

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

~~(State or other jurisdiction of~~

~~incorporation or organization)~~

(~~301~~) (301) 897-6000

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



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

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

There were ~~282,397,501~~279,542,050 shares of our common stock, $1 par value per share, outstanding as of ~~June 30, 2019.~~

Lockheed Martin Corporation

For the Quarterly Period Ended June ~~30, 2019~~28, 2020

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Lockheed Martin Corporation

Consolidated Statements of Earnings

(unaudited; in millions, except per share data)

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

Lockheed Martin Corporation

Consolidated Statements of Comprehensive Income

(unaudited; in millions)

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

Lockheed Martin Corporation

Consolidated Balance Sheets

(in millions, except par value)

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

Lockheed Martin Corporation

Consolidated Statements of Cash Flows

(unaudited; in millions)

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

Lockheed Martin Corporation

Consolidated Statements of Equity

For the Quarters Ended June ~~30, 2019~~28, 2020 and June ~~24, 2018~~30, 2019

(unaudited; in millions)

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

Lockheed Martin Corporation

Consolidated Statements of Equity

For the Six Months Ended June ~~30, 2019~~28, 2020 and June ~~24, 2018~~30, 2019

(unaudited; in millions)

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

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited)

NOTE 1 – BASIS OF PRESENTATION

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

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

We close our books and records on the last Sunday of the calendar quarter, which was on June 28 for the second quarter of 2020 and June 30 for the second quarter of 2019, ~~and June 24 for the second quarter of 2018,~~ to align our financial closing with our business processes. The consolidated financial statements and tables of financial information included herein are labeled based on that convention. This practice only affects interim periods as our fiscal year ends on December 31.

We adopted Accounting Standards Update (ASU) ~~2016-02,~~2016-13, ~~Leases~~Financial Instruments—Credit Losses (Topic ~~842)~~326): Measurement of Credit Losses on Financial Instruments, effective January 1, ~~2019,~~2020 using the ~~optional transition method whereby~~modified retrospective approach. The new standard changes how we ~~applied~~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 ~~lease~~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.

We adopted ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements For Defined Benefit Plans, effective January 1, 2020. The new standard modifies the annual disclosure requirements ~~under ASU 2016-02 through~~for employers that sponsor defined benefit pension or other postretirement plans. The guidance requires disclosure changes to be presented on a ~~cumulative-effect adjustment, which after completing our implementation analysis, resulted in no adjustment~~retrospective basis. As this standard relates only to financial disclosures, its adoption did not have an impact to our ~~January 1, 2019 beginning retained earnings balance. Consequently, periods prior to January 1, 2019 are not restated for the adoption~~results of ASU 2016-02. See “Note 6 – Leases” and “Note 12 – Recent Accounting Pronouncements” for more information regarding our adoption of this standard. Other than the changes in our accounting policies related to adoption of ASU 2016-02, we followed the accounting policies disclosed in the consolidatedoperations, financial ~~statements included in our Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Form 10-K) filed with the SEC.~~position or cash flows.

The results of operations for the interim periods presented are not necessarily indicative of results to be expected for the full year or future periods. Unless otherwise noted, we present all per share amounts cited in these consolidated financial statements on a “per diluted share” basis. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our ~~2018~~Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2019 (2019 Form 10-K).

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

NOTE 2 – EARNINGS PER COMMON SHARE

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

Quarters Ended Six Months Ended
June 30,
2019 June 24,
2018 June 30,
2019 June 24,
2018
Weighted average common shares outstanding for basic computations 282.2
285.0
282.3
285.2

Weighted average dilutive effect of equity awards 1.7
2.1
1.8
2.3

Weighted average common shares outstanding for diluted computations 283.9
287.1
284.1
287.5


	Quarters Ended						Six Months Ended
	June 28, 2020		June 30, 2019		June 28, 2020			June 30, 2019
Weighted average common shares outstanding for basic computations	279.8	282.2		280.5		282.3
Weighted average dilutive effect of equity awards	1.0	1.7		1.2		1.8
Weighted average common shares outstanding for diluted computations	280.8	283.9		281.7		284.1

We compute basic and diluted earnings per common share by dividing net earnings by the respective weighted average number of common shares outstanding for the periods presented. Our calculation of diluted earnings per

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~~Lockheed Martin Corporation~~

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

common share also includes the dilutive effects for the assumed vesting of outstanding restricted stock units (RSUs) and performance stock units (PSUs) and exercise of outstanding stock options based on the treasury stock method. There were no0 significant anti-dilutive equity awards during the quarters and six months ended June ~~30, 2019~~28, 2020 or June ~~24, 2018.~~30, 2019.

NOTE 3 – INFORMATION ON BUSINESS SEGMENTS

We operate in ~~four~~4 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.

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.

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 11~~“Note 10 – ~~Other~~”Other” for a discussion related to certain factors that may impact the comparability of net sales and operating profit of our business segments.

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

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

FAS/CAS operating adjustment ^(a)

Quarters Ended Six Months Ended
June 30,
2019 June 24,
2018 June 30,
2019 June 24,
2018
Net sales
Aeronautics $ 5,550
$ 5,321
$ 11,134
$ 9,719

Missiles and Fire Control 2,411
2,085
4,761
3,762

Rotary and Mission Systems 3,768
3,566
7,530
6,789

Space 2,698
2,426
5,338
4,763

Total net sales $ 14,427
$ 13,398
$ 28,763
$ 25,033

Operating profit
Aeronautics $ 592
$ 572
$ 1,177
$ 1,046

Missiles and Fire Control 327
279
744
540

Rotary and Mission Systems 347
341
726
652

Space 288
274
622
538

Total business segment operating profit 1,554
1,466
3,269
2,776

Unallocated items
FAS/CAS operating adjustment ^(a)
512
451
1,024
902

Stock-based compensation (67 ) (60 ) (104 ) (98 )
Severance and restructuring charges ^(b)
—
(96 ) —
(96 )
Other, net 9
34
102
36

Total unallocated items 454
329
1,022
744

Total consolidated operating profit $ 2,008
$ 1,795
$ 4,291
$ 3,520

Intersegment sales
Aeronautics $ 47
$ 27
$ 89
$ 52

Missiles and Fire Control 144
113
265
208

Rotary and Mission Systems 538
504
1,118
965

Space 85
48
153
93

Total intersegment sales $ 814
$ 692
$ 1,625
$ 1,318

^(a)The FAS/CAS operating adjustment represents the difference between the service cost component of financial accounting standards (FAS) pension income (expense) and total pension costs recoverable on U.S. Government contracts as determined in accordance with CAS.

^(b)Other, net for the quarter and six months ended June 28, 2020 includes a non-cash impairment charge of $128 million ($96 million, or $0.34 per share, after tax) recognized on our investment in the international equity method investee, Advanced Military Maintenance, Repair and Overhaul Center (AMMROC) that we entered into an agreement to sell in July 2020.

The FAS/CAS operating adjustment represents the difference between the service cost component of FAS pension expense and total pension costs recoverable on U.S. Government contracts as determined in accordance with CAS.

Unallocated items for the quarter and six months ended June 24, 2018 include severance and restructuring charges totaling $96 million ($76 million, or $0.26 per share, after tax) associated with planned workforce reductions and the consolidation of certain operations at our RMS business segment. See “Note 11 – Other” (under the caption “Severance and Restructuring Charges”) for more information.

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

Our total net FAS/CAS pension adjustment for the quarters and six months ended June 28, 2020 and June 30, 2019, ~~and~~ ~~June 24, 2018~~, including the service and non-service cost components of FAS pension ~~expense~~income (expense) for our qualified defined benefit pension plans, were as follows (in millions):

Quarters Ended Six Months Ended
June 30,
2019 June 24,
2018 June 30,
2019 June 24,
2018
Total FAS expense and CAS costs
FAS pension expense $ (273 ) $ (357 ) $ (546 ) $ (713 )
Less: CAS pension cost 641
609
1,282
1,217

Net FAS/CAS pension adjustment $ 368
$ 252
$ 736
$ 504

Service and non-service cost reconciliation
FAS pension service cost $ (129 ) $ (158 ) $ (258 ) $ (315 )
Less: CAS pension cost 641
609
1,282
1,217

FAS/CAS operating adjustment 512
451
1,024
902

Non-operating FAS pension cost^(a)
(144 ) (199 ) (288 ) (398 )
Net FAS/CAS pension adjustment $ 368
$ 252
$ 736
$ 504

The non-service cost components of net periodic benefit cost relate only to our qualified defined benefit pension plans. In addition to the non-service cost components in the table above, we incurred similar costs for our other postretirement benefit plans of $27 million and $57 million for the quarter and six months ended June 30, 2019 and $16 million and $33 million for the quarter and six months ended~~June 24, 2018.~~

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 ~~expense~~income (expense) and total CAS pension cost. The non-service FAS pension ~~cost components are~~income (expense) component is included in other non-operating ~~expense,~~income (expense), net in our consolidated statements of earnings. ~~The net FAS/CAS pension adjustment increases or decreases~~As a result, to the extent that CAS pension cost ~~to equal total~~exceeds the service cost component of FAS pension ~~cost (both~~income (expense), we have a favorable FAS/CAS operating adjustment.

We expect to have FAS pension income in 2020, compared to FAS pension expense in prior periods. We no longer have service costs for certain of our plans 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. See “Note 6 – Postretirement Benefit Plans” for additional information regarding the corporation’s FAS pension expense or income and ~~non-service).~~CAS pension cost.

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

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

Quarter Ended June 30, 2019
Aeronautics MFC RMS Space Total
Net sales
Products $ 4,740
$ 1,963
$ 3,023
$ 2,277
$ 12,003
Services 810
448
745
421
2,424
Total net sales $ 5,550
$ 2,411
$ 3,768
$ 2,698
$ 14,427
Net sales by contract type
Fixed-price $ 4,040
$ 1,444
$ 2,526
$ 535
$ 8,545
Cost-reimbursable 1,510
967
1,242
2,163
5,882
Total net sales $ 5,550
$ 2,411
$ 3,768
$ 2,698
$ 14,427
Net sales by customer
U.S. Government $ 3,476
$ 1,900
$ 2,675
$ 2,332
$ 10,383
International ^(a)
2,010
475
974
360
3,819
U.S. commercial and other 64
36
119
6
225
Total net sales $ 5,550
$ 2,411
$ 3,768
$ 2,698
$ 14,427
Net sales by geographic region
United States $ 3,540
$ 1,936
$ 2,794
$ 2,338
$ 10,608
Asia Pacific 784
86
418
23
1,311
Europe 847
103
143
328
1,421
Middle East 335
272
247
9
863
Other 44
14
166
—
224
Total net sales $ 5,550
$ 2,411
$ 3,768
$ 2,698
$ 14,427

Six Months Ended June 30, 2019
Aeronautics MFC RMS Space Total
Net sales
Products $ 9,536
$ 3,879
$ 6,082
$ 4,476
$ 23,973
Services 1,598
882
1,448
862
4,790
Total net sales $ 11,134
$ 4,761
$ 7,530
$ 5,338
$ 28,763
Net sales by contract type
Fixed-price $ 8,210
$ 2,979
$ 5,145
$ 1,058
$ 17,392
Cost-reimbursable 2,924
1,782
2,385
4,280
11,371
Total net sales $ 11,134
$ 4,761
$ 7,530
$ 5,338
$ 28,763
Net sales by customer
U.S. Government $ 6,911
$ 3,533
$ 5,350
$ 4,568
$ 20,362
International ^(a)
4,105
1,145
1,969
755
7,974
U.S. commercial and other 118
83
211
15
427
Total net sales $ 11,134
$ 4,761
$ 7,530
$ 5,338
$ 28,763
Net sales by geographic region
United States $ 7,029
$ 3,616
$ 5,561
$ 4,583
$ 20,789
Asia Pacific 1,690
208
748
31
2,677
Europe 1,645
225
341
709
2,920
Middle East 672
685
532
15
1,904
Other 98
27
348
—
473
Total net sales $ 11,134
$ 4,761
$ 7,530
$ 5,338
$ 28,763


	Six Months Ended June 28, 2020
	Aeronautics		MFC		RMS		Space		Total
Net sales
Products	$	10,929	$	4,697	$	6,245	$	4,867	$	26,738
Services	1,943		723		1,540		927		5,133
Total net sales	$	12,872	$	5,420	$	7,785	$	5,794	$	31,871
Net sales by contract type
Fixed-price	$	9,051	$	3,595	$	5,121	$	1,002	$	18,769
Cost-reimbursable	3,821		1,825		2,664		4,792		13,102
Total net sales	$	12,872	$	5,420	$	7,785	$	5,794	$	31,871
Net sales by customer
U.S. Government	$	9,385	$	4,053	$	5,714	$	5,016	$	24,168
International ^(a)	3,453		1,359		1,866		750		7,428
U.S. commercial and other	34		8		205		28		275
Total net sales	$	12,872	$	5,420	$	7,785	$	5,794	$	31,871
Net sales by geographic region
United States	$	9,419	$	4,061	$	5,919	$	5,044	$	24,443
Asia Pacific	1,348		147		782		44		2,321
Europe	1,454		338		337		712		2,841
Middle East	541		849		420		(6)		1,804
Other	110		25		327		—		462
Total net sales	$	12,872	$	5,420	$	7,785	$	5,794	$	31,871

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

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

Quarter Ended June 24, 2018
Aeronautics MFC RMS Space Total
Net sales
Products $ 4,511
$ 1,709
$ 2,904
$ 2,026
$ 11,150
Services 810
376
662
400
2,248
Total net sales $ 5,321
$ 2,085
$ 3,566
$ 2,426
$ 13,398
Net sales by contract type
Fixed-price $ 3,906
$ 1,395
$ 2,450
$ 460
$ 8,211
Cost-reimbursable 1,415
690
1,116
1,966
5,187
Total net sales $ 5,321
$ 2,085
$ 3,566
$ 2,426
$ 13,398
Net sales by customer
U.S. Government $ 3,444
$ 1,502
$ 2,608
$ 2,070
$ 9,624
International ^(a)
1,835
542
822
344
3,543
U.S. commercial and other 42
41
136
12
231
Total net sales $ 5,321
$ 2,085
$ 3,566
$ 2,426
$ 13,398
Net sales by geographic region
United States $ 3,486
$ 1,543
$ 2,744
$ 2,082
$ 9,855
Asia Pacific 786
125
301
31
1,243
Europe 678
46
224
332
1,280
Middle East 320
364
143
(19 ) 808
Other 51
7
154
—
212
Total net sales $ 5,321
$ 2,085
$ 3,566
$ 2,426
$ 13,398

Six Months Ended June 24, 2018
Aeronautics MFC RMS Space Total
Net sales
Products $ 8,281
$ 3,062
$ 5,621
$ 3,948
$ 20,912
Services 1,438
700
1,168
815
4,121
Total net sales $ 9,719
$ 3,762
$ 6,789
$ 4,763
$ 25,033
Net sales by contract type
Fixed-price $ 7,121
$ 2,507
$ 4,658
$ 860
$ 15,146
Cost-reimbursable 2,598
1,255
2,131
3,903
9,887
Total net sales $ 9,719
$ 3,762
$ 6,789
$ 4,763
$ 25,033
Net sales by customer
U.S. Government $ 6,209
$ 2,590
$ 4,964
$ 3,940
$ 17,703
International ^(a)
3,412
1,096
1,603
800
6,911
U.S. commercial and other 98
76
222
23
419
Total net sales $ 9,719
$ 3,762
$ 6,789
$ 4,763
$ 25,033
Net sales by geographic region
United States $ 6,307
$ 2,666
$ 5,186
$ 3,963
$ 18,122
Asia Pacific 1,540
223
625
54
2,442
Europe 1,186
115
379
758
2,438
Middle East 577
744
314
(12 ) 1,623
Other 109
14
285
—
408
Total net sales $ 9,719
$ 3,762
$ 6,789
$ 4,763
$ 25,033

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

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

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

June 30,
2019 December 31,
2018
Assets
Aeronautics $ 9,750
$ 8,435

Missiles and Fire Control 5,368
5,017

Rotary and Mission Systems 18,934
18,333

Space 5,912
5,445

Total business segment assets 39,964
37,230

Corporate assets ^(a)
7,876
7,646

Total assets $ 47,840
$ 44,876

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 total consolidated net sales for both the quarter and six months ended June 28, 2020 and 26% of our total consolidated net sales for both the quarter and six months ended June 30, ~~2019 and 27% and 26%~~2019.

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


	June 28, 2020				December 31, 2019
Assets
Aeronautics	$	9,801	$	9,109
Missiles and Fire Control	5,257		5,030
Rotary and Mission Systems	18,498		18,751
Space	6,221		5,844
Total business segment assets	39,777		38,734
Corporate assets ^(a)	9,826		8,794
Total assets	$	49,603	$	47,528

^(a)Corporate assets primarily include cash and cash equivalents, deferred income taxes, assets for the ~~quarter~~portion of environmental costs that are probable of future recovery and ~~six months endedJune 24, 2018.~~investments held in a separate trust.

NOTE 4 – CONTRACT ASSETS AND LIABILITIES

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

Contract assets increased ~~$916~~$727 million during the six months ended June ~~30, 2019,~~28, 2020, primarily due to the recognition of revenue related to the satisfaction or partial satisfaction of performance obligations during the six months ended June ~~30, 2019~~28, 2020 for which we have not yet billed our customers. There were no0 significant credit or impairment losses related to our contract assets during the quarters and six months ended June ~~30, 2019~~28, 2020 and June ~~24, 2018.~~30, 2019.

Contract liabilities increased ~~$275~~$427 million during the six months ended June ~~30, 2019,~~28, 2020, primarily due to payments received in ~~advance~~excess of revenue recognized on these performance obligations. During the quarter and six months ended June 28, 2020, we recognized $1.0 billion and $2.6 billion of our ~~satisfaction or partial satisfaction of these performance obligations.~~contract liabilities that existed at December 31, 2019 as revenue. During the quarter and six months ended June 30, 2019, we recognized $1.1 billion and $2.9 billion of our contract liabilities at December 31, 2018 as revenue. ~~During the quarter and six months ended June 24, 2018, we recognized $731 million and $2.6 billion of our contract liabilities at December 31, 2017 as revenue.~~

NOTE 5 – INVENTORIES

Inventories consisted of the following (in millions):

June 30,
2019
December 31,
2018
Materials, spares and supplies $ 452
$ 446

Work-in-process 2,810
2,161

Finished goods 337
390

Total inventories $ 3,599
$ 2,997

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~~Lockheed Martin Corporation~~

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


	June 28, 2020				December 31, 2019
Materials, spares and supplies	$	564	$	532
Work-in-process	2,644		2,783
Finished goods	313		304
Total inventories	$	3,521	$	3,619

Costs incurred to fulfill a ~~customer~~ 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 ~~customer~~ contract or to an anticipated ~~customer~~ contract that we can specifically identify and contract award is probable, the costs generate or enhance resources that will be used in satisfying

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

performance obligations, and the costs are recoverable (referred to as pre-contract costs). Pre-contract costs that are initially capitalized in inventory are generally recognized as cost of sales consistent with the transfer of products and services to the customer upon the receipt of the anticipated contract. All other pre-contract costs, including start-up costs, are expensed as incurred. As of June ~~30, 2019~~28, 2020 and December 31, ~~2018, $572~~2019, $638 million and ~~$443~~$493 million of pre-contract costs were included in ~~inventory.~~inventories.

