0001193125-15-350723 | 10-Q | XBRL Viewer

11,461

11,114

33,215

33,070

Cost of sales

Products

(7,869)

(7,659)

(22,922)

(22,928)

Services

(2,326)

(2,228)

(6,493)

(6,241)

^[1]

(35)

Other unallocated, net

125

Total cost of sales

(10,205)

(9,839)

(29,325)

(29,083)

Gross profit

1,256

1,275

3,890

3,987

Other income, net

117

265

263

Other non-operating income, net

1,354

1,392

4,155

4,250

Interest expense

(104)

(82)

(301)

(253)

Earnings before income taxes

1,251

1,311

3,860

4,000

Income tax expense

(386)

(423)

(1,188)

(1,290)

Basic earnings per common share in USD

$ 865

$ 888

$ 2,672

$ 2,710

Earnings per common share

$ 2.80

$ 2.81

$ 8.57

$ 8.54

Diluted earnings per common share in USD

2.77

2.76

8.45

8.39

Cash dividends paid per common share in USD

$ 1.50

$ 1.33

$ 4.50

$ 3.99

[1]	Severance charges for 2015 consist of amounts associated with the planned elimination of certain positions at our IS&GS business segment (Note 9, under the caption "Restructuring Charges"). Severance charges for initiatives that are not significant are included in business segment operating profit.

Consolidated Statements of Comprehensive Income - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 27, 2015	Sep. 28, 2014	Sep. 27, 2015	Sep. 28, 2014
Net earnings	$ 865	$ 888	$ 2,672	$ 2,710
Postretirement benefit plans
Net other comprehensive loss recognized during the period due to plan re-measurements				(735)
Amounts reclassified from accumulated other comprehensive loss	212	186	637	520
Other, net	(77)	(66)	(88)	(48)
Other comprehensive income (loss), net of tax	135	120	549	(263)
Comprehensive income	$ 1,000	$ 1,008	$ 3,221	$ 2,447

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

+ References + Details

Consolidated Balance Sheets - USD ($) $ in Millions	Sep. 27, 2015	Dec. 31, 2014
Current assets
Cash and cash equivalents	$ 3,300	$ 1,446
Receivables, net	6,740	5,884
Inventories, net	3,237	2,882
Deferred income taxes	1,263	1,451
Other current assets	515	666
Total current assets	15,055	12,329
Property, plant and equipment, net	4,677	4,755
Goodwill	10,832	10,862
Deferred income taxes	4,096	4,013
Other noncurrent assets	4,957	5,114
Total assets	39,617	37,073
Current liabilities
Accounts payable	2,215	1,570
Customer advances and amounts in excess of costs incurred	5,339	5,790
Salaries, benefits and payroll taxes	1,947	1,826
Current portion of long-term debt	952
Other current liabilities	2,527	1,926
Total current liabilities	12,980	11,112
Accrued pension liabilities	11,374	11,413
Other postretirement benefit liabilities	1,082	1,102
Long-term debt, net	7,460	6,169
Other noncurrent liabilities	3,908	3,877
Total liabilities	36,804	33,673
Stockholders' equity
Common stock, $1 par value per share	306	314
Additional paid-in capital	0	0
Retained earnings	13,828	14,956
Accumulated other comprehensive loss	(11,321)	(11,870)
Total stockholders' equity	2,813	3,400
Total liabilities and stockholders' equity	$ 39,617	$ 37,073

Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 27, 2015	Dec. 31, 2014
Common stock, par value (in USD per share)	$ 1	$ 1

Consolidated Statements of Cash Flows - USD ($)
$ in Millions

9 Months Ended

Sep. 27, 2015

Sep. 28, 2014

Operating activities

Adjustments to reconcile net earnings to net cash provided by operating activities

$ 2,672

$ 2,710

Depreciation and amortization

726

Stock-based compensation

118

128

Customer advances and amounts in excess of costs incurred

^[1]

Changes in assets and liabilities

Receivables, net

(861)

(231)

Inventories, net

(359)

Accounts payable

637

596

(421)

(458)

Postretirement benefit plans

868

(96)

Income taxes

126

270

Net cash provided by operating activities

196

356

3,737

4,067

Investing activities

Capital expenditures

(500)

(456)

Acquisitions of businesses and investments in affiliates

(622)

Net cash used for investing activities

(411)

(1,064)

Financing activities

Issuance of long-term debt, net of related costs

2,213

Repurchases of common stock

(2,364)

(1,676)

Proceeds from stock option exercises

126

278

Dividends paid

(1,427)

(1,286)

Net cash used for financing activities

(20)

(1,472)

(2,657)

Net change in cash and cash equivalents

1,854

346

Cash and cash equivalents at beginning of period

1,446

2,617

Cash and cash equivalents at end of period

$ 3,300

$ 2,963

[1]	Severance charges for 2015 consist of amounts associated with the planned elimination of certain positions at our IS&GS business segment (Note 9, under the caption "Restructuring Charges"). Severance charges for initiatives that are not significant are included in business segment operating profit.

