2017 ANNUAL REPORT - lockheedmartin.com

1 2017 ANNUAL REPORTLOCKHEED MARTIN CORPORATION'*/"/$*"-)*()-*()54*ONJMMJPOT FYDFQUQFSTIBSFEBUB /FU4 BMFT 4 FHNFOU0 QFSBUJOH1 SPGJU $POTPMJEBUFE0 QFSBUJOH1 SPGJU /FU&BSOJOHT'SPN$POUJOVJOH0 QFSBUJPOT /FU&BSOJOHT %JMVUFE&BSOJOHT1FS$PNNPO4 IBSF$POUJOVJOH0 QFSBUJPOT /FU&BSOJOHT $BTI%JWJEFOET1FS$PNNPO4 IBSF "WFSBHF%JMVUFE$PNNPO4 IBSFT0 VUTUBOEJOH $BTIBOE$BTI&RVJWBMFOUT 5 PUBM"TTFUT 5 PUBM%FCU OFU 5 PUBM %FGJDJU &RVJUZ $PNNPO4 IBSFT0 VUTUBOEJOHBU:FBS &OE /FU$BTI1 SPWJEFECZ0 QFSBUJOH"DUJWJUJFT /05& 'PSBEEJUJPOBMJOGPSNBUJPOSFHBSEJOHUIFBNPV OUTQSFTFOUFEBCPWFTFFUIF'PSN ,QPSUJPOPGUIJT"OOVBM3 FQPSU "SFDPODJMJBUJPOPG4 FHNFOU0 QFSBUJOH1 SPGJUUP$POTPMJEBUFE0 QFSBUJOH1 SPGJUJTJODMVEFEPOUIFQBHFQSFDFEJOHUIFCBDL DPWFSPGUIJT"OOVBM3 FQPSU 0 OUIF$PWFS 5 FSNJOBM)JHI"MUJUVEF"SFB%FGFOTF5IF5 FSNJOBM)JHI"MUJUVEF"SFB%FGFOTF 5)""% 4 USPPQT BMMJFEGPSDFT QPQVMBUJPODFOUFST BOEDSJUJDBMJOGSBTUSVDUVSFBHBJOTUTIPSU NFEJVN BOEJOUFSNFEJBUF SBOHFCBMMJTUJDNJTTJMFT 5IF6 4 %FQBSUNFOUPG%FGFOTF` "HFODZNBOBHFT5)""% UIF6 4 "SNZPQFSBUFTJU 5)""%XPSLTJODPODFSUXJUIJOUFSDFQUPSTMJLF1 "$ 1"$.

2 4& BOE"FHJT#.%UPNBYJNJ[FJOUFHSBUFEBJSBOENJT TJMFEFGFOTFDBQBCJMJUJFTBOEPGGFSGGUIFTQFF E NPCJMJUZ BOEGMFYJCJMJUZXBSGJHIUFSTOFFEUPBEBQUUPDI BOHJOHUISFBUTJUVBUJPOTBSPVOEUIFHMPCF 2017 ANNUAL ReportIDEAR FELLOW STOCKHOLDERS:Throughout 2017 , Lockheed Martin demonstratedour leadership as the world s premier aerospace anddefense company. We listened to our customers evolving geopolitical concerns and adapted to their budgetary needs to provide them with the advanced technologies andaffordable solutions they need in the 21st performance in meeting these needs and commitments was strong, consistent, and well-focused. The year was marked by solid financial, operational, andstrategic results performance that drove a strong returnon investment for stockholders and lays the groundwork for future Lockheed Martin impressive performance of 2017 is even more notablebecause it came during an immensely challenging and uncertain period in the world.]

3 The pace of business changeand the magnitude of geopolitical events over the past12 months from the United States and Europe to NorthKorea and the Middle East made for one of the most dynamic and unpredictable environments our company hasseen in our more than 105 years of , even in this challenging environment, all four of Lockheed Martin s business areas performed with excellence. As you will see in the pages that follow, we adapted to new realities and market dynamics with speed, agility, andinnovation. In fact, some of our greatest successes in 2017 were seen and felt around the world. For example, customers and partner nations saw the F-35 s presence on the global stage from Japan toIsrael, from Australia to Norway. And as the fifth-generation capabilities of the unrivaled fighter made an impact, Lockheed Martin continued to successfully ramp up production to meet rising domestic and international demand.

4 Our nation and our allies were also strengthened by our missile defense technologies, which included deploymentsof Terminal High Altitude Area Defense (THAAD), the Aegis Combat System, as well as the Patriot AdvancedCapability-3 (PAC-3) and PAC-3 Missile Segment Enhancement (PAC-3 MSE) interceptors. In 2017 , Lockheed Martin pursued and secured new, strategic opportunities in the Kingdom of Saudi Arabia. The historic agreements between the United States government and Saudi Arabia opened up the potential for the sale of $28 billion of Lockheed Martin technologies over the next addition to these strategic moves and successes, Lockheed Martin continued our corporate commitment toreach out and effectively engage elected leaders and policymakers.