~~NOTE 6 –LEASES~~

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 and exclude 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 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 disclosure included in our 2018 Form 10‑K.

Generally, we enter into operating lease agreements for facilities, land and equipment. Our ROU operating lease assets were $971 million at June 30, 2019. Operating lease liabilities were $1.1 billion, of which $815 million were classified as noncurrent, at June 30, 2019. New ROU operating lease assets and liabilities entered into during the six months ended June 30, 2019 were $68 million. The weighted average remaining lease term and discount rate for our operating leases were approximately 9.0 years and 3.4% at June 30, 2019.

During the quarter and six months ended June 30, 2019, we recognized operating lease expense of $61 million and $120 million. During the quarter and six months ended June 24, 2018, we recognized operating lease expense of $60 million and $120 million. In addition, we made cash payments of $115 million for operating leases during the six months ended June 30, 2019, which are included in cash flows from operating activities in our consolidated statement of cash flows.

~~Future minimum lease commitments at June 30, 2019 were as follows (in millions):~~

Total
Remainder of
2019
2020 2021 2022 2023 Thereafter
Operating leases $ 1,242
$ 184
$ 191
$ 163
$ 128
$ 99
$ 477

Less: imputed interest $ 174

Total $ 1,068

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

NOTE 76 – POSTRETIREMENT BENEFIT PLANS

Our pretax net periodic benefit (income) cost related to our qualified defined benefit pension plans and retiree medical and life insurance plans consisted of the following (in millions):


	Quarters Ended										Six Months Ended
	June 28, 2020				June 30, 2019			June 28, 2020				June 30, 2019
Qualified defined benefit pension plans
Service cost	$	26	$	129		$	51		$	258
Interest cost	384		451			769			903
Expected return on plan assets	(566)		(575)			(1132)			(1,150)
Recognized net actuarial losses	212		351			424			702
Amortization of prior service credits	(85)		(83)			(171)			(167)
Total net periodic benefit (income) cost	$	(29)	$	273		$	(59)		$	546
Retiree medical and life insurance plans
Service cost	$	4	$	3		$	7		$	7
Interest cost	17		24			35			48
Expected return on plan assets	(32)		(27)			(64)			(55)
Recognized net actuarial losses	(1)		—			(2)			1
Amortization of prior service costs	9		11			19			21
Total net periodic benefit (income) cost	$	(3)	$	11		$	(5)		$	22

Quarters Ended Six Months Ended
June 30,
2019 June 24,
2018 June 30,
2019 June 24,
2018
Qualified defined benefit pension plans
Service cost $ 129
$ 158
$ 258
$ 315

Interest cost 451
435
903
870

Expected return on plan assets (575 ) (598 ) (1,150 ) (1,197 )
Recognized net actuarial losses 351
444
702
888

Amortization of prior service credits (83 ) (82 ) (167 ) (163 )
Total net periodic benefit cost $ 273
$ 357
$ 546
$ 713

Retiree medical and life insurance plans
Service cost $ 3
$ 4
$ 7
$ 9

Interest cost 24
23
48
46

Expected return on plan assets (27 ) (33 ) (55 ) (67 )
Recognized net actuarial losses —
1
1
2

Amortization of prior service costs 11
3
21
7

Total net periodic benefit cost (credit) $ 11
$ (2 ) $ 22
$ (3 )

We record the service cost component of net periodic benefit cost (for our bargained plans beginning in 2020) as part of cost of sales and the non-service cost components of net periodic benefit cost as part of other non-operating ~~expense,~~income (expense), net in the consolidated statements of earnings.

The recognized net actuarial losses and amortization of prior service credits or costs in the table above, along with similar costs related to our other postretirement benefit plans ($95 million and $10 million for the quarter and six months ended June 28, 2020, and $9 million and $20 million for the quarter and six months ended June 30, ~~2019 and $15 million and $29 million for the quarter and six months ended June 24, 2018)~~2019) were reclassified from accumulated other comprehensive loss (AOCL) and recorded as a component of net periodic benefit (income) cost for the periods presented. These costs totaled $140 million ($110 million, net of tax) and $280 million ($220 million, net of tax) during the quarter and six months ended June 28, 2020, and $288 million ($227 million, net of tax) and $577 million ($454 million, net of tax) during the quarter and six months ended June 30, 2019 and ~~$381 million ($300 million, net of tax) and $763 million ($600 million, net of tax) during the quarter and six months ended June 24, 2018 and~~ were recorded on our consolidated statements of comprehensive income as an increase to other comprehensive income.

The required funding of our qualified defined benefit pension plans is determined in accordance with the Employee Retirement Income Security Act of 1974 (ERISA), as ~~amended~~amended by the Pension Protection Act of 2006 (PPA), along with consideration of CAS and Internal Revenue Code rules. ~~During the quarter and six months ended June 30, 2019, there~~There were no0 contributions to our qualified defined benefit pension ~~plans. During~~plans during the ~~quarter~~quarters and six months ended June ~~24, 2018, we contributed $2.0 billion~~28, 2020 and ~~$3.5 billion~~June 30, 2019.

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Notes to ~~our qualified defined benefit pension plans.~~Consolidated Financial Statements (unaudited) (continued)

NOTE 87 – LEGAL PROCEEDINGS AND CONTINGENCIES

We are a party to or have property subject to litigation and other proceedings that arise in the ordinary course of our business, including matters arising under provisions relating to the protection of the environment, and are subject to contingencies related to certain businesses we previously owned. These types of matters could result in fines, penalties, cost reimbursements or contributions, compensatory or treble damages or non-monetary sanctions or relief. We believe the probability is remote that the outcome of each of these matters, including the legal proceedings described below, will have a material adverse effect on the corporation as a whole, notwithstanding that the unfavorable resolution of any matter may have a material effect on our net earnings 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

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

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 Aircraft Corporation (Sikorsky), we assumed the defense of and any potential liability for ~~two~~2 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~~2 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 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

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Notes to Consolidated Financial Statements (unaudited) (continued)

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

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

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 ~~now known as Leidos Innovations Corporation (Leidos Innovations),~~ becoming ~~a wholly owned subsidiary~~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 ~~Innovations~~ with respect to the liabilities assumed for damages to Leidos ~~Innovations and an enumerated list of subsidiaries of Leidos Innovations~~ 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 ~~a receivable~~assets for estimated future recovery considered probable through the pricing of products and services to agencies of the U.S. Government, regardless of the contract form (e.g., cost-reimbursable, fixed-price). We continually evaluate the recoverability of our assets for the portion of environmental ~~receivables~~costs that are probable of

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Notes to Consolidated Financial Statements (unaudited) (continued)

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 June ~~30, 2019,~~28, 2020 and December 31, ~~2018,~~2019, the aggregate amount of liabilities recorded relative to environmental matters was ~~$823~~$805 million and ~~$864~~$810 million, most of which are recorded in other noncurrent liabilities on our consolidated balance sheets. We have recorded ~~receivables~~assets for the portion of environmental costs that are probable of future recovery totaling ~~$715~~$698 million and ~~$750~~$703 million at June ~~30, 2019~~28, 2020 and December 31, ~~2018,~~2019, most of which are recorded in other noncurrent assets on our consolidated balance sheets, for the estimated future

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

recovery of these costs, as we consider the recovery probable based on the factors previously mentioned. We project costs and recovery of costs over approximately 20 years.

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

We 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, ~~and~~ New York and Washington, the U.S. Government reimburses us an amount equal to a percentage, specific to each site, of expenditures for certain remediation activities in the U.S. Government’s capacity as a PRP under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).

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

California is also reevaluating its existing drinking water standard of 6 ppb for ~~perchlorate, and the~~perchlorate. The U.S. EPA ~~is taking steps~~decided in June 2020 not to regulate perchlorate in drinking ~~water.~~ water at the federal level.

If substantially lower standards are adopted ~~in either~~for perchlorate (in California) or for hexavalent chromium (in California or at the federal ~~level for perchlorate or for hexavalent chromium,~~level), we expect a material increase in our estimates for environmental liabilities and the related assets for the portion of the increased costs that are probable of future recovery in the pricing of our products and services for the U.S. Government. The amount that would be allocable to our non-U.S. Government contracts or that is determined not to 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

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Notes to Consolidated Financial Statements (unaudited) (continued)

compounds, they likely exist as contaminants at many of our cleanup 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 sites.

Letters of Credit, Surety Bonds and Third-Party Guarantees

We have entered into standby letters of credit and surety bonds issued on our behalf by financial institutions, and we have directly issued guarantees to third parties primarily relating to advances received from customers and the guarantee of future performance on certain contracts. Letters of credit and surety bonds generally are available for draw down in the event we do not perform. In some cases, we may guarantee the contractual performance of third parties such as joint venture partners. We had total outstanding letters of credit, surety bonds and third-party guarantees aggregating ~~$3.5~~$3.3 billion and $3.6 billion at June ~~30, 2019~~28, 2020 and December 31, ~~2018.~~2019. Third-party guarantees do not include guarantees toissued on behalf of subsidiaries and other consolidated entities.

At June ~~30, 2019~~28, 2020 and December 31, ~~2018,~~2019, third-party guarantees totaled ~~approximately $1.1 billion~~$748 million and ~~$850~~$996 million, of which approximately ~~72%~~68% and ~~65%~~76% related to guarantees of contractual performance of joint ventures to which we currently are or previously were a party. ~~This amount represents~~These amounts represent our estimate of the maximum ~~amount~~amounts we would expect to incur upon the contractual non-performance of the joint venture, 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.

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

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. ~~There~~At June 28, 2020 and December 31, 2019, there were no material amounts recorded in our financial statements related to third-party guarantees or novation agreements.

NOTE 98 – FAIR VALUE MEASUREMENTS

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


	June 28, 2020										December 31, 2019
	Total		Level 1		Level 2		Total		Level 1		Level 2
Assets
Mutual funds	$	1,099	$	1,099	$	—	$	1,363	$	1,363	$	—
U.S. Government securities	79		—		79		99		—		99
Other securities	346		153		193		319		171		148
Derivatives	50		—		50		18		—		18
Liabilities
Derivatives	28		—		28		23		—		23
Assets measured at NAV ^(a)
Other commingled funds	18						19

June 30, 2019 December 31, 2018
Total Level 1 Level 2 Total Level 1 Level 2
Assets
Mutual funds $ 1,031
$ 1,031
$ —
$ 978
$ 978
$ —
U.S. Government securities 104
—
104
105
—
105
Other securities 244
113
131
144
28
116
Derivatives 26
—
26
22
—
22
Liabilities
Derivatives 49
—
49
61
—
61
Assets measured at NAV ^(a)

Other commingled funds 19
18


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

Substantially all assets measured at fair value, other than derivatives, represent investments held in a separate trust to fund certain of our ~~non-qualified~~nonqualified 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 ~~exchange~~ 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.

The derivatives outstanding at both June ~~30, 2019~~28, 2020 and December 31, ~~2018~~2019 consist of foreign currency forward contracts, interest rate swaps and foreign currency related contract embedded derivatives. We use derivative instruments

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Notes to Consolidated Financial Statements (unaudited) (continued)

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

The aggregate notional amount of our outstanding interest rate swaps was $572 million and $750 million at ~~both~~ June ~~30, 2019~~28, 2020 and December 31, ~~2018 was $1.3 billion.~~2019. The aggregate notional amount of our outstanding foreign currency hedges at June ~~30, 2019~~28, 2020 and December 31, ~~2018~~2019 was ~~$3.9~~$3.4 billion and ~~$3.5~~$3.8 billion. The fair values of our outstanding interest rate swaps and foreign currency hedges at June ~~30, 2019~~28, 2020 and December 31, ~~2018~~2019 were not significant. Derivative instruments did not have a material impact on net earnings and comprehensive income during the quarters and six months ended June ~~30, 2019~~28, 2020 and June ~~24, 2018.~~30, 2019. Substantially all of our derivatives are designated for hedge accounting.

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

In addition to the financial instruments listed in the table above, we hold other financial instruments, including cash and cash equivalents, receivables, accounts payable and ~~debt and commercial paper.~~debt. The carrying amounts for cash and cash equivalents, receivables and accounts payable approximated their fair values. The estimated fair value of our outstanding debt was ~~$16.4~~$16.9 billion and ~~the~~$15.9 billion at June 28, 2020 and December 31, 2019. The outstanding principal amount of debt was ~~$14.7~~$13.8 billion at both June ~~30,~~28, 2020 and December 31, 2019, excluding $1.1 billion and $1.2 billion of unamortized discounts and issuance costs ~~of $1.2 billion. The estimated fair value of our outstanding debt~~at June 28, 2020 and ~~commercial paper was $15.4 billion and the outstanding principal amount was $15.3 billion at~~December 31, ~~2018, excluding unamortized discounts and issuance costs of $1.2 billion.~~2019. The estimated fair values of our outstanding debt ~~and commercial paper~~ were determined based on observable inputs (Level 2).

NOTE 109 – STOCKHOLDERS’ EQUITY

Repurchases of Common Stock

During the six months ended June ~~30, 2019,~~28, 2020, we repurchased ~~1.6~~1.4 million shares for $541 million under repurchase plans pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, some of which were settled subsequent to the end of the second quarter. Additionally, during the first quarter of 2020, we entered into an accelerated share repurchase (ASR) agreement to repurchase $500 million of our common stock through April 2020. Under the terms of the ASR agreement, in March 2020 we paid $500 million and received an initial delivery of 1.0 million shares of our common stock. Upon final settlement of the ASR agreement in April 2020, we received an additional 0.4 million shares of our common stock for ~~$500 million.~~ 0 additional consideration 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.

The total remaining authorization for future common share repurchases under our share repurchase program was ~~$2.5~~$1.8 billion as of June ~~30, 2019.~~28, 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. Due to the volume of repurchases and the prices at which these were made, additional paid-in capital was reduced to ~~zero,~~0, with the remainder of the excess purchase price over par value of ~~$278~~$841 million and ~~$460~~$278 million recorded as a reduction to retained earnings during the six months ended June ~~30, 2019~~28, 2020 and June ~~24, 2018.~~30, 2019.

Dividends

We declared cash dividends totaling $1.4 billion ($4.80 per share) and $2.0 billion ($7.20 per share) during the quarters and six months ended June 28, 2020, compared to $1.2 billion ($4.40 per share) and $1.9 billion ($6.60 per

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

share) during the ~~quarter~~quarters and six months ended June 30, 2019. ~~The~~In June 2020, we declared our 2020 third quarter dividend totaling $671 million ($2.40 per share), which will be paid in September 2020 and in June 2019, ~~dividend amounts include the declaration of~~we declared our 2019 third quarter dividend totaling $624 million ($2.20 per share), which ~~will be~~was paid in September 2019. ~~We declared cash dividends totaling $572 million ($2.00 per share) and $1.1 billion ($4.00 per share) during the quarter and six months ended June 24, 2018.~~

Restricted Stock Unit Grants

During the six months ended June ~~30, 2019,~~28, 2020, we granted certain employees approximately ~~0.6~~0.5 million RSUs with a weighted average grant date fair value of ~~$303.96~~$384.17 per RSU. The grant date fair value of these RSUs is equal to the closing market price of our common stock on the grant date less a discount to reflect the delay in payment of dividend-equivalent cash payments that are made only upon vesting, which is generally three years from the grant date. We recognize the grant date fair value of RSUs, less estimated forfeitures, as compensation expense ratably over the requisite service period, which is shorter than the vesting period if the employee is retirement eligible on the date of grant or will become retirement eligible before the end of the vesting period.

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

Accumulated Other Comprehensive Loss

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



	Postretirement Benefit Plans		Other, net		AOCL
Balance at December 31, 2019	$	(15,528)	$	(26)	$	(15,554)
Other comprehensive income before reclassifications	—		3		3
Amounts reclassified from AOCL
Recognition of net actuarial losses ^(a)	344		—		344
Amortization of net prior service credits ^(a)	(124)		—		(124)

Other	—		(72)		(72)
Total reclassified from AOCL	220		(72)		148
Total other comprehensive income	220		(69)		151
Balance at June 28, 2020	$	(15,308)	$	(95)	$	(15,403)

Balance at December 31, 2018	$	(14,254)	$	(67)	$	(14,321)
Other comprehensive income before reclassifications	—		13		13
Amounts reclassified from AOCL
Recognition of net actuarial losses ^(a)	574		—		574
Amortization of net prior service credits ^(a)	(120)		—		(120)
Other	—		15		15
Total reclassified from AOCL	454		15		469
Total other comprehensive income	454		28		482
Balance at June 30, 2019	$	(13,800)	$	(39)	$	(13,839)

Postretirement
Benefit Plans
Other, net AOCL
Balance at December 31, 2018 $ (14,254 ) $ (67 ) $ (14,321 )
Other comprehensive income before reclassifications —
13
13
Amounts reclassified from AOCL
Recognition of net actuarial losses ^(a)
574
—
574
Amortization of net prior service credits ^(a)
(120 ) —
(120 )
Other —
15
15
Total reclassified from AOCL 454
15
469
Total other comprehensive income 454
28
482
Balance at June 30, 2019 $ (13,800 ) $ (39 ) $ (13,839 )

Balance at December 31, 2017 $ (12,559 ) $ 20
$ (12,539 )
Other comprehensive loss before reclassifications —
(62 ) (62 )
Amounts reclassified from AOCL
Recognition of net actuarial losses ^(a)
728
—
728
Amortization of net prior service credits ^(a)
(128 ) —
(128 )
Other —
14
14
Total reclassified from AOCL 600
14
614
Total other comprehensive income (loss) 600
(48 ) 552
Reclassification of income tax effects from tax reform^(b)
(2,396 ) (12 ) (2,408 )
Balance at June 24, 2018 $ (14,355 ) $ (40 ) $ (14,395 )
^(a)Reclassifications from AOCL related to our postretirement benefit plans were recorded as a component of net periodic benefit cost for each period presented (see “Note 6 – Postretirement Benefit Plans”). These amounts include $110 million and $227 million, net of tax, for the quarters ended June 28, 2020 and June 30, 2019, which are comprised of the recognition of net actuarial losses of $172 million and $287 million for the quarters ended June 28, 2020 and June 30, 2019 and the amortization of net prior service credits of $62 million and $60 million for the quarters ended June 28, 2020 and June 30, 2019.

