 2020 Annual Restricted Stock Unit Award Agreement under the Lockheed Martin Corporation 2011
Incentive Performance Award Plan (incorporated by reference to Exhibit 10.1 to Lockheed Martin Corporation’s
Quarterly Report on Form 10-Q for the quarter ended March 29, 2020).
Form of Performance Stock Unit Award Agreement (2020 - 2022 Performance Period) under the Lockheed
Martin Corporation 2011 Incentive Performance Award Plan (incorporated by reference to Exhibit 10.2 to
Lockheed Martin Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2020).
Form of Long Term Incentive Performance Award Agreement (2020 - 2022 Performance Period) under the
Lockheed Martin Corporation 2011 Incentive Performance Award Plan (incorporated by reference to Exhibit 10.3
to Lockheed Martin Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2020).
Lockheed Martin Corporation 2020 Incentive Performance Award Plan (incorporated by reference to Exhibit 10.1
to Lockheed Martin Corporation’s Current Report on Form 8-K filed with the SEC on April 23, 2020).
Form of 2020 Annual Restricted Stock Unit Award Agreement under the Lockheed Martin Corporation 2020
Incentive Performance Award Plan (incorporated by reference to Exhibit 10.2 to Lockheed Martin Corporation’s
Quarterly Report on Form 10-Q for the quarter ended June 28, 2020).
Form of Performance Stock Unit Award Agreement (2020 - 2022 Performance Period) under the Lockheed
Martin Corporation 2020 Incentive Performance Award Plan (incorporated by reference to Exhibit 10.3 to
Lockheed Martin Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2020).
Form of Long Term Incentive Performance Award Agreement (2020 - 2022 Performance Period) under the
Lockheed Martin Corporation 2020 Incentive Performance Award Plan (incorporated by reference to Exhibit 10.4
to Lockheed Martin Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2020).
CEO New Hire Restricted Stock Unit Award Agreement under the Lockheed Martin Corporation 2020 Incentive
Performance Award Plan (incorporated by reference to Exhibit 10.5 to Lockheed Martin Corporation’s Quarterly
Report on Form 10-Q for the quarter ended June 28, 2020).
Amendment to Outstanding Long-Term Incentive Performance and Performance Stock Unit Award Agreements
(incorporated by reference to Exhibit 10.2 to Lockheed Martin Corporation’s Quarterly Report on Form 10-Q for
the quarter ended September 27, 2020).
Lockheed Martin Corporation Consolidated Supplemental Retirement Benefit Plan, as amended and restated
effective October 5, 2018 (incorporated by reference to Exhibit 10.26 to Lockheed Martin Corporation’s Annual
Report on Form 10-K for the year ended December 31, 2018).
113
10.35
10.36
10.37
10.38
10.39
21
23
24
31.1
31.2
32
Lockheed Martin Corporation Executive Severance Plan, as amended and restated effective December 1, 2016
(incorporated by reference to Exhibit 10.26 to Lockheed Martin Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2016).
Amendment No. 1 to Lockheed Martin Corporation Executive Severance Plan, as amended and restated effective
December 1, 2016 (incorporated by reference to Exhibit 10.1 to Lockheed Martin Corporation’s Quarterly Report
on Form 10-Q for the quarter ended June 24, 2018).
Amendment No. 2 to Lockheed Martin Corporation Executive Severance Plan, as amended and restated effective
December 1, 2016 (incorporated by reference to Exhibit 10.6 to Lockheed Martin Corporation’s Quarterly Report
on Form 10-Q for the quarter ended June 28, 2020).
Amendment No. 3 to Lockheed Martin Corporation Executive Severance Plan, as amended and restated effective
December 1, 2016 (incorporated by reference to Exhibit 10.1 to Lockheed Martin Corporation’s Quarterly Report
on Form 10-Q for the quarter ended September 27, 2020).
Offer Letter dated March 12, 2020 to James D. Taiclet, Jr. (incorporated by reference to Exhibit 10.5 to Lockheed
Martin Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2020).
Subsidiaries of Lockheed Martin Corporation.
Consent of Independent Registered Public Accounting Firm.
Powers of Attorney.
Certification of James D. Taiclet pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Kenneth R. Possenriede pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of James D. Taiclet and Kenneth R. Possenriede Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document
101.SCH 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
104
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document
contained in Exhibit 101
*
Exhibits 10.3 through 10.39 constitute management contracts or compensatory plans or arrangements.
ITEM 16.
Form 10-K Summary
None.
114
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date: January 28, 2021
Lockheed Martin Corporation
(Registrant)
By:
/s/ Brian P. Colan
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 following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures
/s/ James D. Taiclet
James D. Taiclet
/s/ Kenneth R. Possenriede
Kenneth R. Possenriede
/s/ Brian P. Colan
Brian P. Colan
*
Marillyn A. Hewson
*
Daniel F. Akerson
*
David B. Burritt
*
Bruce A. Carlson
*
Joseph F. Dunford, Jr.
*
James O. Ellis, Jr.
*
Thomas J. Falk
*
Ilene S. Gordon
*
Vicki A. Hollub
*
Jeh C. Johnson
*
Debra L. Reed-Klages
Titles
President and Chief Executive Officer
(Principal Executive Officer)
Date
January 28, 2021
Chief Financial Officer (Principal Financial
Officer)
January 28, 2021
Vice President, Controller, and Chief Accounting
Officer (Principal Accounting Officer)
January 28, 2021
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
January 28, 2021
January 28, 2021
January 28, 2021
January 28, 2021
January 28, 2021
January 28, 2021
January 28, 2021
January 28, 2021
January 28, 2021
January 28, 2021
January 28, 2021
*By Maryanne R. Lavan pursuant to a Power of Attorney executed by the Directors listed above, which has been filed
with this Annual Report on Form 10-K.