Consolidated Statements of Stockholders' Equity - USD ($) $ in Millions	Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Loss
Beginning Balance at Dec. 31, 2013	$ 4,918	$ 319		$ 14,200	$ (9,601)
Net earnings	2,710			2,710
Other comprehensive income (loss), net of tax	(263)				(263)
Repurchases of common stock	(1,676)	(10)	$ (643)	(1,023)
Dividends declared	(1,763)			(1,763)
Stock-based awards and ESOP activity	648	5	643
Ending Balance at Sep. 28, 2014	4,574	314		14,124	(9,864)
Beginning Balance at Dec. 31, 2014	3,400	314		14,956	(11,870)
Net earnings	2,672			2,672
Other comprehensive income (loss), net of tax	549				549
Repurchases of common stock	(2,364)	(12)	(478)	(1,874)
Dividends declared	(1,926)			(1,926)
Stock-based awards and ESOP activity	482	4	$ 478
Ending Balance at Sep. 27, 2015	$ 2,813	$ 306		$ 13,828	$ (11,321)

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

+ References + Details

BASIS OF PRESENTATION

9 Months Ended

Sep. 27, 2015

BASIS OF PRESENTATION

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. We followed the accounting policies disclosed in the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014 (2014 Form 10-K) filed with the SEC.

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

We close our books and records on the last Sunday of the calendar quarter, which was on September 27 for the third quarter of 2015 and September 28 for the third quarter of 2014, 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.

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 2014 Form 10-K.

STRATEGIC ACTIONS

9 Months Ended

Sep. 27, 2015

STRATEGIC ACTIONS

NOTE 2 – STRATEGIC ACTIONS

Acquisition of Sikorsky Aircraft Corporation

On July 20, 2015, we announced that we entered into a definitive agreement to acquire Sikorsky Aircraft Corporation (Sikorsky), a global company primarily engaged in the design, manufacture and support of military and commercial helicopters, for $9.0 billion of cash, subject to certain adjustments. We expect to fund the acquisition with new debt issuances, commercial paper and cash on hand. We and United Technologies Corporation have agreed to make a joint election under Section 338(h)(10) of the Internal Revenue Code, which treats the transaction as an asset purchase for tax purposes. This election generates a cash tax benefit with an estimated net present value of $1.9 billion for Lockheed Martin and its shareholders. A majority of the required regulatory reviews have been completed, including in the European Union and the U.S. The transaction remains subject to other regulatory approvals and customary closing conditions, and is expected to close in the fourth quarter of 2015. On October 9, 2015, we entered into new revolving credit facilities to provide funding for the acquisition of Sikorsky and general corporate purposes (Note 9, under the caption “Long-term Debt”). Once the acquisition is complete, we plan to align Sikorsky under our Mission Systems and Training (MST) business segment. Our financial results will not include Sikorsky’s results until the acquisition is closed.

Strategic Review of Government IT Infrastructure Services and Technical Services Businesses

On July 20, 2015, we announced that we are conducting a strategic review of our government information technology (government IT) infrastructure services business within our Information Systems & Global Solutions (IS&GS) business segment and our technical services business within our Missiles and Fire Control (MFC) business segment, which we expect to complete in 2015. The programs being reviewed represent approximately $5.5 billion in estimated 2015 annual sales and approximately 16,500 employees. We expect the strategic review to result in a spin-off to our shareholders, a Reverse Morris Trust transaction, or a sale of these businesses. The IS&GS programs that are not included in the strategic review are mostly focused on defense and intelligence customers and will be realigned into our other business segments after completing the review. While we perform our strategic review, we will maintain the current operating and reporting structure and will continue to report the financial results of the government IT infrastructure services and technical services businesses in our continuing operations.

EARNINGS PER COMMON SHARE

9 Months Ended

Sep. 27, 2015

EARNINGS PER COMMON SHARE

NOTE 3 – 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

Nine Months Ended

September 27,
2015

September 28,
2014

September 27,
2015

September 28,
2014

Weighted average common shares outstanding for basic computations

308.4

316.3

311.9

317.4

Weighted average dilutive effect of equity awards

4.3

5.5

4.4

5.6

Weighted average common shares outstanding for diluted computations

312.7

321.8

316.3

323.0

We compute basic and diluted earnings per common share by dividing net earnings by the respective weighted average number of common shares outstanding for the periods presented. Our calculation of diluted earnings per common share also includes the dilutive effects for the assumed vesting of outstanding restricted stock units and performance stock units as well as exercise of outstanding stock options based on the treasury stock method. There were no anti-dilutive equity awards for the quarters and nine months ended September 27, 2015 and September 28, 2014.