^(a)

Reclassifications from AOCL related to our postretirement benefit plans were recorded as a component of net periodic benefit cost for each period presented (see “Note 7 – Postretirement Benefit Plans”). These amounts include $227 million and $300 million, net of tax, for the quarters ended June 30, 2019 and June 24, 2018, which are comprised of the recognition of net actuarial losses of $287 million and $364 million for the quarters ended June 30, 2019 and June 24, 2018 and the amortization of net prior service credits of $(60) million and $(64) million for the quarters ended June 30, 2019 and June 24, 2018.


^(b)	~~Upon adoption of ASU 2018-02,~~ ~~Income Statement - Reporting Comprehensive Income (Topic 220)~~ during the first quarter of 2018, we reclassified the impact of the income tax effects related to the Tax Cuts and Jobs Act (the Tax Act) from AOCL to retained earnings by the same amount with zero impact to total equity.

NOTE 1110 – OTHER

Changes in Estimates

Significant estimates and assumptions are made in estimating contract sales and costs, including the profit booking rate. At the outset of a long-term contract, we identify and monitor risks to the achievement of the technical, schedule and cost aspects of the contract, as well as variable consideration, and assess the effects of those risks on our estimates of 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

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

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

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~~Lockheed Martin Corporation~~

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

total estimates of the transaction price, a provision for the entire loss is determined at the contract level and is recorded in the period in which the loss is determined.

~~Comparability~~In addition, comparability of our segment sales, operating profit and operating margin may be impacted favorably or unfavorably by changes in profit booking rates on our contracts 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~~operating results; reserves for disputes; certain asset impairments; and losses on sales of certain assets.

Our consolidated net adjustments not related to volume, including net profit booking rate adjustments and other matters, increased segment operating profit by approximately $480 million and $945 million during the quarter and six months ended June 28, 2020 and $420 million and $985 millionduring the quarter and six months ended June 30, ~~2019~~ ~~and~~ ~~$465 million and $885 million~~ ~~during the~~ ~~quarter and six months ended June 24, 2018~~.2019. These adjustments increased net earnings by approximately $379 million ($1.35 per share) and $747 million ($2.65 per share) during the quarter and six months ended June 28, 2020 and $332 million ($1.17 per share) and $778 million ($2.74 per share) during the quarter and six months ended June 30, ~~2019 and $367 million ($1.28 per share) and $699 million ($2.43 per share) during the quarter and six months ended June 24, 2018.~~2019. We recognized net sales from performance obligations satisfied in prior periods of approximately $495 million and $1.0 billion during the quarter and six months ended June 28, 2020, and $560 million and $1.2 billion during the quarter and six months ended June 30, 2019, ~~and $540 million and $955 million during the quarter and six months ended June 24, 2018,~~ which primarily relate to changes in profit booking rates that impacted revenue.

As previously disclosed in our 2019 Form 10-K, we are responsible for a program to design, develop and construct a ground-based radar at our RMS business segment. The program has experienced performance issues for which we have periodically accrued reserves. As of June ~~30, 2019~~,28, 2020, cumulative losses ~~remained at~~were approximately ~~$195~~$240 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 in our ~~2018~~2019 Form 10-K, we have ~~two~~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 June 28, 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 in our 2019 Form 10-K, we have 2 commercial satellite programs at our Space business segment for which we have experienced performance issues related to the development and integration of a modernized LM 2100 satellite platform. These programs are for the delivery of ~~three~~3 satellites in total, including ~~one~~2 that launched in 2019 and 1 that launched in February ~~2019 and one that launched in April 2019.~~2020. We have periodically revised our estimated costs to complete these developmental commercial programs. As of June ~~30, 2019,~~28, 2020, cumulative losses remained at approximately $410 million for

~~$410 million~~

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

these programs. ~~While these~~We do not anticipate that additional losses, reflect our estimated total losses on the programs, we will continue to incur unrecoverable general and administrative costs each period until we complete the contract for the third satellite. While we have launched two satellites from one program, the third satellite remains developmental and further challenges in the delivery and integration of new satellite technology, anomalies discovered during system testing requiring repair or rework, further schedule delays, and penalties could require that we record additional loss reserves, which couldif any, would be material to our operating results. We are late to the contract delivery schedule for the third satellite. If we are not able to deliver the third satellite by the contract termination date, the customer could seek to exercise a termination right under the contract, in which case we would have to refund the payments we have received and pay certain penalties. However, we believe that it is not probable that the customer will seek to exercise any termination rights.results or financial condition.

As previously disclosed in our ~~2018~~2019 Form 10-K, we are responsible for designing, developing and installing an upgraded turret for the Warrior Capability Sustainment ~~Program~~Program. In 2018, we revised our estimated costs to complete the program as a consequence of performance issues, and recorded charges at our MFC business segment. As of June ~~30, 2019,~~28, 2020, cumulative losses remained at approximately ~~$140~~$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.

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

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~~Lockheed Martin Corporation~~

~~Notes~~June 28, 2020, we owned 40% of AMMROC, a joint venture located in the United Arab Emirates. We account for our investment in AMMROC using the equity method. AMMROC provides maintenance, repair and overhaul (MRO) and support services for fixed and rotary wing military aircraft in the South Asia, Middle East and North Africa (SAMENA) region. To date, substantially all of AMMROC’s business was dependent on a single customer contract to ~~Consolidated Financial Statements (unaudited) (continued)~~

provide performance based logistics (PBL) services that was in the process of being re-competed. In April 2020, the customer awarded the contract to a competitor. As a result of the loss of this customer contract, we performed a strategic review of AMMROC’s business and evaluated various options for our investment. In July 2020, we executed an agreement to sell our investment in AMMROC to our joint venture partner for $307 million. The transaction, which is subject to closing conditions, is expected to close in the third quarter of 2020 and the purchase price will be paid in cash installments through September 2021. Accordingly, we adjusted the carrying value of our investment from $435 million to the expected selling price of $307 million as of June 28, 2020, 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 for the quarter ended June 28, 2020.

Backlog

Backlog (i.e., unfulfilled or remaining performance obligations) represents the sales we expect to recognize for our products and services for which control has not yet transferred to the customer. For our cost-reimbursable and fixed-priced-incentive contracts, the estimated consideration we expect to receive pursuant to the terms of the contract may exceed the contractual award amount. The estimated consideration is determined at the outset of the contract and is continuously reviewed throughout the contract period. In determining the estimated consideration, we consider the risks related to the technical, schedule and cost impacts to complete the contract and an estimate of any variable consideration. Periodically, we review these risks and may increase or decrease backlog accordingly. As the risks on such contracts are successfully retired, the estimated consideration from customers may be reduced, resulting in a reduction of backlog without a corresponding recognition of sales. As of June ~~30, 2019,~~28, 2020, our ending backlog was ~~$136.7~~$150.3 billion. We expect to recognize approximately ~~38%~~37% of our backlog over the next 12 months and approximately ~~65%~~61% over the next 24 months as revenue, with the remainder recognized thereafter.

~~Severance and Restructuring Charges~~

During the second quarter of 2018, we recorded charges totaling $96 million ($76 million, or $0.26 per share, after tax) related to certain severance and restructuring actions at our RMS business segment. We expect to recover a portion of the severance and restructuring charges through the pricing of our products and services to the U.S. Government and other customers in future periods, which will be included in RMS’ operating results. As of June 30, 2019, we have paid approximately $59 million in severance payments associated with these actions.

Income Taxes

Our effective income tax ~~rates were~~ rate was 17.1% and 16.3% for the quarter and six months ended June 28, 2020, and 15.6% and 13.9% for the quarter and six months ended June 30, ~~2019, and~~ ~~18.1% and 16.5%~~2019. The higher rate for the quarter ~~and six months~~ ended June ~~24, 2018~~.28, 2020 is primarily due to a decrease in tax deductions for foreign derived intangible income. The rates for all periods benefited from the ~~quarter~~research and ~~six months ended June 30, 2019~~development tax credit, tax deductions for foreign derived intangible income related to direct commercial sales, dividends paid to the corporation's defined contribution plans with an employee stock ownership plan feature, and tax deductions for employee equity awards.

The rates for all periods also benefited from additional tax deductions based on proposed tax regulations released on March 4, 2019, which clarified that ~~FMS~~foreign military sales qualify for foreign derived intangible income treatment. ~~Approximately~~ ~~$65 million, or~~ ~~$0.23~~ ~~per share, of this benefit was recorded discretely during~~On July 9, 2020, the ~~first quarter of 2019 because it~~U.S. Treasury Department issued final tax regulations related to ~~the prior year.~~foreign derived intangible income. The ~~rates for all periods benefited from~~final tax ~~deductions for dividends paid to our defined contribution plans with an employee stock ownership plan feature, tax deductions~~regulations confirm foreign military sales qualify for foreign derived intangible income ~~related~~treatment. We continue to ~~commercial sales, tax deductions for employee equity awards,~~assess the other effects of the final regulations.

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

May 2020 Debt Issuance

On May 20, 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”). The 2030 Notes mature on June 15, 2030 and the ~~research~~2050 Notes mature on June 15, 2050. We will pay interest on the Notes semi-annually in arrears on June 15 and ~~development tax credit.~~ 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.

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 at their redemption price.

Sale of Customer Receivables

On occasion, our customers may seek deferred payment terms to purchase our products. In connection with these transactions, we may, at our customer’s request, enter into arrangements for the non-recourse sale of customer receivables to unrelated ~~third–party~~third-party financial institutions. For accounting purposes, these transactions are not discounted and are treated as a sale of receivables as we have no continuing involvement. The sale proceeds from the financial institutions are reflected in our operating cash flows on the statement of cash flows. We sold customer receivables of ~~$96~~$121 million and $267 million during the quarter and six months ended June 28, 2020 and $96 million and $200 million during the quarter and six months ended June 30, ~~2019~~ ~~and~~ ~~$124 million and $227 million~~ ~~during the~~ ~~quarter and six months ended June 24, 2018~~.2019. There were no0 gains or losses related to sales of these receivables.

NOTE 1211 – RECENT ACCOUNTING PRONOUNCEMENTS

~~Effective January 1, 2019, we adopted ASU 2016-02,~~ ~~Leases (Topic 842)~~, as amended, which requires lessees to recognize a ROU asset and lease liability on the balance sheet for most lease arrangements and expands disclosures about leasing arrangements, among other items. We adopted ASU 2016-02 using the optional transition method whereby we applied the new lease requirements under ASU 2016-02 through a cumulative-effect adjustment, which after completing our implementation analysis, resulted in no adjustment to our January 1, 2019 beginning retained earnings balance. On January 1, 2019, we recognized approximately $1.0 billion of ROU operating lease assets and approximately $1.1 billion of operating lease liabilities, including noncurrent operating lease liabilities of approximately $830 million, as a result of adopting this standard. The difference between ROU operating lease assets and operating lease liabilities was primarily due to previously accrued rent expense relating to periods prior to January 1, 2019. As part of our adoption, we elected the package of practical expedients, which among other things, permits the carry forward of historical lease classifications. We did not elect to use the practical expedient permitting the use of hindsight in determining the lease term

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~~Lockheed Martin Corporation~~

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

and in assessing impairment of our ROU assets. The adoption of the standard did not have a material impact on our operating results or cash flows. The comparative periods have not been restated for the adoption of ASU 2016-02.

~~Effective January 1, 2019, we adopted ASU 2017-12,~~ ~~Derivatives and Hedging (Topic 815)~~, which among other things, eliminates the requirement to separately measure and report hedge ineffectiveness. The adoption of this standard did not have a significant impact on our operating results, financial position or cash flows. NOT YET ADOPTED

In ~~August 2018,~~2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longercompel 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 ~~2018-14,~~2020-04, ~~Compensation—Retirement Benefits—Defined Benefit Plans—General~~Reference Rate Reform (Topic ~~715-20)~~848): ~~Disclosure Framework—Changes~~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 ~~Disclosure Requirements~~transition from LIBOR and other interbank offered rates to alternative reference interest rates. For ~~Defined Benefit Plans~~.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 ~~modifies the annual disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing~~was effective upon issuance and ~~adding certain disclosures for these plans. The guidance is effective for our fiscal year ending~~generally can be applied to applicable contract modifications through December 31, ~~2020 and requires disclosure changes~~2022. We are currently evaluating the impact of the transition from LIBOR to be presented on a retrospective basis. As this standard relates only to financial disclosures, we do not expect an impact to our operating results, financial position or cash flows as a result of adopting this new standard.

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,~~ which requires companies to record an allowance for expected credit losses over the contractual term of financial assets, including short-term trade receivables and contract assets, and expands disclosure requirements for credit quality of financial assets. We will adopt the new standard effective January 1, 2020. Wealternative reference interest rates, but do not expect a significant impact to our operating results, financial position or cash ~~flows as a result of adopting this new standard.~~flows.

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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Lockheed Martin Corporation

Results of Review of Interim Financial Statements

We have reviewed the accompanying consolidated balance sheet of Lockheed Martin Corporation (the Corporation) as of June ~~30, 2019,~~28, 2020, the related consolidated statements of earnings, comprehensive income and equity for the quarters and six months ended June ~~30, 2019~~28, 2020 and June ~~24, 2018~~30, 2019 and consolidated statements of cash flows for the six months ended June ~~30, 2019~~28, 2020 and June ~~24, 2018,~~30, 2019, and the related notes (collectively referred to as the “consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Corporation as of December 31, ~~2018,~~2019, the related consolidated statements of earnings, comprehensive income, cash flows and equity for the year then ended, and the related notes (not presented herein); and in our report dated February ~~8, 2019,~~7, 2020, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, ~~2018,~~2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

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

/s/ Ernst & Young LLP

Tysons, Virginia

July ~~23, 2019~~

21, 2020

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

BUSINESS OVERVIEW

We are a global security and aerospace company principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. We also provide a broad range of management, engineering, technical, scientific, logistics, system integration and cybersecurity services. We serve both U.S. and international customers with products and services that have defense, civil and commercial applications, with our principal customers being agencies of the U.S. Government. During the six months ended June ~~30, 2019, 71%~~28, 2020, 76% of our ~~$28.8~~$32 billion in net sales were from the U.S. Government, either as a prime contractor or as a subcontractor (including ~~60%~~66% from the Department of Defense (DoD)), ~~28%~~23% 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.

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, and created significant disruption of the financial markets. 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, access to some locations, 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 the second quarter. In addition, favorable contract award timing and strong performance more than offset the impacts of COVID-19 on our financial results in the first half of 2020. However, the ultimate impact of COVID-19 on our operations and financial performance in 2020 and future periods, including our ability to execute our programs in the expected timeframe, remains uncertain and will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. Government, state and local government officials, and international governments 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. For additional risks to the corporation related to the COVID-19 pandemic, see “Part II, Item 1A. Risk Factors.”

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 due primarily to supplier delays and a temporary schedule adjustment for the F-35 production workforce in Fort Worth, Texas, and additional production delays, facility closures, work slowdowns, or temporary stoppages could occur. In addition, other countries have different practices and policies that can affect our international operations and the operations of our suppliers and customers. For example, we had a brief pause in operations at the F-35 Final Assembly and Check Out (FACO) facilities in Japan and Italy in March in observance of such countries’ COVID-19 policies. Additional closures could occur, and base closures, travel restrictions, and quarantine requirements both within and outside the U.S. have affected our business. In many cases facilities are not operating under full staffing as a result of COVID-19, which could have an indeterminate longer-term impact. Flight test operations and training are being impacted by travel restrictions as a result of COVID-19, which has delayed some deliveries to customers, although we have worked to mitigate these impacts. We also have some limited operations that are not designated as critical infrastructure and therefore have been mandated to close or operate at only minimum basic operations. However, these closures to date have not been material to our operating results or financial condition.

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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 for the remainder of the year 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 could impact our ability to perform on our contracts. We have identified a number of suppliers that have had potential delivery impacts due to COVID-19 and are working to manage those impacts. However, if we are not able to implement alternatives or other mitigations, deliveries and other milestones on affected programs could be adversely impacted.

Our work in production facilities and labs has continued, 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. Given the nature of the pandemic, 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 could be 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, including to protect the life and safety of government and contractor personnel through September 30, 2020. 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, 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 are deferring certain payroll taxes 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.

2020 Financial Outlook

We expect our ~~2019~~2020 net sales to increase in the ~~low-double~~high-single digit ~~percentage~~ range from ~~2018~~2019 levels. The projected growth is driven by increased ~~production and sustainment on~~volume at all four business areas. Specifically, the increased growth is driven by the F-35 program at Aeronautics, increased production rate volume in the tactical and ~~increased~~strike missiles and integrated air and missile defense businesses at MFC, Sikorsky volume ~~from recent contract awards~~at RMS, and ~~increased~~Next Generation Overhead Persistent Infrared (Next Gen OPIR) and Hypersonics volume ~~across Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and~~at Space. Total business segment operating profit margin in ~~2019~~2020 is expected to be approximately ~~10.8%~~10.9%; and cash from operations is expected to be greater than or equal to ~~$7.6~~$8.0 billion. ~~The preliminary~~We updated our 2020 outlook based on our year to date results and expectations for ~~2019 assumes~~ the ~~U.S. Government continues to support and fund our key programs.~~remainder of 2020. Changes in circumstances may require us to revise our assumptions, which could materially change our current estimate of ~~2019~~2020 net sales, operating margin and cash flows. ~~Our~~

Given our current position and expectations for the remainder of 2020, we are updating our 2020 guidance as described above to reflect the recent performance across all four business areas. However, the ultimate impact of COVID-19 on the corporation’s financial outlook ~~for 2019 does~~in 2020 and future periods remains uncertain. Our 2020 outlook assumes,

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among other things, that our production facilities continue to operate and we do not ~~include~~ ~~potential impacts~~experience significant work stoppages or closures, we are able to mitigate any supply chain disruptions and these do not worsen, and we are able to recover our ~~programs, including the F-35 program, resulting from~~costs under U.S. Government ~~actions~~contracts and government funding priorities do not change. While these are our current assumptions for our 2020 outlook, they could change as described above. Risk related to ~~Turkey~~.these items are described below and under Item 1A, Risk Factors.