Date: January 28, 2021
By:
/s/ Maryanne R. Lavan
Maryanne R. Lavan
Attorney-in-fact
115
1.
2.
3.
4.
Exhibit 31.1
CERTIFICATION OF JAMES D. TAICLET PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James D. Taiclet, certify that:
I have reviewed this Annual Report on Form 10-K of Lockheed Martin Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, 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 and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting;
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize, and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: January 28, 2021
/s/ James D. Taiclet
James D. Taiclet
Chief Executive Officer
1.
2.
3.
4.
Exhibit 31.2
CERTIFICATION OF KENNETH R. POSSENRIEDE PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kenneth R. Possenriede, certify that:
I have reviewed this Annual Report on Form 10-K of Lockheed Martin Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, 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 and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting;
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize, and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: January 28, 2021
/s/ Kenneth R. Possenriede
Kenneth R. Possenriede
Chief Financial Officer
Exhibit 32
CERTIFICATION OF JAMES D. TAICLET AND KENNETH R. POSSENRIEDE PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Lockheed Martin Corporation (the “Corporation”) on Form 10-K for the period
ended December 31, 2020, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I,
James D. Taiclet, Chief Executive Officer of the Corporation, and I, Kenneth R. Possenriede, Chief Financial Officer of the
Corporation, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Corporation.
/s/ James D. Taiclet
James D. Taiclet
Chief Executive Officer
/s/ Kenneth R. Possenriede
Kenneth R. Possenriede
Chief Financial Officer
Date: January 28, 2021
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NON-GAAP DEFINITIONS AND RECONCILIATION OF NON-GAAP MEASURES TO GAAP
MEASURES
This annual report contains non-generally accepted accounting principles (non-GAAP) financial measures. While we
believe that these non-GAAP financial measures may be useful in evaluating the financial performance of Lockheed
Martin, this information should be considered supplemental and is not a substitute for financial information prepared in
accordance with GAAP. In addition, our definitions for non-GAAP measures may differ from similarly titled measures used
by other companies or analysts.
Segment Operating Profit / Margin
Segment Operating Profit represents operating profit from our business segments before unallocated income and
expense. This measure is used by our senior management in evaluating the performance of our business segments and
is a performance goal in our annual incentive plan. The caption “Total Unallocated Items” reconciles Segment Operating
Profit to Consolidated Operating Profit. Segment Margin is calculated by dividing Segment Operating Profit by Net Sales.
In millions
Net sales
Consolidated operating profit
Less: Total unallocated items
Business segment operating profit (Non-GAAP)
Consolidated operating margin
Segment operating margin (Non-GAAP)
2020
$ 65,398
8,644
$
1,492
7,152
$
2019
$ 59,812
8,545
$
1,971
6,574
$
2018
$ 53,762
7,334
$
1,457
5,877
$
13.2 %
10.9 %
14.3 %
11.0 %
13.6 %
10.9 %
GENERAL INFORMATION
As of December 31, 2020, there were approximately 24,993 holders of record of Lockheed Martin common stock and
280,004,654 shares outstanding.
TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT
Computershare Trust Company, N.A.
Shareholder Services
P.O. Box 505000
Louisville, KY 40233
Telephone: 1-877-498-8861
TDD for the hearing impaired: 1-800-952-9245
Internet: www.computershare.com/investor
Overnight correspondence should be mailed to:
Computershare Trust Company, N.A.
462 South 4th Street, Suite 1600
Louisville, KY 40202
ELECTRONIC DELIVERY
Stockholders are encouraged to enroll in electronic delivery to receive all stockholder communications, including proxy
voting materials, electronically, by visiting Shareholder Services at www.lockheedmartin.com/investor
DIRECT STOCK PURCHASE AND DIVIDEND REINVESTMENT PLAN
Lockheed Martin Direct Invest is a convenient direct 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
Computershare Trust Company, N.A. at 1-877-498-8861, or view plan materials online and enroll electronically at
www.computershare.com/investor
INDEPENDENT AUDITORS
Ernst & Young LLP
1775 Tysons Boulevard
Tysons, VA 22102
Telephone: 703-747-1000
COMMON STOCK
Stock symbol: LMT
Listed: New York Stock Exchange (NYSE)
2020 FORM 10-K
Our 2020 Form 10-K is included in this Annual Report in its entirety with the exception of certain exhibits. All of the exhibits
may be obtained on our Investor Relations homepage at www.lockheedmartin.com/investor or by accessing our filings
with the U.S. Securities and Exchange Commission. In addition, stockholders may obtain a paper copy of any exhibit by
writing to:
Gregory M. Gardner - Vice President, Investor Relations
Lockheed Martin Corporation
Investor Relations Department MP 279
6801 Rockledge Drive
Bethesda, MD 20817
Lockheed Martin financial data and requests for printed materials may also be obtained on our website at
www.lockheedmartin.com/investor
Lockheed Martin Corporation
2020 Annual Report
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, MD 20817
www.lockheedmartin.com
This report is printed on paper that is at least 10% post consumer
recycled fibers, is manufactured elemental chlorine free, and is
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