5 These efforts began before the presidential election, continued through the transition, and have extended to both Congress and the administration. Reflectingthe relevance of our products, the federal budget and congressional spending decisions throughout the year supported the F-35, C-130, PAC-3, THAAD, CH-53K, Aegis, and other key Lockheed Martin programs. In pressing forward on all these fronts and many more in 2017 , Lockheed Martin, once again, strongly contributedto national security, international cooperation, and global A. Hewson, Chairman, President and Chief Executive OfficerLockheed Martin CorporationIIDELIVERED STRONG FINANCIAL RESULTSOur stockholders saw a total return of 32 percent in 2017 contributing to a 307 percent total return over the past five significant return on investment was drivenby strong operational performance, robust cashgeneration, and a far-sighted cash deployment 2017 , Lockheed Martin generated $ billion in cashfrom operations, and we expect to generate another$17 billion in cash over the next three returned 79 percent of our free cash flow* tostockholders throughout the 2017 , share repurchases totaled $ billion.

6 And weincreased the share repurchase authority to provideflexibility for future paid out $ billion in dividends in 2017 , and increased the quarterly dividend by 10 percent in the third quarter to $ annually. Other key financial metrics reflect our strong and consistent operational performance in 2017 ,including: Sales of $ billion, up eight percent versus 2016 Segment operating profit* of $ billion Segment margin* of percent Net earnings from continuing operations of approximately $ billion Diluted earnings per share of $ from continuing operationsOur net earnings and earnings per share for 2017 reflect a one-time charge of approximately $ billion, or $ per share, resulting from the enactment of theTax Cuts and Jobs Act of 2017 . Among its provisions,the Tax Cuts and Jobs Act reduced the maximum corporate income tax rate from 35 percent to 21 UNWAVERING FOCUS ON CUSTOMERSOur performance in 2017 was ultimately driven by our commitment to put the customer at the centerof everything we do.

7 We engaged, we listened, andwe continued to build a deep understanding of the geopolitical threats, economic pressures, and technological developments that are shaping ourcustomers business successes flowed directly from these close relationships and ongoing dialogue with our customers. The breadth and depth of our portfolio was reflected in $ billion of new orders. And we ended 2017 with avery strong backlog of $100 the corporation, many key programs achievedimportant milestones:Supporting Air SuperiorityOur largest program, the F-35, continued to achievenew milestones strategically positioning us for years of growth and international sales. To meet risingdemand, we expanded our production capabilities and maintained a robust supply chain.

8 Our Aeronautics business area successfully delivered 66 aircraft in is a greater than 40 percent increase over 2016 . In addition, we reached an agreement with the of Defense (DoD) for 90 additional F-35 aircraft for approximately $ billion. This representsa $728 million savings for taxpayers an eight percent lower price compared to the previous create capacity for increasing F-35 production, we announced that we will move production of the F-16 from Fort Worth, Texas, to Greenville, South Carolina. In this new location, Lockheed Martin will be poisedto produce up to 19 new F-16s for Bahrain in a deal worth up to $ billion dollars. This opens a newchapter in the story of the world s most advancedfourth-generation fighter, as we pursue emerging opportunities in other , Aeronautics performed strongly in 2017 withthe delivery of 107 aircraft including 66 F-35s, eightF-16s, 26 C-130Js, and seven Leadership Team (from left to right): Richard F.

9 Ambrose, Executive Vice President, Space; Dale P. Bennett, Executive Vice President, Rotary and Mission Systems; Bruce L. Tanner, Executive Vice President and Chief Financial Officer; Marillyn A. Hewson, Chairman, President and Chief Executive Officer; Orlando P. Carvalho, Executive Vice President, Aeronautics; Richard H. Edwards, Executive Vice President, Lockheed Martin International, as of January 8, 2018 (throughout 2017 , he served as an executive officer in his capacity as Executive Vice President, Missiles and Fire Control); and Frank A. St. John, Executive Vice President, Missiles and Fire Control, as of January 8, ANNUAL ReportIIIL ockheed Martin CorporationIVProviding Workhorse CapabilitiesRotary and Mission Systems (RMS) won a five-year contract for 257 H-60 BLACK HAWK helicopters to bedelivered to the Army and Foreign Military Sales(FMS) customers.

10 The contract value for expected deliveries is approximately $ billion and includes options for an additional 103 aircraft, with the total contract value potentially reaching $ billion. These helicopters are a valuable asset for our military andallied nations and are considered to be the workhorses of the Army. It was the ninth time that the government has provided Sikorsky with a multi-yearcontract for H-60. Another focus program within the Sikorsky line-of-business, the CH-53K King Stallion heavy-lifthelicopter, celebrated a major win. The MarineCorps awarded us a contract for the first lot of production aircraft, which will be assembled at Sikorsky s headquarters in Stratford, Connecticut. The DoD s Program of Record is for 200 CH-53K aircraft.