The following discussion is a supplement to and should be read in conjunction with the accompanying consolidated financial statements and notes thereto and with our Annual Report on Form 10-K for the year ended December 31, ~~2018 (2018~~2019 (2019 Form 10-K).

INDUSTRY CONSIDERATIONS

U.S. Government Funding

On ~~July 22, 2019,~~February 10, 2020, the ~~President and Congressional leaders reached an agreement to raise~~Administration submitted the fiscal year (FY) 2021 President’s Budget, requesting $1.34 trillion in total discretionary ~~spending limits for U.S. Government fiscal years 2020 and 2021~~funding (a U.S. Government fiscal year ~~begins~~starts on October 1 and ends on September 30) ~~set~~. The FY 2021 budget requests $672 billion for base discretionary national defense spending, the maximum permitted under the Bipartisan Budget Act of 2019 (BBA-19). The total national defense request is $741 billion, which includes $69 billion requested for Overseas Contingency Operations (OCO). OCO funding does not count toward discretionary spending caps.

The FY 2021 budget requests $705 billion for the DoD, including $636 billion for the base budget and $69 billion for OCO. The DoD request is only $800 million above the FY 2020 enacted level for both base national defense spending and OCO.

On March 27, 2020, the President signed the CARES Act, the bipartisan $2 trillion economic relief package aimed at helping American workers and businesses impacted by the COVID-19 pandemic. The bill includes $10.4 billion for DoD to fund COVID-19 response related expenses in defense health programs, operations, and the Defense Procurement Act fund. The funding is identified as emergency and is exempt from the discretionary spending limits of the Budget Control Act of 2011 (BCA) and suspend the federal debt ceiling until July 31, 2021. The measure would raise spending limits for national defense to $738 billion in fiscal year (FY) 2020 and $740.5 billion in FY 2021. Both totals include Overseas Contingency Operations (OCO) funding which isn’t subject to the statutory spending limits established by the BCA. The proposed national security spending in both FY 2020 and 2021 are an increase over the FY 2019 enacted amount of $716 billion, but are lower than the President’s budget request of $750 billion in FY 2020 and $746 billion in FY 2021..

The measure must still pass in both chambers of Congress and be signed into law by the President. Until the budget agreement becomes law, U.S. defense spending in FY 2020 and FY 2021 remains subject to the statutory spending limits established by the BCA of $576 billion (including approximately $550 billion for DoD) for FY 2020 with a modest increase to $590 billion (including approximately $563 billion for DoD) in FY 2021. Additionally, it is possible the U.S. Government will reach the debt ceiling in early September 2019, requiring an increase or suspension of the debt limit in order avoid a potential default on federal payments. As a result, budget uncertainty continues until the budget and debt limit agreement is codified in law. If Congress is unable to reach a timely agreement on full year appropriations for FY 2020, there is a risk of future government shutdowns or funding under a continuing resolution. See also the discussion of U.S. Government funding risks within ~~Item 1A -~~“Item 1A. Risk ~~Factors~~Factors” included in our ~~2018~~2019 Form 10-K.

CONSOLIDATED RESULTS OF OPERATIONS

~~Since our~~Our operating cycle is primarily long-term and involves many types of contracts for the design, development and manufacture of products and related activities with varying delivery ~~schedules,~~schedules. Consequently, the results of operations of a particular period, or period-to-period comparisons of sales and profits, may not be indicative of future operating results.

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The following discussions of comparative results among periods should be reviewed in this context. All per share amounts cited in these discussions are presented on a “per diluted share” basis, unless otherwise noted. Our consolidated results of operations were as follows (in millions, except per share data):

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	Quarters Ended						Six Months Ended							Quarters Ended										Six Months Ended
	June 30, 2019			June 24, 2018			June 30, 2019			June 24, 2018				June 28, 2020				June 30, 2019			June 28, 2020				June 30, 2019
Net sales	$	14,427		$	13,398		$	28,763		$	25,033		Net sales	$	16,220	$	14,427		$	31,871		$	28,763
Cost of sales	(12,434		)	(11,645		)	(24,582		)	(21,622		)	Cost of sales	(14,007)		(12,434)			(27,567)			(24,582)
Gross profit	1,993			1,753			4,181			3,411			Gross profit	2,213		1,993			4,304			4,181
Other income, net	15			42			110			109
Other (expense) income, net													Other (expense) income, net	(127)		15			(96)			110
Operating profit	2,008			1,795			4,291			3,520			Operating profit	2,086		2,008			4,208			4,291
Interest expense	(163		)	(165		)	(334		)	(320		)	Interest expense	(149)		(163)			(297)			(334)
Other non-operating expense, net	(162		)	(210		)	(329		)	(420		)
Other non-operating income (expense), net													Other non-operating income (expense), net	25		(162)			81			(329)
Earnings before income taxes	1,683			1,420			3,628			2,780			Earnings before income taxes	1,962		1,683			3,992			3,628
Income tax expense	(263		)	(257		)	(504		)	(460		)	Income tax expense	(336)		(263)			(649)			(504)
Net earnings	$	1,420		$	1,163		$	3,124		$	2,320		Net earnings	$	1,626	$	1,420		$	3,343		$	3,124
Diluted earnings per common share	$	5.00		$	4.05		$	11.00		$	8.07		Diluted earnings per common share	$	5.79	$	5.00		$	11.87		$	11.00

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

Net Sales

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


	Quarters Ended						Six Months Ended							Quarters Ended									Six Months Ended
	June 30, 2019			June 24, 2018			June 30, 2019			June 24, 2018				June 28, 2020			June 30, 2019			June 28, 2020			June 30, 2019
Products	$	12,003		$	11,150		$	23,973		$	20,912		Products	$	13,572		$	12,003		$	26,738		$	23,973
% of total net sales	83.2		%	83.2		%	83.3		%	83.5		%	% of total net sales	83.7		%	83.2		%	83.9		%	83.3		%
Services	2,424			2,248			4,790			4,121			Services	2,648			2,424			5,133			4,790
% of total net sales	16.8		%	16.8		%	16.7		%	16.5		%	% of total net sales	16.3		%	16.8		%	16.1		%	16.7		%
Total net sales	$	14,427		$	13,398		$	28,763		$	25,033		Total net sales	$	16,220		$	14,427		$	31,871		$	28,763

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 ~~$853 million,~~$1.6 billion, or 8%13%, during the quarter ended June ~~30, 2019~~28, 2020 compared to the same period in ~~2018.~~2019. The increase in product sales was primarily due to higher product sales of approximately ~~$250~~$735 million at ~~both~~Aeronautics, $460 million at MFC and ~~Space and $230~~$240 million at Aeronautics. Higher product sales at MFC were primarily due to increased volume for tactical and strike missile programs (primarily precision fires, classified programs and new hypersonic missile programs). The increase at Space was primarily due to higher volume for government satellite programs (primarily Next Generation Overhead Persistent Infrared (Next Gen OPIR) and Global Positioning System (GPS) III).RMS. The increase in product sales at Aeronautics was primarily due to higher production volume for the F-35 ~~program.~~

program and classified contracts. The increase in product sales at MFC was primarily due to increased volume for integrated air and missile defense programs (primarily Patriot Advanced Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD)) and increased volume for tactical and strike missile programs (primarily Guided Multiple Launch Rocket System (GMLRS) and High-Mobility Artillery Rocket Systems (HIMARS)). The increase in product sales at RMS was primarily due to higher volume for Sikorsky helicopter programs (primarily on Seahawk production programs and VH-92A production contracts).

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Product sales increased ~~$3.1~~$2.8 billion, or ~~15%~~12%, during the six months ended June ~~30, 2019~~28, 2020 compared to the same period in ~~2018.~~2019. The increase in product sales was primarily due to higher product sales of approximately ~~$1.3~~$1.4 billion at Aeronautics, ~~$815~~$820 million at MFC and ~~$530~~$390 million at Space. The increase in product sales at Aeronautics was primarily due to higher production volume for the F-35 ~~program.~~program and higher volume on classified contracts. The increase in product sales at MFC was primarily due to ~~increased volume for tactical and strike missile programs (primarily precision fires, classified programs and new hypersonic missile programs) and contract mix and~~ increased volume for integrated air and missile defense programs (primarily ~~Terminal High Altitude Area Defense (THAAD)~~THAAD and ~~Patriot Advanced Capability-3 (PAC-3))~~PAC-3; increased volume for tactical and strike missile programs (primarily GMLRS, hypersonic development programs and HIMARS). The increase in product sales at Space was primarily due to higher volume for strategic and missile defense programs (primarily hypersonic development programs) and for government satellite programs due to higher volume (primarily Next Gen ~~OPIR and GPS III)~~OPIR).

Service Sales

Service sales increased ~~$176~~$224 million, or 8%9%, during the quarter ended June ~~30, 2019~~28, 2020 compared to the same period in ~~2018.~~2019. The increase in service sales was primarily due to ~~higher service sales of approximately $85 million at RMS and $70 million at MFC. The~~an increase in service sales at RMS was primarily due to increased volume for integrated warfare systems and sensors (IWSS) and various training and logistics solutions programs. Higher services sales at MFC were primarily due to higher volume for sensors and global sustainment programs (primarily Special Operations Forces Global Logistics Support Services (SOF GLSS)).

~~Service sales increased $669 million, or 16%, during the six months ended June 30, 2019 compared to the same period in 2018. The increase in service sales was primarily due to higher service sales~~ of ~~approximately $280~~about $220 million at RMS, $180 million at MFC and $160 million at Aeronautics. The increase in service sales at RMS was primarily due to increased volume for IWSS and various training and logistics solutions programs. The increase in service sales at MFC was primarily attributable to increased volume for sensors and global sustainment programs (primarily SOF GLSS) and higher sustainment volume for the PAC-3 program. Higher service sales at Aeronautics which were primarily due to higher sustainment volume for the F-35, ~~program~~F-22 and F-16 programs

Service sales increased $343 million, or 7%, during the six months ended June 28, 2020 compared to the same period in 2019. The increase in service sales was primarily due to an increase in service sales of about $345 million at Aeronautics which were primarily due to higher sustainment volume ~~on modernization and sustainment~~ for the F-35, F-22 ~~program.~~and F-16 programs.

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):



	Quarters Ended														Six Months Ended
	June 28, 2020						June 30, 2019				June 28, 2020					June 30, 2019
Cost of sales – products	$	(12,092)		$	(10,674)			$	(23,834)			$	(21,299)
% of product sales	89.1		%	88.9		%		89.1		%		88.8		%
Cost of sales – services	(2,339)			(2,194)				(4,552)				(4,241)
% of service sales	88.3		%	90.5		%		88.7		%		88.5		%
Other unallocated, net	424			434				819				958
Total cost of sales	$	(14,007)		$	(12,434)			$	(27,567)			$	(24,582)

Quarters Ended Six Months Ended
June 30,
2019 June 24,
2018 June 30,
2019 June 24,
2018
Cost of sales – products $ (10,674 ) $ (9,993 ) $ (21,299 ) $ (18,690 )
% of product sales 88.9 % 89.6 % 88.8 % 89.4 %
Cost of sales – services (2,194 ) (1,967 ) (4,241 ) (3,656 )
% of service sales 90.5 % 87.5 % 88.5 % 88.7 %
Severance and restructuring charges —
(96 ) —
(96 )
Other unallocated, net 434
411
958
820

Total cost of sales $ (12,434 ) $ (11,645 ) $ (24,582 ) $ (21,622 )

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. Except for impacts of COVID-19; potential impacts to our programs, including the F-35 program, resulting from U.S. Government actions related to ~~Turkey~~,Turkey; and projected FAS pension income in 2020 as a result of completing the planned freeze of our salaried pension plans effective January 1, 2020, we have not identified any additional developing trends in cost of sales for products and services that would have a material impact on our future operations (see “Other Matters” discussion below for further ~~discussion.~~discussion).

Product Costs

Product costs increased ~~$681 million,~~$1.4 billion, or 7%13%, during the quarter ended June ~~30, 2019~~28, 2020 compared to the same period in ~~2018.~~2019. The increase in product costs was primarily due to higher product costs of approximately ~~$210~~$620 million at MFC, $205 million at Space and $190 million at Aeronautics. Higher product costs at MFC were primarily due to increased volume for tactical and strike missile programs (primarily precision fires, classified programs and new hypersonic missile

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~~programs). The increase in product costs at Space was primarily attributable to higher volume for government satellite programs (primarily Next Gen OPIR and GPS III). Higher product costs at~~ Aeronautics, ~~were primarily due to higher production volume for the F-35 program.~~

Product costs increased $2.6 billion, or 14%, during the six months ended June 30, 2019 compared to the same period in 2018. The increase in product costs was primarily due to higher product costs of approximately $1.2 billion at Aeronautics, $630$385 million at MFC and ~~$430~~$240 million at RMS. The increase in product costs at Aeronautics was primarily due to higher production volume for the F-35 ~~program.~~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 THAAD and PAC-3) and increased volume for tactical and strike missile programs (primarily ~~precision fires, classified~~HIMARS, GMLRS and hypersonic development programs). The increase in product costs at RMS was primarily attributable to higher volume for Sikorsky helicopter programs (primarily Seahawk production programs and ~~new hypersonic missile programs)~~VH-92A production contracts).

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Product costs increased $2.5 billion, or 12%, during the six months ended June 28, 2020 compared to the same period in 2019. The increase in product costs was primarily due to higher product costs of approximately $1.2 billion at Aeronautics, $745 million at MFC and ~~contract mix~~$440 million at Space. 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 THAAD and PAC-3) and increased volume for tactical and strike missile programs (primarily GMLRS, hypersonic development programs and HIMARS). The increase in product costs at ~~RMS~~Space was primarily ~~due~~attributable to ~~higher volume for IWSS~~government satellite programs ~~a charge for a ground-based radar program,~~(primarily Next Gen OPIR) and higher volume for ~~Sikorsky helicopter programs.~~strategic and missile defense programs (primarily hypersonic development programs).

Service Costs

Service costs increased ~~$227~~$145 million, or ~~12%~~7%, during the quarter ended June ~~30, 2019~~28, 2020 compared to the same period in ~~2018.~~2019. The increase in service costs was primarily due to higher service costs of approximately ~~$110~~$185 million at ~~RMS and $70 million at MFC. The increase in service costs at RMS was primarily due to increased volume for IWSS and various training and logistics solutions programs. Higher services costs at MFC~~Aeronautics which were primarily due to higher sustainment volume for ~~sensors~~the F-35, F-22 and ~~global sustainment programs (primarily SOF GLSS).~~F-16 programs.

Service costs increased ~~$585~~$311 million, or ~~16%~~7%, during the six months ended June ~~30, 2019~~28, 2020 compared to the same period in ~~2018.~~2019. The increase in service costs was primarily due to higher service costs of approximately ~~$235~~$310 million for RMS, $160 million for MFC and $140 million for Aeronautics. The increase in service costs at RMS was primarily due to increased volume for IWSS and various training and logistics solutions programs. The increase in service costs at MFC was primarily attributable to increased volume for sensors and global sustainment programs (primarily SOF GLSS) and higher sustainment volume for the PAC-3 program. Higher service costs at Aeronautics which were primarily due to higher sustainment volume for the F-35, ~~program~~F-22 and ~~higher volume on modernization and sustainment for the F-22 program.~~F-16 programs.

Other Unallocated, Net

Other unallocated, net primarily includes the FAS/CAS operating adjustment (which represents the difference between ~~CAS~~cost accounting standards (CAS) pension cost recorded in our business segment’s results of operations and the service cost component of FAS pension ~~expense)~~income (expense)), stock-based compensation expense and other corporate costs. These items are not allocated to the business segments and, therefore, are ~~excluded from~~not allocated to cost of sales for products ~~and~~or services. Other unallocated, net reduced cost of sales by $424 million and $819 million during the quarter and six months ended June 28, 2020, compared to $434 million and $958 million during the quarter and six months ended June 30, ~~2019 compared to $411 million and $820 million during the quarter and six months ended June 24, 2018.~~2019. Other unallocated, net during the quarter and six months ended June ~~30, 2019~~28, 2020 was ~~higher~~lower primarily due to ~~an increase~~a decrease in our FAS/CAS operating adjustment (see “Business Segment Results of Operations” discussion below for more detail).

Other (Expense) Income, Net

Other ~~income,~~expense, net ~~primarily includes our share of earnings or losses from equity method investees. During~~during the quarter and six months ended June ~~30, 2019,~~28, 2020, was $127 million and $96 million, compared to other income, net ~~was~~of $15 million and $110 ~~million compared to $42 million and $109~~ million during the quarter and six months ended June ~~24, 2018. The decrease~~30, 2019. Other expense, net during the quarter and six months ended June ~~30, 2019 was primarily attributable to decreased earnings generated by~~28, 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 ~~investees. During~~investee, AMMROC. Other income, net during the six months ended June 30, 2019, ~~we recognized~~included a previously deferred 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,~~obligations.

As of June 28, 2020, we owned 40% of AMMROC, a joint venture located in the United Arab Emirates. We account for our investment in AMMROC using the equity method. AMMROC provides maintenance, repair and overhaul (MRO) and support services for fixed and rotary wing military aircraft in the South Asia, Middle East and North Africa (SAMENA) region. To date, substantially all of AMMROC’s business was dependent on a single customer contract to provide performance based logistics (PBL) services that was in the process of being re-competed. In April 2020, the customer awarded the contract to a competitor. As a result of the loss of this customer contract, we performed a strategic review of AMMROC’s business and evaluated various options for our investment. In July 2020, we executed an agreement to sell our investment in AMMROC to our joint venture partner for $307 million. The transaction, which ~~was offset by lower earnings generated by equity method investees.~~is subject to closing conditions, is expected to close in the third quarter of 2020 and the purchase price will be paid in cash installments through September 2021. Accordingly, we adjusted the carrying value of our investment from $435 million to the expected selling price of $307 million as of June 28, 2020, 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 for the quarter ended June 28, 2020.

Other Non-operating ~~Expense,~~Income (Expense), Net

Other non-operating ~~expense,~~income (expense), net primarily includes the non-service cost components of FAS pension and other postretirement benefit plan ~~expense~~income (expense) (i.e., interest cost, expected return on plan assets, net actuarial gains or losses, and amortization of prior service cost or credits). During the quarter and six months ended June ~~30, 2019,~~28, 2020, other

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non-operating income, net was $25 million and $81 million, compared to other non-operating expense, net ~~was~~of $162 million and $329 ~~million compared to $210 million and $420~~ million during the quarter and six months ended June ~~24, 2018.~~30, 2019. The ~~decrease~~increase during the quarter and six months ended June ~~30, 2019~~28, 2020 was primarily due to a reduction in non-service FAS pension expense for our qualified defined benefit pension plans.