INFORMATION ON BUSINESS SEGMENTS

9 Months Ended

Sep. 27, 2015

INFORMATION ON BUSINESS SEGMENTS

NOTE 4 – INFORMATION ON BUSINESS SEGMENTS

We currently operate in five business segments: Aeronautics, IS&GS, MFC, MST and Space Systems. We organize our business segments based on the nature of products and services offered. Our segment results do not reflect any impacts from the ongoing strategic review or the pending acquisition of Sikorsky.

Net sales of our business segments exclude intersegment sales as these activities are eliminated in consolidation. Operating profit of our business segments includes our share of earnings or losses from equity method investees as the operating activities of the equity method investees are closely aligned with the operations of our business segments. United Launch Alliance (ULA), which is part of our Space Systems business segment, is our primary equity method investee. Operating profit of our business segments excludes the FAS/CAS pension adjustment described below; expense for stock-based compensation; the effects of items not considered part of management’s evaluation of segment operating performance, such as charges related to significant severance actions (Note 9, under the caption “Restructuring Charges”) and goodwill impairments; gains or losses from divestitures; the effects of certain legal settlements; corporate costs not allocated to our business segments; and other miscellaneous corporate activities. These items are included in the reconciling item “Unallocated items” between operating profit from our business segments and our consolidated operating profit. See Note 9 (under the caption “Changes in Estimates”) for a discussion related to certain factors that may impact the comparability of net sales and operating profit of our business segments.

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

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


	Quarters Ended				Nine Months Ended
	September 27, 2015		September 28, 2014		September 27, 2015		September 28, 2014
Net sales
Aeronautics	$	3,921	$	3,544	$	11,186	$	10,785
Information Systems & Global Solutions		1,870		1,949		5,637		5,800
Missiles and Fire Control		1,938		1,908		5,218		5,666
Mission Systems and Training		1,802		1,679		5,261		5,078
Space Systems		1,930		2,034		5,913		5,741
Total net sales	$	11,461	$	11,114	$	33,215	$	33,070

Operating profit
Aeronautics	$	418	$	362	$	1,233	$	1,208
Information Systems & Global Solutions		163		175		459		524
Missiles and Fire Control		336		335		931		1,038
Mission Systems and Training		220		193		673		628
Space Systems		232		281		779		783
Total business segment operating profit		1,369		1,346		4,075		4,181
Unallocated items
FAS/CAS pension adjustment
FAS pension expense		(284)		(258)		(852)		(885)
Less: CAS pension cost		403		342		1,210		1,140
FAS/CAS pension adjustment		119		84		358		255
Stock-based compensation		(29)		(31)		(118)		(128)
Severance charges ^(a)		(35)		—		(35)		—
Other, net		(70)		(7)		(125)		(58)
Total unallocated items		(15)		46		80		69
Total consolidated operating profit	$	1,354	$	1,392	$	4,155	$	4,250

Intersegment sales
Aeronautics	$	21	$	21	$	65	$	78
Information Systems & Global Solutions		148		159		513		507
Missiles and Fire Control		102		81		291		244
Mission Systems and Training		342		331		987		944
Space Systems		36		25		96		78
Total intersegment sales	$	649	$	617	$	1,952	$	1,851

^(a)	Severance charges for 2015 consist of amounts associated with the planned elimination of certain positions at our IS&GS business segment (Note 9, under the caption “Restructuring Charges”). Severance charges for initiatives that are not significant are included in business segment operating profit.

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


	September 27, 2015		December 31, 2014
Assets
Aeronautics	$	6,908	$	6,021
Information Systems & Global Solutions		5,884		6,228
Missiles and Fire Control		4,424		4,050
Mission Systems and Training		6,217		6,277
Space Systems		4,182		3,914
Total business segment assets		27,615		26,490
Corporate assets ^(a)		12,002		10,583
Total assets	$	39,617	$	37,073

^(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.

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 20% of our total consolidated net sales for both the quarter and nine months ended September 27, 2015 and 17% of our total consolidated net sales for both the quarter and nine months ended September 28, 2014.