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Income Tax Expense

Our effective income tax ~~rates were~~ rate was 17.1% and 16.3% for the quarter and six months ended June 28, 2020, and 15.6% and 13.9% for the quarter and six months ended June 30, ~~2019, and~~ ~~18.1% and 16.5%~~ 2019. The higher rate for the quarter ~~and six months~~ ended June ~~24, 2018~~.28, 2020 is primarily due to a decrease in tax deductions for foreign derived intangible income. The rates for all periods benefited from the ~~quarter~~research and ~~six months ended June 30, 2019~~development tax credit, tax deductions for foreign derived intangible income related to direct commercial sales, dividends paid to the corporation's defined contribution plans with an employee stock ownership plan feature, and tax deductions for employee equity awards.

The rates for all periods also benefited from additional tax deductions based on proposed tax regulations released on March 4, 2019, which clarified that ~~FMS~~foreign military sales qualify for foreign derived intangible income treatment. ~~Approximately~~ ~~$65 million, or~~ ~~$0.23~~ ~~per share, of this benefit was recorded discretely during~~On July 9, 2020, the ~~first quarter of 2019 because it~~U.S. Treasury Department issued final tax regulations related to ~~the prior year.~~foreign derived intangible income. The ~~rates for all periods benefited from~~final tax ~~deductions for dividends paid to our defined contribution plans with an employee stock ownership plan feature, tax deductions~~regulations confirm foreign military sales qualify for foreign derived intangible income ~~related~~treatment. We continue to ~~commercial sales, tax deductions~~assess the other effects of the final regulations.

On March 27, 2020, President Trump signed into law the CARES Act, which, along with earlier issued IRS guidance, provides for ~~employee equity awards,~~deferral of certain taxes. The CARES Act, among other things, also contains numerous other provisions which impact Lockheed Martin. The CARES Act and the ~~research and development~~projected annual financial impact of COVID-19 did not have a material impact on our effective tax ~~credit.~~rate for the quarter ended June 28, 2020.

~~Future changes~~Changes in U.S. federal or foreign tax ~~law~~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. 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 ~~law.~~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.

Net Earnings

We reported net earnings of $1.6 billion ($5.79 per share) and $3.3 billion ($11.87 per share) during the quarter and six months ended June 28, 2020, compared to $1.4 billion ($5.00 per share) and $3.1 billion ($11.00 per share) during the quarter and six months ended June 30, ~~2019, compared to $1.2 billion ($4.05 per share) and $2.3 billion ($8.07 per share) during the quarter and six months ended June 24, 2018.~~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 ~~2.4~~2.7 million shares outstanding from June ~~24, 2018~~30, 2019 to June ~~30, 2019~~28, 2020 as a result of share repurchases, partially offset by share issuance under our stock-based awards and certain defined contribution plans.

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 ~~the~~ products and services offered.

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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 11~~“Note 10 – ~~Other~~”Other” 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.

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



	Quarters Ended										Six Months Ended
	June 28, 2020				June 30, 2019			June 28, 2020				June 30, 2019
Net sales
Aeronautics	$	6,503	$	5,550		$	12,872		$	11,134
Missiles and Fire Control	2,801		2,411			5,420			4,761
Rotary and Mission Systems	4,039		3,768			7,785			7,530
Space	2,877		2,698			5,794			5,338
Total net sales	$	16,220	$	14,427		$	31,871		$	28,763
Operating profit
Aeronautics	$	739	$	592		$	1,411		$	1,177
Missiles and Fire Control	370		327			766			744
Rotary and Mission Systems	429		347			805			726
Space	252		288			533			622
Total business segment operating profit	1,790		1,554			3,515			3,269
Unallocated items
FAS/CAS operating adjustment ^(a)	469		512			938			1,024
Stock-based compensation	(73)		(67)			(115)			(104)


Other, net ^(b)	(100)		9			(130)			102
Total unallocated items	296		454			693			1,022
Total consolidated operating profit	$	2,086	$	2,008		$	4,208		$	4,291

^(a)The FAS/CAS operating adjustment represents the difference between the service cost component of financial accounting standards (FAS) pension income (expense) and total pension costs recoverable on U.S. Government contracts as determined in accordance with CAS.

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^(a)	The FAS/CAS operating adjustment represents the difference between the service cost component of FAS pension expense and total pension costs recoverable on U.S. Government contracts as determined in accordance with CAS.

^(b)

^(a)

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	Quarters Ended										Six Months Ended
	June 28, 2020				June 30, 2019			June 28, 2020				June 30, 2019
Total FAS income (expense) and CAS costs
FAS pension income (expense)	$	29	$	(273)		$	59		$	(546)
Less: CAS pension cost	495		641			989			1,282
Net FAS/CAS pension adjustment	$	524	$	368		$	1,048		$	736

Service and non-service cost reconciliation
FAS pension service cost	$	(26)	$	(129)		$	(51)		$	(258)
Less: CAS pension cost	495		641			989			1,282
FAS/CAS operating adjustment	469		512			938			1,024
Non-operating FAS pension income (expense)	55		(144)			110			(288)
Net FAS/CAS pension adjustment	$	524	$	368		$	1,048		$	736

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 ~~expense~~income (expense) and total CAS pension cost. The non-service FAS pension ~~cost components are~~income (expense) component is included in other non-operating ~~expense,~~income (expense), net in our consolidated statements of earnings. ~~The net FAS/CAS pension adjustment increases or decreases~~As a result, to the extent that CAS pension cost ~~to equal total~~exceeds the service cost component of FAS pension ~~cost (both service and non-service).~~income (expense), we have a favorable FAS/CAS operating adjustment.

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

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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.

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.

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As previously disclosed in our ~~2018~~2019 Form 10-K, 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 June 28, 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 in our 2019 Form 10-K, we have two commercial satellite programs at our Space business segment for which we have experienced performance issues related to the development and integration of a modernized LM 2100 satellite platform. These programs are for the delivery of three satellites in total, including ~~one~~two that launched in ~~February~~ 2019 and one that launched in ~~April 2019.~~February 2020. We have periodically revised our estimated costs to complete these developmental commercial programs. As of June ~~30, 2019,~~28, 2020, cumulative losses remained at approximately ~~$410~~$410 millionfor these programs. ~~While these~~We do not anticipate that additional losses, reflect our estimated total losses on the programs, we will continue to incur unrecoverable general and administrative costs each period until we complete the contract for the third satellite. While we have launched two satellites from one program, the third satellite remains developmental and further challenges in the delivery and integration of new satellite technology, anomalies discovered during system testing requiring repair or rework, further schedule delays, and penalties could require that we record additional loss reserves, which couldif any, would be material to our operating results. We are late to the contract delivery schedule for the third satellite. If we are not able to deliver the third satellite by the contract termination date, the customer could seek to exercise a termination right under the contract, in which case we would have to refund the payments we have received and pay certain penalties. However, we believe that it is not probable that the customer will seek to exercise any termination rights.results or financial condition.

As previously disclosed in our ~~2018~~2019 Form 10-K, we are responsible for designing, developing and installing an

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upgraded turret for the Warrior Capability Sustainment ~~Program~~Program. In 2018, we revised our estimated costs to complete the program as a consequence of performance issues, and recorded charges at our MFC business segment. As of June ~~30, 2019~~,28, 2020, cumulative losses remained at approximately ~~$140~~$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.

Aeronautics

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



	Quarters Ended														Six Months Ended
	June 28, 2020						June 30, 2019				June 28, 2020					June 30, 2019
Net sales	$	6,503		$	5,550			$	12,872			$	11,134
Operating profit	739			592				1,411				1,177
Operating margin	11.4		%	10.7		%		11.0		%		10.6		%

Quarters Ended Six Months Ended
June 30,
2019 June 24,
2018 June 30,
2019 June 24,
2018
Net sales $ 5,550
$ 5,321
$ 11,134
$ 9,719

Operating profit 592
572
1,177
1,046

Operating margin 10.7 % 10.7 % 10.6 % 10.8 %

Aeronautics’ net sales during the quarter ended June ~~30, 2019~~28, 2020 increased ~~$229~~$953 million, or 4%17%, compared to the same period in ~~2018.~~ 2019. The increase was primarily attributable to higher net sales of approximately ~~$205~~$700 million for the F-35 program due to increased volume on production, development, and sustainment contracts; and about $125 million for higher volume on classified development contracts.

Aeronautics’ operating profit during the quarter ended June ~~30, 2019~~28, 2020 increased ~~$20~~$147 million, or 3%25%, compared to the same period in ~~2018.~~2019. Operating profit increased approximately ~~$15~~$130 million for the F-35 program due to ~~increased recurring~~higher volume ~~on higher margin production contracts, partially offset by lower~~and risk retirements on production, sustainment, and ~~sustainment~~development contracts. Adjustments not related to volume, including net profit booking rate adjustments, ~~and other matters,~~ were ~~$25~~$75 million ~~lower during~~higher in the second quarter ~~ended June 30, 2019~~of 2020 compared to the same period in ~~2018.~~2019.

Aeronautics’ net sales during the six months ended June ~~30, 2019~~28, 2020 increased ~~$1.4~~$1.7 billion, or ~~15%~~16%, compared to the same period in ~~2018.~~2019. The increase was primarily attributable to higher net sales of approximately ~~$1.1~~$1.4 billion for the F-35 program due to increased volume on production, sustainment, and development contracts; and about ~~$170~~$195 million for

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~~classified development programs due to higher volume; and about $65 million for the F-22 program due to~~ higher volume on ~~modernization and sustainment programs.~~classified development contracts.

Aeronautics’ operating profit during the six months ended June ~~30, 2019~~28, 2020 increased ~~$131~~$234 million, or ~~13%~~20%, compared to the same period in ~~2018.~~2019. Operating profit increased approximately ~~$120~~$210 million for the F-35 program due to ~~increased recurring~~higher volume and risk retirements on ~~higher margin~~ production, development, and sustainment contracts. Adjustments not related to volume, including net profit booking rate adjustments, ~~and other matters,~~ were ~~$30~~$80 million ~~lower~~higher during the six months ended June ~~30, 2019~~28, 2020 compared to the same period in ~~2018.~~2019.

We currently expect Aeronautics’ ~~2019~~2020 net sales to increase in the ~~low-double~~high-single digit percentage range ~~as compared to 2018~~from 2019 levels driven by ~~the~~ increased volume on the F-35 program. Operating profit is also expected to increase in the ~~low-double~~high-single digit percentage range ~~resulting in comparable operating~~above 2019 levels. Operating profit ~~margins in~~margin for 2020 is expected to be slightly higher than 2019 ~~as compared to 2018.~~levels.

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Missiles and Fire Control

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


	Quarters Ended														Six Months Ended
	June 28, 2020						June 30, 2019				June 28, 2020					June 30, 2019
Net sales	$	2,801		$	2,411			$	5,420			$	4,761
Operating profit	370			327				766				744
Operating margin	13.2		%	13.6		%		14.1		%		15.6		%

Quarters Ended Six Months Ended
June 30,
2019 June 24,
2018 June 30,
2019 June 24,
2018
Net sales $ 2,411
$ 2,085
$ 4,761
$ 3,762

Operating profit 327
279
744
540

Operating margin 13.6 % 13.4 % 15.6 % 14.4 %

MFC’s net sales during the quarter ended June ~~30, 2019~~28, 2020 increased ~~$326~~$390 million, or 16%, compared to the same period in ~~2018.~~ 2019.The increase was primarily attributable to higher net sales of approximately ~~$195~~$295 million for integrated air and missile defense programs due to increased volume (primarily Patriot Advanced Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD)); and about $150 million for tactical and strike missile programs due to increased volume (primarily ~~precision fires, new hypersonic missile programs~~Guided Multiple Launch Rocket Systems (GMLRS) and ~~classified programs); and about $100~~High-Mobility Artillery Rocket Systems (HIMARS)). These increases were partially offset by a decrease of $25 million ~~for sensors and global sustainment~~as a result of lower volume on energy programs due to ~~increased volume (primarily SOF GLSS and Apache).~~the divestiture of the Distributed Energy Solutions business in November 2019.

MFC’s operating profit during the quarter ~~ended~~end June ~~30, 2019~~28, 2020 increased ~~$48~~$43 million, or ~~17%~~13%, compared to the same period in ~~2018.~~ 2019. Operating profit increased approximately ~~$35~~$30 million for ~~sensors~~integrated air and ~~global sustainment~~missile defense programs due to ~~$65 million of charges recorded in the second quarter of 2018 which did not recur for performance matters~~increased volume on ~~the Warrior Capability Sustainment Program~~international contracts (primarily PAC-3 and higher volume (primarily SOF GLSS and Apache), partially offset by current period charges of $30 million for performance matters on an international military program and lower risk retirements (primarily Low Altitude Navigation and Targeting Infrared for Night (LANTIRN^®~~) and Sniper Advanced Targeting Pod (SNIPER~~^®))THAAD); ~~and~~ about ~~$15~~$20 million for tactical and strike missile programs due to higher risk retirements on classified programs; and about $10 million for energy programs due to higher risk retirements. These increases were partially offset by a decrease of $15 million for sensors and global sustainment programs due to lower risk retirements across the portfolio partially offset by net lower current period charges of $10 million for performance matters on an international military program. Adjustments not related to volume, including net profit booking rate adjustments, during the quarter June 28, 2020 were comparable to the same period in 2019.

MFC’s net sales during the six months ended June 28, 2020 increased $659 million, or 14%, compared to the same period in 2019. The increase was primarily attributable to higher net sales of approximately $420 million for integrated air and missile defense programs due to increased volume (primarily ~~precision fires)~~THAAD and PAC-3); and about $325 million for tactical and strike missile programs due to increased volume (primarily GMLRS, hypersonic development programs and HIMARS). These increases were partially offset by a decrease of $65 million as a result of lower volume on energy programs due to the divestiture of the Distributed Energy Solutions business in November 2019.

MFC’s operating profit during the six months ended June 28, 2020 increased $22 million, or 3%, compared to the same period in 2019. Operating profit increased approximately $20 million for tactical and strike missile programs due to higher risk retirements on classified programs; and about $20 million due to higher risk retirements on energy programs. These increases were partially offset by a decrease of $25 million for integrated air and missile defense programs due to lower risk retirements on international contracts (primarily PAC-3 and THAAD). Adjustments not related to volume, including net profit booking rate adjustments, ~~and other matters,~~ were ~~comparable during the quarter ended June 30, 2019 to the same period in 2018.~~

~~MFC’s net sales~~$30 million lower during the six months ended June ~~30, 2019 increased $1.0 billion, or 27%,~~28, 2020 compared to the same period in 2018. The increase was primarily attributable to higher net sales of approximately $490 million for tactical and strike missile programs due to increased volume (primarily precision fires, new hypersonic missile programs and classified programs); about $255 million for integrated air and missile defense programs due to contract mix and increased volume (primarily PAC-3 and THAAD); and about $240 million for sensors and global sustainment programs due to increased volume (primarily SOF GLSS and Apache).

MFC’s operating profit during the six months ended June 30, 2019 increased $204 million, or 38%, compared to the same period in 2018. Operating profit increased approximately $80 million for integrated air and missile defense programs due to contract mix, higher volume and higher risk retirements (primarily PAC-3 and THAAD); about $70 million for tactical and strike missile programs due to higher volume and higher risk retirements (primarily precision fires); and about $65 million for sensors and global sustainment programs due to $85 million of charges recorded in the six months ended June 24, 2018 which did not recur for performance matters on the Warrior Capability Sustainment Program and higher volume (primarily SOF GLSS and Apache), partially offset by current period charges of $30 million for performance matters on an international military program and lower risk retirements (primarily LANTIRN and SNIPER). Adjustments not related to volume, including net profit booking rate adjustments and other matters, were $55 million higher during the six months ended June 30, 2019 compared to the same period in 2018.

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We ~~currently~~continue to expect MFC’s 2020 net sales to increase in the high-single digit to low-double digit percentage range in ~~2019~~2020 as compared to ~~2018~~2019 driven by ~~increased revenue from recent contract awards and~~ higher volume in the tactical and strike missiles ~~business~~ and air and missile ~~defense.~~defense businesses, partially offset by a decrease in sales as a result of the divestiture of our Distributed Energy Solutions business. Operating profit is ~~also~~ expected to increase in the ~~low-double~~mid-to-high-single digit percentage range in ~~2019~~2020 as compared to ~~2018~~2019 driven by the increase in sales volume. Operating profit margin for ~~2019~~2020 is expected to be slightly lower than ~~2018~~2019 levels.

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Rotary and Mission Systems

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


	Quarters Ended						Six Months Ended							Quarters Ended														Six Months Ended
	June 30, 2019			June 24, 2018			June 30, 2019			June 24, 2018				June 28, 2020						June 30, 2019				June 28, 2020					June 30, 2019
Net sales	$	3,768		$	3,566		$	7,530		$	6,789		Net sales	$	4,039		$	3,768			$	7,785			$	7,530
Operating profit	347			341			726			652			Operating profit	429			347				805				726
Operating margin	9.2		%	9.6		%	9.6		%	9.6		%	Operating margin	10.6		%	9.2		%		10.3		%		9.6		%

RMS’ net sales during the quarter ended June ~~30, 2019~~28, 2020 increased ~~$202~~$271 million, or ~~6%,~~7% compared to the same period in ~~2018. The increase was primarily attributable to higher net~~2019. Net sales ofincreased approximately $190 million for IWSS programs due to higher volume (primarily Multi Mission Surface Combatant, Littoral Combat Ship (LCS), and Aegis Combat System (Aegis)) and about $95 million for various training and logistics solutions (TLS) programs due to higher volume. These increases were partially offset by a decrease of approximately $115$240 million for Sikorsky helicopter programs due to ~~lower~~higher volume ~~(primarily Black Hawk~~primarily on Seahawk production ~~the combat rescue helicopter program~~programs and ~~commercial aircraft services).~~VH-92A production contracts.