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 34
-URI http://asc.fasb.org/extlink&oid=51669610&loc=d3e8981-108599

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 41
-URI http://asc.fasb.org/extlink&oid=51669610&loc=d3e9038-108599

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
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-Section 50
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-URI http://asc.fasb.org/extlink&oid=51669610&loc=d3e8971-108599

Reference 4: http://www.xbrl.org/2003/role/presentationRef
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Reference 5: http://www.xbrl.org/2003/role/presentationRef
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-URI http://asc.fasb.org/extlink&oid=51669610&loc=d3e8380-108599

Reference 6: http://www.xbrl.org/2003/role/presentationRef
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Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
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-Topic 280
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-Section 50
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Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
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Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
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-Section 50
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-URI http://asc.fasb.org/extlink&oid=51669610&loc=d3e9031-108599

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 42
-URI http://asc.fasb.org/extlink&oid=51669610&loc=d3e9054-108599

Reference 11: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
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-Section 50
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-URI http://asc.fasb.org/extlink&oid=51669610&loc=d3e8538-108599

Reference 12: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
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Reference 13: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
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-Section 50
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-URI http://asc.fasb.org/extlink&oid=51669610&loc=d3e8924-108599

Reference 14: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
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-Section 50
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-URI http://asc.fasb.org/extlink&oid=51669610&loc=d3e8906-108599

+ Details

INVENTORIES, NET

9 Months Ended

Sep. 27, 2015

INVENTORIES, NET

NOTE 5 – INVENTORIES, NET

Inventories, net consisted of the following (in millions):


	September 27, 2015		December 31, 2014
Work-in-process, primarily related to long-term contracts and programs in progress	$	7,280	$	6,728
Less: customer advances and progress payments		(4,635)		(4,701)
		2,645		2,027
Other inventories		592		855
Total inventories, net	$	3,237	$	2,882

POSTRETIREMENT BENEFIT PLANS

9 Months Ended

Sep. 27, 2015

POSTRETIREMENT BENEFIT PLANS

NOTE 6 – POSTRETIREMENT BENEFIT PLANS

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


	Quarters Ended				Nine Months Ended
	September 27, 2015		September 28, 2014		September 27, 2015		September 28, 2014
Qualified defined benefit pension plans
Service cost	$	217	$	208	$	652	$	694
Interest cost		448		468		1,343		1,444
Expected return on plan assets		(683)		(687)		(2,050)		(2,006)
Recognized net actuarial losses		399		365		1,199		807
Amortization of prior service credits		(97)		(96)		(292)		(54)
Total net periodic benefit cost	$	284	$	258	$	852	$	885

Retiree medical and life insurance plans
Service cost	$	6	$	5	$	16	$	16
Interest cost		28		31		83		92
Expected return on plan assets		(37)		(36)		(111)		(109)
Recognized net actuarial losses		10		5		32		17
Amortization of prior service costs		1		1		3		3
Total net periodic benefit cost	$	8	$	6	$	23	$	19

The recognized net actuarial losses and the amortization of net prior service (credits) costs in the table above, as well as similar amounts related to our other postretirement benefit plans ($16 million and $44 million for the quarter and nine months ended September 27, 2015 and $13 million and $32 million for the quarter and nine months ended September 28, 2014), reflect amounts that were reclassified from accumulated other comprehensive loss and recorded as a component of net periodic benefit cost for the periods presented. These costs totaled $212 million (net of $117 million of tax expense) and $637 million (net of $349 million of tax expense) for the quarter and nine months ended September 27, 2015 and $186 million (net of $102 million of tax expense) and $520 million (net of $285 million of tax expense) for the quarter and nine months ended September 28, 2014, which were recorded on our Statements of Comprehensive Income as an increase to other comprehensive income.

The funding of our qualified defined benefit pension plans is determined in accordance with the Employee Retirement Income Security Act of 1974 (ERISA), as amended by the Pension Protection Act of 2006 (PPA), and in a manner consistent with CAS and Internal Revenue Code rules. There were no contributions to our qualified defined benefit pension plans during the quarter and nine months ended September 27, 2015, compared to $485 million and $1.0 billion during the quarter and nine months ended September 28, 2014. We do not plan to make contributions to our qualified defined benefit pension plans in 2015.