RMS’ net sales during the six months ended June 30, 2019 increased $741 million, or 11%, compared to the same period in 2018. The increase was primarily attributable to higher net sales of approximately $485 million for IWSS programs due to higher volume (primarily Radar Surveillance Systems, Multi Mission Surface Combatant, LCS and Aegis); about $155 million for various TLS programs due to higher volume; and about $55$45 million for Sikorsky helicopter programs due to higher volume ~~(primarily military aircraft services~~ and ~~international military aircraft~~risk retirements on VH-92A production ~~programs) partially~~contracts. These increases were offset by ~~lower volume (primarily Black Hawk production~~a $25 million decrease for integrated warfare systems and ~~commercial aircraft services).~~

~~RMS’ operating profit during the six months ended June 30, 2019 increased $74 million, or 11%, compared to the same period in 2018. Operating profit increased approximately $90 million for IWSS~~sensors (IWSS) programs due to ~~higher~~lower risk retirements (primarily Radar Surveillance Systems and Aegis)~~; about $20~~ and a $15 million decrease for C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance) programs due to lower ~~charges for various programs; and about $20~~risk retirements (primarily undersea combat systems programs). Adjustments not related to volume, including net profit booking rate adjustments, were $35 million higherduring the quarter ended June 28, 2020 compared to the same period during 2019.

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


	Quarters Ended														Six Months Ended
	June 28, 2020						June 30, 2019				June 28, 2020					June 30, 2019
Net sales	$	2,877		$	2,698			$	5,794			$	5,338
Operating profit	252			288				533				622
Operating margin	8.8		%	10.7		%		9.2		%		11.7		%

Quarters Ended Six Months Ended
June 30,
2019 June 24,
2018 June 30,
2019 June 24,
2018
Net sales $ 2,698
$ 2,426
$ 5,338
$ 4,763

Operating profit 288
274
622
538

Operating margin 10.7 % 11.3 % 11.7 % 11.3 %

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Space’s net sales during the quarter ended June ~~30, 2019~~28, 2020 increased ~~$272~~$179 million, or ~~11%~~7%, compared to the same period in ~~2018.~~2019. The increase was primarily attributable to higher net sales of approximately ~~$170~~$90 million for government satellite programs due to higher volume (primarily Next Generation Overhead Persistent Infrared (Next Gen ~~OPIR; GPS III; and government satellite services)~~OPIR)); and about ~~$70~~$85 million for strategic and missile defense programs due to higher volume (primarily hypersonic development programs).

Space’s net sales during the six months ended June ~~30, 2019~~28, 2020 increased ~~$575~~$456 million, or ~~12%~~9%, compared to the same period in ~~2018.~~2019. The increase was primarily attributable to higher net sales of approximately ~~$430 million for government satellite programs due to higher volume (primarily Next Gen OPIR; GPS III; and government satellite services); about $75~~$265 million for strategic and missile defense programs due to higher volume (primarily hypersonic development programs); and about ~~$60~~$190 million for government satellite programs due to higher volume ~~on the Orion program.~~(primarily Next Gen OPIR).

~~Space’s~~Space’s operating profit during the six months ended June ~~30, 2019 increased $84~~28, 2020 decreased $89 million, or ~~16%~~14%, compared to the same period in ~~2018.~~2019. Operating profit ~~increased~~decreased approximately ~~$95~~$75 million for government satellite programs due to ~~higher~~lower risk retirements (primarily ~~AEHF and GPS III) and higher volume (primarily GPS III and government satellite services)~~AEHF); and about $40 ~~million for commercial satellite programs, which reflect a lower amount of charges recorded for performance matters. These increases were partially offset by a decrease of approximately $55~~ million due to lower equity earnings from the corporation's investment in United Launch Alliance (ULA). These decreases were partially offset by an increase of $20 million for ~~ULA driven by fewer launches.~~commercial satellite programs for charges recorded for performance matters in 2019 not repeated in 2020. Adjustments not related to volume, including net profit booking rate adjustments, ~~and other matters,~~ were $85 million ~~higher~~lower during the six months ended June ~~30, 2019~~28, 2020 compared to the same period in ~~2018.~~

We currently expect Space's 2019 net sales to increase in the high-single digit percentage range compared to 2018 levels driven by Military Space and hypersonics. Operating profit in 2019 is expected to increase in the mid-single digit percentage range as compared to 2018 driven by AEHF performance. Operating profit margin in 2019 is expected to decrease from 2018 levels due to lower ULA equity earnings.2019.

Total equity earnings recognized by Space (primarily ULA) represented approximately ~~$15~~$10 million, or 5%4% and ~~$80~~approximately $40 million or ~~13%,~~8% of Space’s operating profit during the quarter and six months ended June ~~30, 2019,~~28, 2020, compared to approximately ~~$50~~$15 million, or ~~18%~~5% and ~~$135~~$80 million, or ~~25%,~~13% during the quarter and six months ended June ~~24, 2018.~~30, 2019.

We currently expect Space’s 2020 net sales to increase in the high-single digit percentage range from 2019 levels largely driven by Next Gen OPIR and Hypersonics. Operating profit in 2020 is expected to decrease in the mid-single digit percentage range as compared to 2019 driven by lower profit rate adjustments in government satellites largely driven by AEHF and lower equity earnings in 2020 compared to 2019. As a result, operating profit margin in 2020 is expected to decrease from 2019 levels.

Liquidity and Cash Flows

The CARES Act, along with earlier issued IRS guidance, provides a net deferral of payroll and estimated income tax payments from which we benefited by deferring cash outlays of $560 million during the six months ended June 28, 2020. This will have the effect of increasing cash outlays for payroll taxes during 2021 and 2022. The April and June 2020 federal estimated income tax payments were extended to July 15, 2020; thus, the company deferred the estimated income tax amount of $400 million from this quarter to the third quarter. The CARES Act, among other things, also contains numerous other provisions which may impact Lockheed Martin. We continue to refine the effect of the CARES Act and ongoing government guidance related to COVID-19 that may be issued.

We have a balanced cash deployment strategy to enhance stockholder value and position ourselves to take advantage of new business opportunities when they arise. Consistent with that strategy, we have continued to invest in our business, including capital expenditures, independent research and development, and ~~have made~~ selective business acquisitions and ~~investments, while returning~~investments; returned cash to stockholders through dividends and share ~~repurchases,~~repurchases; and ~~managing~~actively managed our debt levels and maturities, ~~and~~ 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. The total remaining authorization for future common share repurchases under our share repurchase program was ~~$2.5~~$1.8 billion as of June ~~30, 2019.~~28, 2020.

WeCurrently, 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 ~~additional~~ 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 Resources” section below for a discussion on financial resources available to ~~us, including the issuance of commercial paper.~~us.

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

Operating Activities

Net cash provided by operating activities increased ~~$2.8~~$1.2 billion during the six months ended June ~~30, 2019~~28, 2020 compared to the same period in ~~2018.~~2019. The increase was primarily due to a lower use of cash related to working capital, and the deferral of tax payments. The $599 million improvement in cash flows related to working capital (defined as receivables, contract assets, and inventories less accounts payable and contract liabilities) was ~~largely driven by cash contributions~~primarily attributable to liquidation of ~~$3.5 billion~~inventories (primarily classified programs at both Aeronautics and MFC), and timing of production and billing cycles affecting contract assets and contract liabilities (primarily the F-35 program). Earlier issued IRS guidance provides a deferral of April and June 2020 federal estimated income tax payments to July 15, 2020; thus, we deferred $400 million of estimated income tax payments and made ~~during the six months ended June 24, 2018 to our qualified defined benefit pension plans. During the six months ended June 30, 2019 we made cash~~foreign tax payments of ~~$474 million compared to receiving net tax refunds of $406~~approximately $45 million during the six months ended June ~~24, 2018. Cash used for working capital~~28, 2020 compared to cash tax payments of approximately $474 million during the six months ended June 30, ~~2019 was comparable~~2019.

In addition, net cash provided by operating activities for the six months ended June 28, 2020 included the receipt of approximately $930 million of net accelerated progress payments due to the ~~prior year.~~U.S. Government's increase in the progress payment rate from 80 percent to 90 percent, the deferral of $400 million as discussed above, and the deferral of $160 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 $1.3 billion of payments to our suppliers for the six months ended June 28, 2020.

Investing Activities

Net cash used for investing activities increased during the six months ended June 30, 2019, compared to the same period in 2018 primarily due to approximately $105 million of cash received during the first quarter of 2018 as part of the final settlement of net working capital in connection with the 2016 divestiture of our Information Systems and Global Solutions business and an increase in cash used for capital expenditures. Capital expenditures totaled $533 million and $480$124 million during the six months ended June ~~30, 2019~~28, 2020 compared to the same period in 2019. Capital expenditures totaled $636 million and $533 million during the six months ended June 28, 2020 and June ~~24, 2018.~~30, 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.

Financing Activities

Net cash used for financing activities was ~~$2.4~~$2.5 billion during the six months ended June ~~30, 2019,~~28, 2020, compared to ~~$1.9~~$2.4 billion during the same period in ~~2018.~~2019. Net cash used for financing activities during the six months ended June ~~30, 2019 and June 24, 2018~~28, 2020 was primarily driven by dividend payments and share repurchases. During the six months ended June 30, 2019 we also made net repayments of $600 million for commercial paper.

$1.1 billion from 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.

During the six months ended June ~~30, 2019~~28, 2020 and June ~~24, 2018,~~30, 2019, we paid dividends totaling $1.4 billion ($4.80 per share) and $1.3 billion ($4.40 ~~per share) and $1.2 billion ($4.00~~ per share). In addition, we repurchased ~~1.6~~2.8 million shares of our common stock during the six months ended June ~~30, 2019~~28, 2020 for $1.0 billion, which includes the $500 ~~million. During~~million paid in the ~~six months ended June 24, 2018 we repurchased 1.9~~first quarter of 2020 to repurchase 1.4 million shares ~~of our common stock for $623 million, of which $13 million was settled subsequent~~pursuant to the ~~end of the second quarter.~~accelerated share repurchase (ASR) agreement.

Our outstanding debt, net of unamortized discounts and issuance costs was ~~$13.5~~$12.7 billion as of June ~~30, 2019~~28, 2020 and mainly is in the form of publicly-issued notes that bear interest at fixed rates. The outstanding debt at June 28, 2020 is inclusive of the issuance of $1.2 billion in aggregate principal amount of senior unsecured notes in May 2020 and the June 2020 redemption of $750 million of the outstanding $1.25 billion in aggregate principal amount of our 2.50% Notes due 2020 and $400 million of the outstanding $900 million in aggregate principal amount of our 3.35% Notes due 2021, as described in “Note 10 – Other” included in our Notes to Consolidated Financial Statements. As of June ~~30, 2019~~28, 2020,, we had ~~$900~~$500 millionof ~~short-term~~ borrowings ~~due within one year, consisting of debt~~ scheduled to mature in November ~~2019.~~2020 with the remainder of our debt due from 2021 to 2052. As of June ~~30, 2019,~~28, 2020, we were in compliance with all covenants contained in our debt and credit agreements. ~~There~~Other than the debt issuance and redemption, described in “Note 10 – Other” included in our Notes to Consolidated Financial Statements, there were no material changes during the quarter or six months ended June ~~30, 2019~~28, 2020 to our contractual commitments as presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our ~~2018~~2019 Form ~~10‑K~~10-K that were outside the ordinary course of our business.

On occasion, our customers may seek deferred payment terms to purchase our products. In connection with these transactions, we may, at our customer’s request, enter into arrangements for the non-recourse sale of customer receivables to unrelated ~~third–party~~third-party financial institutions. For accounting purposes, these transactions are not discounted and are treated as a sale of receivables as we have no continuing involvement. The sale proceeds from the financial institutions are reflected in our operating cash flows on the statement of cash flows. We sold customer receivables of ~~$96~~$121 million and $267 million during the quarter and six months ended June 28, 2020 and $96 million and $200 million during the quarter and six months ended June 30, ~~2019~~ ~~and~~ ~~$124 million and $227 million~~ ~~during the~~ ~~quarter and six months ended June 24, 2018~~.2019. There were no gains or losses related to sales of these receivables.

Our total equity was ~~$2.9~~$3.8 billion at June ~~30, 2019,~~28, 2020, an increase of ~~$1.4 billion~~$615 million from December 31, ~~2018.~~2019. The increase was primarily attributable to net earnings of ~~$3.1~~$3.3 billion and amortization of ~~$454~~$220 million in pension and other postretirement benefit plan expense. These increases were partially offset by dividends declared of ~~$1.9~~$2.0 billion and the repurchase of ~~1.6~~2.8 million shares for ~~$500 million. As we repurchase our common shares, we reduce common stock for~~$1.0 billion, some of which were settled subsequent to the ~~$1 of par value~~end of the shares repurchased, with the excess purchase price over par value recorded as a reduction of additional paid-in capital. If additional paid-in capital is reduced to zero, we record the remainder of the excess purchase price over par value as a reduction of retained earnings. Due to the volume of repurchases made under our share repurchase program, additional paid-in capital was reduced to zero, with the remainder of the excess purchase price over par value of $278 million recorded as a reduction of retained earnings during the six months ended June 30, 2019.second quarter.

Status of the F-35 Program

The F-35 program primarily consists of ~~multiple~~ production contracts, sustainment activities, and new development efforts. During the six months ended June 30, 2019, we delivered 55 aircraft to our U.S. and international partners, resulting in total deliveries of 412 production aircraft as of June 30, 2019. We have 341 production aircraft in backlog as of June 30, 2019, including orders from our international partners. 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 ~~eight~~seven international ~~partners~~partner countries and ~~three~~five international customers; as well as expressions of interest from other countries.

During the first half of 2020, the F-35 program completed several milestones both domestically and internationally. The U.S. Government ~~has~~continued testing the aircraft, including ship trials, mission and weapons systems evaluations, and the F-35 fleet recently surpassed 290,000 flight hours. During the second quarter of 2020, the U.S. Government awarded the production of 84 F-35 Block Buy aircraft in addition to the 364 aircraft previously awarded. Since program inception, we have delivered 538 production F-35 aircraft, demonstrating the F-35 program’s continued progress and longevity. The first 538 F-35 aircraft delivered to U.S. and international customers include 382 F-35A variants, 115 F-35B variants, and 41 F-35C variants. The full-rate production decision, also known formally as Milestone C, is expected to be delayed by the DoD until Initial Operational Test and Evaluation (IOT&E) activities are complete in the Naval Air Systems Command (NAVAIR)-led Joint Simulation Environment (JSE). The JSE is used to conduct simulated evaluations of the F-35 in a range of high-threat scenarios. The data will be utilized by the U.S. Government as part of their evaluation to transition the F-35 program from Low Rate Initial Production (LRIP) into full-rate production.

During the second quarter of 2020, we delivered 25 production aircraft to our U.S. and international partner countries, and we have 411 production aircraft in backlog, including orders from our international partner countries.

In response to COVID-19 F-35 supplier delays, in May 2020, in conjunction with the F-35 Joint Program Office, we tapered our production rate over a three-month period, temporarily adjusting the work schedules for the F-35 production workforce in Fort Worth, Texas. Delivery schedules are being adjusted accordingly and we currently expect to return to pre-COVID-19 production levels in the fall. At this time, we estimate production delays of approximately 18-24 aircraft, however, we will accelerate production when we return to pre-COVID-19 conditions. See the discussion in Business Overview - COVID-19 and Item 1A, Risk Factors.

On July 17, 2019, the U.S. Government suspended Turkey’s participation in the F-35 program and ~~has~~ initiated the

process to formally remove itTurkey from the ~~program. Additionally, Turkey could be subject to U.S. sanctions~~program as a result of Turkey accepting delivery of the Russian S-400 air and missile defense system. To date, the Administration has not imposed sanctions on Turkish entities involved in the S-400 procurement, although sanctions under the Countering America’s Adversaries Through Sanctions Act (CAATSA) remain a risk. Additionally, sanctions could be imposed against Turkey ~~is one~~as a result of future legislation. We are monitoring developments in Congress and the ~~eight international partners~~potential impacts of any sanctions and other actions regarding Turkey on the F-35 program and ~~has~~on our other programs involving Turkey. Depending on the scope and applicability of any sanctions or other actions, the impact could be material to our operations, operating results, financial position or cash flows. Turkey previously committed to purchase up to 100 F-35 aircraft, ~~and~~ of which six have completed production.

Turkish suppliers ~~provide~~also produce component parts for the F-35 program, many of which are ~~sole-sourced.~~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 toward this end, but due to the procedure to qualify new parts and suppliers, this collaborative process between DoD and Lockheed Martin is ongoing. Earlier this year, the DoD publicly confirmed that Turkey 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. International sales of the F-35 are negotiated between the U.S. Government and international governments and ~~Turkey’s removal~~the process that formally removed Turkey from the F-35 program is a government-to-government matter. We ~~are following~~will continue to follow official U.S. Government guidance as it relates to ~~delivery of F-35~~completed Turkish aircraft ~~to Turkey~~ and the export and import of ~~goods~~component parts from the Turkish supply chain. ~~We have been working closely with the U.S. Department~~

The effects of Defense and supporting activities to identify and engage alternate suppliers for the component parts Turkish suppliers provide for the F-35 program to ensure continuity of production. We will also work with thepotential U.S. Government ~~to replace~~sanctions on Turkey, and Turkey’s purchase of 100 jets with other potential new customers and/or expanded orders from existing partner countries. While we are taking actions to mitigate the effect of these issues and do not expect a significant impact to the overall program, the removal ~~of Turkey~~ from the F-35 program ~~and other potential~~do not appear to be significant at this time. However, unforeseen actions could impact the timing of orders, disrupt the production of ~~the~~ aircraft, delay delivery of aircraft, disrupt delivery of sustainment components produced in Turkey and impact funding on the F-35 program ~~which~~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 ~~operating~~cash flows and results ~~financial position and cash flows.~~of operations. For additional discussion, including the risk of sanctions on other programs involving sales to Turkey or work with Turkish industry, see ~~Part II,~~ Item 1A - Risk ~~Factors.~~Factors of our 2019 Annual Report on Form 10-K.

~~In February 2019, the Department of the Navy declared Initial Operational Capability for its F-35C fleet, resulting in all three F-35 aircraft variants mission-ready and combat-capable.~~ Given the size and complexity of the F-35 program, we anticipate that there will be continual reviews related to aircraft performance, program schedule, cost, and requirements as part of the DoD, Congressional, and international ~~partners’~~partner countries’ oversight and budgeting processes. Current program challenges include, but are not limited to, supplier and partner performance, software development, level of cost associated with life cycle operations and sustainment and warranties, receiving funding for production contracts on a timely basis, executing future flight tests, and findings resulting from testing and operating the aircraft.

See “Note 87 – Legal Proceedings and Contingencies” included in our Notes to Consolidated Financial Statements for information regarding our contingent obligations, including off-balance sheet arrangements.

Critical Accounting Policies

There have been no significant changes to the critical accounting policies disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~2018~~2019 Annual Report on Form 10-K.

~~Postretirement Benefit Plans~~

We may from time to time 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 a group annuity contract for a portion of our outstanding defined benefit pension obligations using assets from the pension trust. As described in our 2018 Form 10-K, during December 2018, a Lockheed Martin qualified defined benefit pension plan purchased two contracts from insurance companies covering $2.6 billion of our outstanding defined benefit pension obligations. One of the contracts we purchased (referred to as a buy-out contract) relieved us of all responsibility for the pension obligations related to approximately 32,000 U.S. retirees and beneficiaries. The second contract was structured as a buy-in contract (that will reimburse the plan for all future benefit payments related to defined benefit obligations for approximately 9,000 U.S retirees and beneficiaries) and was originally planned to be converted into a buy-out contract, but we have decided to retain the contract in the pension trust and not terminate the related pension

~~plan (although the terms of the plan reserve our right to terminate the plan in the future). The buy-in contract is accounted for at fair value as an investment of the trust.~~

Goodwill and Intangible Assets

The carrying value of our Sikorsky reporting unit included goodwill of $2.7 billion, an indefinite-lived trademark intangible asset of $887 million, and finite-lived customer program intangible assets of ~~$2.3~~$2.2 billion as of June ~~30, 2019.~~28, 2020. In the fourth quarter of 2019, we performed our annual impairment test for goodwill and indefinite-lived trademark intangible asset. We were not required to test the finite-lived program intangible asset because there were no indicators of a possible impairment. As of the date of our ~~2018~~2019 annual impairment test, we estimated that the fair value of our Sikorsky reporting unit exceeded its carrying value offor goodwill by a margin of approximately ~~20%~~40% and the fair value of the ~~trademark~~ intangible asset exceeded its carrying value by a margin of approximately 5%10%.

The fair values and carrying values of our goodwill and indefinite-lived trademark intangible asset at our Sikorsky ~~reporting unit~~business are closely aligned. Therefore, any business deterioration, ~~changes in timing of orders,~~ contract cancellations or terminations, or ~~negative~~ changes in ~~market factors~~expected future orders could cause our sales, earnings and cash flows to decline below current ~~projections.~~projections and could cause goodwill and intangible assets to be impaired. Similarly, market factors utilized in the impairment analysis, including long-term growth rates and discount rates ~~and relevant comparable public company earnings multiples and transaction multiples,~~ could negatively impact the fair value of our reporting units. ~~Based~~As previously disclosed, based on our assessment of these circumstances, we have determined that goodwill and indefinite-lived trademark intangible assets at our Sikorsky ~~reporting unit~~business are at risk for impairment should there be deterioration of projected cash ~~flows,~~flows. While we do not currently anticipate any material impairments on our assets as a ~~significant increase in the carrying value~~result of ~~the reporting unit,~~COVID-19, any business deterioration, contract cancellations or terminations, or ~~negative changes in~~ market ~~factors.~~pressures could cause our sales, earnings and cash flows to decline below our current projections and could cause goodwill and intangibles to be impaired. See Item 1A, Risk Factors for a discussion of the potential impacts of COVID-19 on the fair value of our assets.

Recent Accounting Pronouncements

See Note 1 – Basis of Presentation and “Note 1211 – Recent Accounting ~~Pronouncements”~~Pronouncements Not Yet Adopted” included in our Notes to Consolidated Financial Statements for information related to new accounting standards.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

As disclosed in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form ~~10‑K~~10-K for the year ended December 31, ~~2018,~~2019, we transact business globally and are subject to risks associated with changing foreign currency exchange rates. We enter into foreign currency hedges such as forward and option contracts that change in value as foreign currency exchange rates change. Our other exposures to market risk have not changed materially since December 31, ~~2018.~~2019. See “Note 98 – Fair Value Measurements” included in our Notes to Consolidated Financial Statements for additional discussion.

ITEM 4. Controls and Procedures

We performed an evaluation of the effectiveness of our disclosure controls and procedures as of June ~~30, 2019.~~28, 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 operating and effective as of June ~~30, 2019.~~28, 2020.

There were no changes in our internal control over financial reporting during the quarter ended June ~~30, 2019~~28, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Forward-Looking Statements

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

the effect of changes in (or in the interpretation of) procurement and other regulations and policies affecting our industry, including export of our products from the U.S. and other countries, cost allowability or recovery, aggressive government positions with respect to the use and ownership of intellectual property and potential changes to the DoD’s

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

•the effect of changes in (or in the interpretation of) procurement and other regulations and policies affecting our industry, including federal rules prohibiting the use of certain Chinese telecommunications equipment, export of our products, cost allowability or recovery and potential changes to the U.S. Department of Defense’s (DoD) acquisition regulations relating to progress payments and performance-based payments and a preference for fixed-price contracts; including a reversal or modification to the recent actions by DoD to increase the progress payment rate and accelerate cash to its prime and small suppliers in response to the COVID-19 impacts;

•

These are only some of the factors that may affect the forward-looking statements contained in this Form 10-Q. For a discussion identifying additional important factors that could cause actual results to ~~vary~~differ materially from those anticipated in the forward-looking statements, see our filings with the U.S. Securities and Exchange Commission (SEC) including, but not limited to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 and subsequent Quarterly

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

associated with them. The forward-looking statements in this Form 10-Q are intended to be subject to the safe harbor protection provided by the federal securities laws.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

We are a party to or have property subject to litigation and other proceedings that arise in the ordinary course of our business, including matters arising under provisions relating to protection of the environment, and are subject to contingencies related to certain businesses we previously owned. These types of matters could result in fines, penalties, cost reimbursements or contributions, compensatory or treble damages or non-monetary sanctions or relief. We believe the probability is remote that the outcome of each of these matters will have a material adverse effect on the corporation as a whole, notwithstanding that the unfavorable resolution of any matter may have a material effect on our net earnings in any particular interim reporting period. We cannot predict the outcome of legal or other proceedings with certainty. These matters include the proceedings summarized in “Note 87 – Legal Proceedings and Contingencies” included in our Notes to Consolidated Financial Statements and “Note 14 – Legal Proceedings, Commitments and Contingencies” in our Annual Report on Form 10-K for the year ended December 31, ~~2018 (2018~~2019 (2019 Form 10-K) filed with the U.S. Securities and Exchange Commission.

We are subject to federal, state, local and foreign requirements for the protection of the environment, including those for discharge of hazardous ~~substances~~materials and remediation of contaminated sites. Due in part to ~~their~~the complexity and pervasiveness ~~such~~of these requirements, we are a party to or have ~~resulted in us being involved with related legal~~property subject to various lawsuits, proceedings ~~claims~~ and remediation obligations. The extent of our financial exposure cannot in all cases be reasonably estimated at this time. For information regarding ~~these~~the matters discussed above, including current estimates of the amounts that we believe are required for ~~environmental~~ remediation or clean-up to the extent estimable, see “Note 87 – Legal Proceedings and Contingencies” included in our Notes to Consolidated Financial Statements. See also “Critical Accounting Policies – Environmental Matters” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Note 14 – Legal Proceedings, Commitments and Contingencies”, each in our ~~2018~~2019 Form 10-K, for a description of previously reported matters.

As a U.S. Government contractor, we are subject to various audits and investigations by the U.S. Government to determine whether our operations are being conducted in accordance with applicable regulatory requirements. U.S. Government investigations of us, whether relating to government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties being imposed upon us, suspension, proposed debarment, debarment from eligibility for future U.S. Government contracting or suspension of export privileges. Suspension or debarment could have a material adverse effect on us because of our dependence on contracts with the U.S. Government. U.S. Government investigations often take years to complete and many result in no adverse action against us. We also provide products and services to customers outside of the U.S., which are subject to U.S. and foreign laws and regulations and foreign procurement policies and practices. Our compliance with local regulations or applicable U.S. Government regulations also may be audited or investigated.

ITEM 1A. Risk Factors

While we attempt to identify, manage and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. “Item 1A. Risk Factors” of our ~~2018~~2019 Form 10-K describes some of the risks and uncertainties associated with our business, including U.S. Government funding, as further described in the “Industry Considerations” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q. These risks and uncertainties have the potential to materially affect our business, results of operations, financial condition, cash flows, projected results and future prospects. Except for the risk ~~factor~~factors discussed below, we do not believe that there have been any material changes to the risk factors disclosed in our ~~2018~~2019 Form 10-K.

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.

~~Potential~~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 ~~sanctions~~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 and created significant disruption of the financial markets. 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, access to some locations, and the impacts of remote work and adjusted work

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schedules. The extent of the impact of the COVID-19 pandemic on ~~Turkey~~our operational and ~~Turkey’s removal from~~financial performance, including our ability to execute our programs in the expected timeframe, remains uncertain and will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. Government, state and local government officials, and international governments 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.

the operations of our suppliers and customers. For example, we had a brief pause in operations at the F-35 Final Assembly and Check Out (FACO) facilities in Japan and Italy in March in observance of such countries’ COVID-19 policies. Additional closures could occur, and base closures, travel restrictions and quarantine requirements both within and outside the U.S. have affected our business. In many cases facilities are not operating under full staffing as a result of COVID-19, which could have an indeterminate longer-term impact. Flight test operations and training are being impacted by travel restrictions as a result of COVID-19, which has delayed some deliveries to customers. We also have some limited operations that are not designated as critical infrastructure and therefore have been mandated to close or operate at only minimum basic operations.

The U.S. Government has ~~suspended Turkey’s participation~~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 ~~F-35 program~~Defense Industrial Base, including large prime contractors like Lockheed Martin and ~~has initiated~~smaller suppliers. We continue to proactively monitor our supply chain and have implemented multiple actions to help mitigate the ~~process~~effects of COVID-19, including accelerating payments to ~~formally remove it from the program. Additionally, Turkey could be subject to U.S. sanctions~~suppliers within our global supply base as a result of ~~Turkey accepting delivery~~the actions taken by the DoD in changing the progress payment policy. We plan to continue to accelerate payments to the supply chain for the remainder of the ~~Russian S-400 air~~year in order to mitigate COVID-19 risks, prioritizing impacted suppliers and ~~missile defense system. Turkey is one~~small businesses. As described in Item 1A, Risk Factors of our ~~eight international partners~~Annual Report on Form 10-K, we rely on other companies and the ~~F-35 program~~U.S. Government to provide materials, major components and ~~has previously committed~~products, and to ~~purchase up~~perform a portion of the services that are provided to ~~100 F-35 aircraft, four~~our customers under the terms of most of our contracts. Many of these suppliers also supply parts for commercial aviation businesses which have been ~~delivered~~more significantly impacted by the pandemic due to ~~date~~the impacts on these markets. Global supply chain disruption caused by the response to ~~Luke Air Force Base, Arizona~~COVID-19 could impact our ability to perform on our contracts. We have identified a number of suppliers that have had potential delivery impacts due to COVID-19 and are working to manage those impacts. However, if we are not able to implement alternatives or other mitigations, 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 ~~pilot training. These pilot training activities~~international sales and deliveries. In addition, we could experience delays in new program starts or awards of future work as well as the uncertain impact of contract modifications to respond to the national emergency. Current limitations on travel to customers could impact international orders. We have been ~~suspended~~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. 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 outbreak or resurgences of COVID-19 infection in affected regions after they have begun to experience improvement.

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for costs arising from certain paid leave, including sick leave, a contractor provides to keep its employees or subcontractors in a ready state, including to protect the life and safety of government and contractor personnel through September 30, 2020. 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, 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. From time to time, we have used commercial paper backed by our revolving credit facility to manage the timing of cash flows. The commercial paper market was temporarily disrupted in March 2020 as a result of COVID-19, and while these markets are currently operating in a normal manner, depending on future market conditions and volatility, commercial paper may not be available on favorable terms or at all, or in the capacity desired. COVID-19 has also negatively affected the equity capital markets and our returns on our pension assets. As described in Item 1A, Risk Factors of our Annual Report on Form 10-K, changes in returns on plan assets may affect our plan funding, cash flows and stockholders’ equity. 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. As disclosed in Item 1A, Risk Factors of our Annual Report on Form 10-K, the carrying value and fair value of our Sikorsky reporting unit are closely aligned and any business deterioration, contract cancellations or terminations, or market pressures could cause our sales, earnings and cash flows to decline below our current projections and could cause goodwill and intangibles to be impaired.

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, the People’s Republic of China (China) announced it may impose sanctions against Lockheed Martin in response to a recent Congressional Notification of the potential Foreign Military Sale of Repair and Recertification Patriot Advanced Capability-3 (PAC-3) Missiles to Taiwan. Foreign military sales are government-to-government transactions and we work closely with the U.S. Government ~~the U.S. Government has said that these four jets~~on any military sales to international customers. We will ~~remain at Luke Air Force Base. Turkish suppliers also produce component parts for the program, many of which are sole-sourced. International sales of the F-35 are negotiated~~

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~~between the U.S. Government and international governments and Turkey’s removal from the F-35 program is a government-to-government matter. We are following~~continue to follow official U.S. Government guidance as it relates to sales to Taiwan and do not see a material impact on Lockheed Martin 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. As further described in Item 1A, Risk Factors of our Annual Report on Form 10-K, 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, which involve risks, and some raw materials required for our products are largely controlled by a single country and, therefore, can be adversely affected by potential trade actions involving that country. The nature, timing and potential impact of any sanctions that may be imposed by China or any other related actions that may be taken cannot be determined at this time.

We continue to evaluate the potential 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 is placing on the UK government, which may influence the government’s ability to make decisions on large complex programs of the type we perform. Brexit also may have adverse implications on the movement of products or sustainment activities between the UK and EU or may increase costs. Additionally, 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 all of our currency exposure. Therefore, we do not have material currency exposure to the pound sterling or the euro.

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International sales also may be affected by actions taken by the U.S. Government in the exercise of foreign policy, Congressional oversight or the financing of particular programs. For example, Congress may act to prevent or impose conditions upon the sale or delivery of our products, such as delays in obtaining Congressional approvals for exports requiring Congressional notification to the Kingdom of Saudi Arabia and Turkey and the suspension of sales of F-35 aircraft to Turkey and potential sanctions. In addition, discussions in Congress may result in sanctions on the ~~export~~Kingdom of ~~goods from the Turkish supply chain. We have been working closely with the~~Saudi Arabia. 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 are also affected by defense budgets and U.S. ~~Department of Defense~~foreign policy, including trade restrictions and ~~supporting activities to identify~~disputes, and ~~engage alternate suppliers~~there could be significant delays or other issues in reaching definitive agreements for the component parts Turkish suppliers produce for the F-35 program to ensure continuity of production. We will seek to replace Turkey’s purchase of 100 jets with potential new customers and/or expanded orders from existing partner countries.

~~While the potential effects of removing Turkey from the F-35 program~~announced programs and ~~any potential U.S. sanctions cannot be determined at this time, these actions~~international customer priorities could ~~impact~~change. Additionally, the timing of orders disrupt the production of the aircraft, delay delivery of aircraft, disrupt delivery of sustainment components produced in Turkey and impact funding on the program including the impact of any reprogramming of funds to develop alternate sources for parts made in Turkey. The imposition of sanctions on Turkey and potential reciprocal actions against the United States by Turkey could also affect other programs that include sales to Turkey or work with Turkish industry, including Sikorsky Black Hawk helicopter production that is dependent on sole-source components from Turkish suppliers and the Turkish Utility Helicopter Program. These effects could have a material impact to our operating results, financial position and cash flows. Such activity could also result in claims from our ~~suppliers, which~~international customers can be less predictable than for our U.S. customers and may ~~include both~~lead to fluctuations in the amount ~~established in any settlement agreements, the costs of evaluating the supplier settlement proposals and the costs of negotiating settlement agreements. While it would be~~reported each year for our ~~expectation that these costs would ultimately be recovered from the U.S. Government, we have no assurance and the timing of any recovery could affect our cash flows and results of operations.~~international sales.

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

There were no sales of unregistered equity securities during the quarter ended June ~~30, 2019.~~28, 2020.

The following table provides information about our repurchases of our common stock that is registered pursuant to Section 12 of the Securities Exchange Act of 1934 during the quarter ended June ~~30, 2019.~~28, 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 ^(b)
Amount
Available for
Future Share
Repurchases
Under the
Plans or
Programs ^(b)
(in millions)
April 1, 2019 – April 28, 2019 136,068
$ 300.49
136,068
$ 2,686

April 29, 2019 – May 26, 2019 233,919
$ 334.80
233,894
$ 2,608

May 27, 2019 – June 30, 2019 278,494
$ 351.26
277,279
$ 2,510

Total 648,481
^(c)
$ 334.67
647,241

Period ^(a)

~~We close our books and records on~~

Total Number
of Shares
Purchased

Average
Price Paid
Per Share

Total Number of

Purchased as

Part of Publicly

Announced Plans or Programs ^(b)

Approximate Dollar Value of Shares That May Yet be Purchased Under 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,Plans or Programs ^(b)

(in millions)

March 30, 2020 – April ~~28, 2019 was the last day of our April 2019 fiscal month.~~26, 2020

	192,843		$	366.44			192,843		$	1,976
April 26, 2020 – May 31, 2020^(b)(c)	In October 2010, our Board of Directors approved a share repurchase program pursuant to which we are authorized to repurchase our common stock in privately negotiated transactions or in the open market at prices per share not exceeding the then-current market prices. From time to time, our Board of Directors authorizes increases to our share repurchase program. The total remaining authorization for future common share repurchases under our share repurchase program was $2.5 billion as of	649,219			$	376.06		648,678			$	1,882
June 30, 2019. 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.1, 2020 – June 28, 2020

	298,460		$	374.65			298,460	$	1,770
Total^(c)(d)	During the quarter ended June 30, 2019, the total number of shares purchased included 1,240 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.	1,140,522			$	372.99		1,139,981

^(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, April 26, 2020 was the last day of our April 2020 fiscal month.

^(b)In October 2010, our Board of Directors approved a share repurchase program pursuant to which we are authorized to repurchase our common stock in privately negotiated transactions or in the open market at prices per share not exceeding the then-current market prices. From time to time, our Board of Directors authorizes increases to our share repurchase program. The total remaining authorization for future common share repurchases under our share repurchase program was $1.8 billion as of June 28, 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 first quarter of 2020, we entered into an accelerated share repurchase (ASR) agreement to repurchase $500 millionof our common stock through April 2020. Under the terms of the ASR agreement, in March 2020 we paid $500 million and received an initial delivery of 1,041,884 shares of our common stock. Upon final settlement of the ASR agreement in April 2020, we received an additional 398,391 shares of our common stock for no additional consideration 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. See “Note 9 – Stockholders’ Equity” included in our Notes to Consolidated Financial Statements. Average Price Paid Per Share above does not include ASR shares.

^(d)During the quarter ended June 28, 2020, the total number of shares purchased included 541 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.

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ITEM 6. Exhibits


Exhibit No.	Description

3.1	Bylaws of Lockheed Martin Corporation, as amended and restated effective April 8, 2020 (incorporated by reference to Exhibit ~~No.~~	~~Description~~3.1 to Lockheed Martin Corporation’s Current Report on Form 8-K filed with the SEC on April 9, 2020)

1510.1	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)

10.2	Form of Restricted Stock Unit Award Agreement under the Lockheed Martin Corporation 2020 Incentive Performance Award Plan

10.3	Form of Performance Stock Unit Award Agreement (2020 - 2022 Performance Period) under the Lockheed Martin Corporation 2020 Incentive Performance Award Plan

10.4	Form of Long Term Incentive Performance Award Agreement (2020 - 2022 Performance Period) under the Lockheed Martin Corporation 2020 Incentive Performance Award Plan

10.5	CEO New Hire Restricted Stock Unit Award Agreement under the Lockheed Martin Corporation 2020 Incentive Performance Award Plan

10.6	Amendment No. 2 to Lockheed Martin Corporation Executive Severance Plan, as amended and restated effective December 1, 2016

15	Acknowledgment of Independent Registered Public Accounting Firm

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

31.2	Certification of Kenneth R. Possenriede pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32	Certification of ~~Marillyn A. Hewson~~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	Inline XBRL Taxonomy Extension Schema Document

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

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

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SIGNATURE

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


			Lockheed Martin Corporation
			(Registrant)

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

Date: July ~~23, 2019~~21, 2020		By: /s/ Brian P. Colan
			Brian P. Colan
			Vice President and Controller
			(Duly Authorized Officer and Chief Accounting Officer)


	June 30, 2019			December 31, 2018				June 28, 2020				December 31, 2019
	(unaudited)							(unaudited)
Assets							Assets
Current assets							Current assets
Cash and cash equivalents	$	1,167		$	772		Cash and cash equivalents	$	2,855	$	1,514
Receivables, net	2,546			2,444			Receivables, net	2,835		2,337
Contract assets	10,388			9,472			Contract assets	9,821		9,094
Inventories	3,599			2,997			Inventories	3,521		3,619
Other current assets	400			418			Other current assets	538		531
Total current assets	18,100			16,103			Total current assets	19,570		17,095
Property, plant and equipment, net	6,170			6,124			Property, plant and equipment, net	6,663		6,591
Goodwill	10,775			10,769			Goodwill	10,579		10,604
Intangible assets, net	3,351			3,494			Intangible assets, net	3,077		3,213
Deferred income taxes	3,163			3,208			Deferred income taxes	3,127		3,319
Other noncurrent assets	6,281			5,178			Other noncurrent assets	6,587		6,706
Total assets	$	47,840		$	44,876		Total assets	$	49,603	$	47,528
Liabilities and equity							Liabilities and equity
Current liabilities							Current liabilities
Accounts payable	$	2,611		$	2,402		Accounts payable	$	1,453	$	1,281
Contract liabilities	6,766			6,491			Contract liabilities	7,481		7,054
Salaries, benefits and payroll taxes	2,077			2,122			Salaries, benefits and payroll taxes	2,488		2,466
Current maturities of long-term debt and commercial paper	900			1,500
Current maturities of long-term debt							Current maturities of long-term debt	500		1,250
Other current liabilities	2,778			1,883			Other current liabilities	2,966		1,921
Total current liabilities	15,132			14,398			Total current liabilities	14,888		13,972
Long-term debt, net	12,637			12,604			Long-term debt, net	12,174		11,404
Accrued pension liabilities	11,426			11,410			Accrued pension liabilities	12,921		13,234
Other postretirement benefit liabilities	688			704
Other noncurrent liabilities	5,061			4,311			Other noncurrent liabilities	5,834		5,747
Total liabilities	44,944			43,427			Total liabilities	45,817		44,357
Stockholders’ equity							Stockholders’ equity
Common stock, $1 par value per share	281			281			Common stock, $1 par value per share	278		280
Additional paid-in capital	—			—			Additional paid-in capital	—		—
Retained earnings	16,408			15,434			Retained earnings	18,876		18,401
Accumulated other comprehensive loss	(13,839		)	(14,321		)	Accumulated other comprehensive loss	(15,403)		(15,554)
Total stockholders’ equity	2,850			1,394			Total stockholders’ equity	3,751		3,127
Noncontrolling interests in subsidiary	46			55			Noncontrolling interests in subsidiary	35		44
Total equity	2,896			1,449			Total equity	3,786		3,171
Total liabilities and equity	$	47,840		$	44,876		Total liabilities and equity	$	49,603	$	47,528


	Six Months Ended							Six Months Ended
	June 30, 2019			June 24, 2018				June 28, 2020				June 30, 2019
Operating activities							Operating activities
Net earnings	$	3,124		$	2,320		Net earnings	$	3,343	$	3,124
Adjustments to reconcile net earnings to net cash provided by operating activities							Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization	565			566			Depreciation and amortization	608		565
Stock-based compensation	104			98			Stock-based compensation	115		104
Equity method investment impairment							Equity method investment impairment	128		—
Gain on property sale	(51		)	—			Gain on property sale	—		(51)
Severance and restructuring charges	—			96
Changes in assets and liabilities							Changes in assets and liabilities
Receivables, net	(102		)	(217		)	Receivables, net	(498)		(102)
Contract assets	(916		)	(1,289		)	Contract assets	(727)		(916)
Inventories	(602		)	(160		)	Inventories	98		(602)
Accounts payable	237			1,224			Accounts payable	191		237
Contract liabilities	275			(615		)	Contract liabilities	427		275
Postretirement benefit plans	552			(2,790		)	Postretirement benefit plans	(77)		552
Income taxes	112			928			Income taxes	473		112
Other, net	33			399			Other, net	415		33
Net cash provided by operating activities	3,331			560			Net cash provided by operating activities	4,496		3,331
Investing activities							Investing activities
Capital expenditures	(533		)	(480		)	Capital expenditures	(636)		(533)
Other, net	25			151			Other, net	4		25
Net cash used for investing activities	(508		)	(329		)	Net cash used for investing activities	(632)		(508)
Financing activities							Financing activities
Dividends paid	(1,260		)	(1,156		)	Dividends paid	(1,364)		(1,260)
Repurchases of common stock	(500		)	(610		)	Repurchases of common stock	(1,015)		(500)
Issuance of long-term debt, net of related costs							Issuance of long-term debt, net of related costs	1,131		—
Repayments of current and long-term debt							Repayments of current and long-term debt	(1,150)		—
Repayments of commercial paper, net	(600		)	—			Repayments of commercial paper, net	—		(600)
Other, net	(68		)	(145		)	Other, net	(125)		(68)
Net cash used for financing activities	(2,428		)	(1,911		)	Net cash used for financing activities	(2,523)		(2,428)
Net change in cash and cash equivalents	395			(1,680		)	Net change in cash and cash equivalents	1,341		395
Cash and cash equivalents at beginning of period	772			2,861			Cash and cash equivalents at beginning of period	1,514		772
Cash and cash equivalents at end of period	$	1,167		$	1,181		Cash and cash equivalents at end of period	$	2,855	$	1,167


	Six Months Ended							Six Months Ended
	June 30, 2019			June 24, 2018				June 28, 2020				June 30, 2019
Cash and cash equivalents at beginning of year	$	772		$	2,861		Cash and cash equivalents at beginning of year	$	1,514	$	772
Operating activities							Operating activities
Net earnings	3,124			2,320			Net earnings	3,343		3,124
Non-cash adjustments	618			760			Non-cash adjustments	851		618
Changes in working capital	(1,108		)	(1,057		)	Changes in working capital	(509)		(1,108)
Other, net	697			(1,463		)	Other, net	811		697
Net cash provided by operating activities	3,331			560			Net cash provided by operating activities	4,496		3,331
Net cash used for investing activities	(508		)	(329		)	Net cash used for investing activities	(632)		(508)
Net cash used for financing activities	(2,428		)	(1,911		)	Net cash used for financing activities	(2,523)		(2,428)
Net change in cash and cash equivalents	395			(1,680		)	Net change in cash and cash equivalents	1,341		395
Cash and cash equivalents at end of period	$	1,167		$	1,181		Cash and cash equivalents at end of period	$	2,855	$	1,167



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


																							Common Stock		Additional Paid-in Capital				Retained Earnings		Accumulated Other Comprehensive Loss			Total Stockholders’ Equity				Noncontrolling Interests in Subsidiary	Total Equity
Balance at March 29, 2020																						Balance at March 29, 2020	$	279	$	—	$	18,708	$	(15,541)		$	3,446	$	41	$	3,487
Net earnings																						Net earnings	—		—		1,626		—			1,626		—		1,626
Other comprehensive income, net of tax																						Other comprehensive income, net of tax	—		—		—		138			138		—		138
Repurchases of common stock																						Repurchases of common stock	(1)		(168)		(108)		—			(277)		—		(277)
Dividends declared																						Dividends declared	—		—		(1,350)		—			(1,350)		—		(1,350)
Stock-based awards, ESOP activity and other																						Stock-based awards, ESOP activity and other	—		168		—		—			168		—		168
Net decrease in noncontrolling interests in subsidiary																						Net decrease in noncontrolling interests in subsidiary	—		—		—		—			—		(6)		(6)
Balance at June 28, 2020																						Balance at June 28, 2020	$	278	$	—	$	18,876	$	(15,403)		$	3,751	$	35	$	3,786
	Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Noncontrolling Interests in Subsidiary			Total Equity
Balance at March 31, 2019	$	281		$	—		$	16,278		$	(14,094	)	$	2,465		$	57		$	2,522		Balance at March 31, 2019	$	281	$	—	$	16,278	$	(14,094)		$	2,465	$	57	$	2,522
Net earnings	—			—			1,420			—			1,420			—			1,420			Net earnings	—		—		1,420		—			1,420		—		1,420
Other comprehensive income, net of tax	—			—			—			255			255			—			255			Other comprehensive income, net of tax	—		—		—		255			255		—		255
Repurchases of common stock	(1		)	(174		)	(41		)	—			(216		)	—			(216		)	Repurchases of common stock	(1)		(174)		(41)		—			(216)		—		(216)
Dividends declared	—			—			(1,249		)	—			(1,249		)	—			(1,249		)	Dividends declared	—		—		(1,249)		—			(1,249)		—		(1,249)
Stock-based awards, ESOP activity and other	1			174			—			—			175			—			175			Stock-based awards, ESOP activity and other	1		174		—		—			175		—		175

Net decrease in noncontrolling interests in subsidiary	—			—			—			—			—			(11		)	(11		)	Net decrease in noncontrolling interests in subsidiary	—		—		—		—			—		(11)		(11)
Balance at June 30, 2019	$	281		$	—		$	16,408		$	(13,839	)	$	2,850		$	46		$	2,896		Balance at June 30, 2019	$	281	$	—	$	16,408	$	(13,839)		$	2,850	$	46	$	2,896

Balance at March 25, 2018	$	284		$	—		$	14,123		$	(14,589	)	$	(182	)	$	71		$	(111	)
Net earnings	—			—			1,163			—			1,163			—			1,163
Other comprehensive income, net of tax	—			—			—			194			194			—			194
Repurchases of common stock	(1		)	(136		)	(186		)	—			(323		)	—			(323		)
Dividends declared	—			—			(572		)	—			(572		)	—			(572		)
Stock-based awards, ESOP activity and other	—			136			—			—			136			—			136
Net decrease in noncontrolling interests in subsidiary	—			—			—			—			—			(8		)	(8		)
Balance at June 24, 2018	$	283		$	—		$	14,528		$	(14,395	)	$	416		$	63		$	479



	Quarter Ended June 28, 2020
	Aeronautics		MFC		RMS		Space		Total
Net sales
Products	$	5,474	$	2,422	$	3,259	$	2,417	$	13,572
Services	1,029		379		780		460		2,648
Total net sales	$	6,503	$	2,801	$	4,039	$	2,877	$	16,220
Net sales by contract type
Fixed-price	$	4,467	$	1,877	$	2,639	$	483	$	9,466
Cost-reimbursable	2,036		924		1,400		2,394		6,754
Total net sales	$	6,503	$	2,801	$	4,039	$	2,877	$	16,220
Net sales by customer
U.S. Government	$	5,352	$	2,098	$	2,926	$	2,533	$	12,909
International ^(a)	1,132		699		1,011		330		3,172
U.S. commercial and other	19		4		102		14		139
Total net sales	$	6,503	$	2,801	$	4,039	$	2,877	$	16,220
Net sales by geographic region
United States	$	5,371	$	2,102	$	3,028	$	2,547	$	13,048
Asia Pacific	353		72		464		16		905
Europe	506		170		170		314		1,160
Middle East	213		442		213		—		868
Other	60		15		164		—		239
Total net sales	$	6,503	$	2,801	$	4,039	$	2,877	$	16,220



	Quarter Ended June 30, 2019
	Aeronautics		MFC		RMS		Space		Total
Net sales
Products	$	4,740	$	1,963	$	3,023	$	2,277	$	12,003
Services	810		448		745		421		2,424
Total net sales	$	5,550	$	2,411	$	3,768	$	2,698	$	14,427
Net sales by contract type
Fixed-price	$	4,040	$	1,444	$	2,526	$	535	$	8,545
Cost-reimbursable	1,510		967		1,242		2,163		5,882
Total net sales	$	5,550	$	2,411	$	3,768	$	2,698	$	14,427
Net sales by customer
U.S. Government	$	3,476	$	1,900	$	2,675	$	2,332	$	10,383
International ^(a)	2,010		475		974		360		3,819
U.S. commercial and other	64		36		119		6		225
Total net sales	$	5,550	$	2,411	$	3,768	$	2,698	$	14,427
Net sales by geographic region
United States	$	3,540	$	1,936	$	2,794	$	2,338	$	10,608
Asia Pacific	784		86		418		23		1,311
Europe	847		103		143		328		1,421
Middle East	335		272		247		9		863
Other	44		14		166		—		224
Total net sales	$	5,550	$	2,411	$	3,768	$	2,698	$	14,427

	Six Months Ended June 30, 2019
	Aeronautics		MFC		RMS		Space		Total
Net sales
Products	$	9,536	$	3,879	$	6,082	$	4,476	$	23,973
Services	1,598		882		1,448		862		4,790
Total net sales	$	11,134	$	4,761	$	7,530	$	5,338	$	28,763
Net sales by contract type
Fixed-price	$	8,210	$	2,979	$	5,145	$	1,058	$	17,392
Cost-reimbursable	2,924		1,782		2,385		4,280		11,371
Total net sales	$	11,134	$	4,761	$	7,530	$	5,338	$	28,763
Net sales by customer
U.S. Government	$	6,911	$	3,533	$	5,350	$	4,568	$	20,362
International ^(a)	4,105		1,145		1,969		755		7,974
U.S. commercial and other	118		83		211		15		427
Total net sales	$	11,134	$	4,761	$	7,530	$	5,338	$	28,763
Net sales by geographic region
United States	$	7,029	$	3,616	$	5,561	$	4,583	$	20,789
Asia Pacific	1,690		208		748		31		2,677
Europe	1,645		225		341		709		2,920
Middle East	672		685		532		15		1,904
Other	98		27		348		—		473
Total net sales	$	11,134	$	4,761	$	7,530	$	5,338	$	28,763



	Quarter Ended June 24, 2018
	Aeronautics		MFC		RMS		Space			Total
Net sales
Products	$	4,511	$	1,709	$	2,904	$	2,026		$	11,150
Services	810		376		662		400			2,248
Total net sales	$	5,321	$	2,085	$	3,566	$	2,426		$	13,398
Net sales by contract type
Fixed-price	$	3,906	$	1,395	$	2,450	$	460		$	8,211
Cost-reimbursable	1,415		690		1,116		1,966			5,187
Total net sales	$	5,321	$	2,085	$	3,566	$	2,426		$	13,398
Net sales by customer
U.S. Government	$	3,444	$	1,502	$	2,608	$	2,070		$	9,624
International ^(a)	1,835		542		822		344			3,543
U.S. commercial and other	42		41		136		12			231
Total net sales	$	5,321	$	2,085	$	3,566	$	2,426		$	13,398
Net sales by geographic region
United States	$	3,486	$	1,543	$	2,744	$	2,082		$	9,855
Asia Pacific	786		125		301		31			1,243
Europe	678		46		224		332			1,280
Middle East	320		364		143		(19		)	808
Other	51		7		154		—			212
Total net sales	$	5,321	$	2,085	$	3,566	$	2,426		$	13,398

	Six Months Ended June 24, 2018
	Aeronautics		MFC		RMS		Space			Total
Net sales
Products	$	8,281	$	3,062	$	5,621	$	3,948		$	20,912
Services	1,438		700		1,168		815			4,121
Total net sales	$	9,719	$	3,762	$	6,789	$	4,763		$	25,033
Net sales by contract type
Fixed-price	$	7,121	$	2,507	$	4,658	$	860		$	15,146
Cost-reimbursable	2,598		1,255		2,131		3,903			9,887
Total net sales	$	9,719	$	3,762	$	6,789	$	4,763		$	25,033
Net sales by customer
U.S. Government	$	6,209	$	2,590	$	4,964	$	3,940		$	17,703
International ^(a)	3,412		1,096		1,603		800			6,911
U.S. commercial and other	98		76		222		23			419
Total net sales	$	9,719	$	3,762	$	6,789	$	4,763		$	25,033
Net sales by geographic region
United States	$	6,307	$	2,666	$	5,186	$	3,963		$	18,122
Asia Pacific	1,540		223		625		54			2,442
Europe	1,186		115		379		758			2,438
Middle East	577		744		314		(12		)	1,623
Other	109		14		285		—			408
Total net sales	$	9,719	$	3,762	$	6,789	$	4,763		$	25,033


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


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



	Total		Remainder of 2019		2020		2021		2022		2023		Thereafter
Operating leases	$	1,242	$	184	$	191	$	163	$	128	$	99	$	477
Less: imputed interest	$	174
Total	$	1,068



	June 30, 2019						December 31, 2018
	Total		Level 1		Level 2		Total		Level 1		Level 2
Assets
Mutual funds	$	1,031	$	1,031	$	—	$	978	$	978	$	—
U.S. Government securities	104		—		104		105		—		105
Other securities	244		113		131		144		28		116
Derivatives	26		—		26		22		—		22
Liabilities
Derivatives	49		—		49		61		—		61
Assets measured at NAV ^(a)
Other commingled funds	19						18