LEGAL PROCEEDINGS AND CONTINGENCIES

9 Months Ended

Sep. 27, 2015

LEGAL PROCEEDINGS AND CONTINGENCIES

NOTE 7 – 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, compensatory or treble damages or non-monetary penalty. We believe that the probability is remote that the outcome of each of these matters, including the legal proceedings described below, will have a material adverse effect on the Corporation as a whole, notwithstanding that the unfavorable resolution of any matter may have a material effect on our net earnings in any particular interim reporting period. Among the factors that we consider in this assessment are the nature of existing legal proceedings and claims, the asserted or possible damages or loss contingency (if estimable), the progress of the case, existing law and precedent, the opinions or views of legal counsel and other advisers, our experience in similar cases and the experience of other companies, the facts available to us at the time of assessment and how we intend to respond to the proceeding or claim. Our assessment of these factors may change 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. With respect to the legal proceedings discussed below, a reasonably possible loss or range of loss cannot be estimated.

Legal Proceedings

On April 24, 2009, we filed a declaratory judgment action against the New York Metropolitan Transportation Authority and its Capital Construction Company (collectively, the MTA) asking the U.S. District Court for the Southern District of New York to find that the MTA is in material breach of our agreement based on the MTA’s failure to provide access to sites where work must be performed and the customer-furnished equipment necessary to complete the contract. The MTA filed an answer and counterclaim alleging that we breached the contract and subsequently terminated the contract for alleged default. The primary damages sought by the MTA are the cost to complete the contract and 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 expect a decision by early 2016.

On August 28, 2003, the U.S. Department of Justice (DOJ) filed complaints in partial intervention in two lawsuits filed under the civil qui tam provisions of the False Claims Act in the U.S. District Court for the Western District of Kentucky, United States ex rel. Natural Resources Defense Council, et al., v. Lockheed Martin Corporation, et al., and United States ex rel. John D. Tillson v. Lockheed Martin Energy Systems, Inc., et al. The DOJ alleges that we committed violations of the Resource Conservation and Recovery Act at the Paducah Gaseous Diffusion Plant by not properly handling, storing and transporting hazardous waste, and that we violated the False Claims Act by misleading Department of Energy officials and state regulators about the nature and extent of environmental noncompliance at the plant. The complaint does not allege a specific calculation of damages. In April 2013, the parties attended a settlement conference ordered by the magistrate judge. The conference focused on the parties’ sharply differing views of the merits of the case and did not significantly contribute to our understanding of the damages sought. In December 2014, the parties participated in confidential mediation pursuant to Federal Rule of Civil Procedure Rule 408. The plaintiffs made settlement demands at this mediation but these were not tied to any theory of damages, were not apportioned between the False Claims Act and Resource Conservation and Recovery Act allegations (as to which our defenses differ) and did not provide insight into what damages plaintiffs would seek to prove if this matter proceeds to trial. Consequently, we continue to be unable to estimate the reasonably possible loss or range of loss, which could be incurred if the plaintiffs were to prevail, but we believe we have substantial defenses. We anticipate filing motions, including a motion for summary judgment, in 2015.

Environmental Matters

We are involved in environmental proceedings and potential proceedings relating to soil and groundwater contamination, disposal of hazardous waste and other environmental matters at several of our current or former facilities or at third-party sites where we have been designated as a potentially responsible party (PRP). A substantial portion of environmental costs will be included in our net sales and cost of sales in future periods pursuant to U.S. Government regulations. At the time a liability is recorded for future environmental costs, we record a receivable for estimated future recovery considered probable through the pricing of products and services to agencies of the U.S. Government, regardless of the contract form (e.g., cost-reimbursable, fixed-price). We continuously evaluate the recoverability of our environmental receivables by assessing, among other factors, U.S. Government regulations, our U.S. Government business base and contract mix and our history of receiving reimbursement of such costs. We include the portion of those environmental costs expected to be allocated to our non-U.S. Government contracts, or that is determined to not be recoverable under U.S. Government contracts, in our cost of sales at the time the liability is established.

At September 27, 2015 and December 31, 2014, the aggregate amount of liabilities recorded relative to environmental matters was $976 million and $965 million, most of which are recorded in other noncurrent liabilities on our Balance Sheets. We have recorded receivables totaling $847 million and $836 million at September 27, 2015 and December 31, 2014, most of which are recorded in other noncurrent assets on our Balance Sheets, for the estimated future recovery of these costs, as we consider the recovery probable based on the factors previously mentioned. We project costs and recovery of costs over approximately 20 years.

We also are pursuing claims for recovery of costs incurred or contribution to site cleanup costs against other PRPs, including the U.S. Government, and are conducting remediation activities under various consent decrees and orders relating to soil, groundwater, sediment or surface water contamination at certain sites of former or current operations. Under an agreement related to our Burbank and Glendale, California, sites, the U.S. Government reimburses us an amount equal to approximately 50% of expenditures for certain remediation activities in its capacity as a PRP under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).

Our environmental liabilities could be impacted by regulations with respect to the contaminants perchlorate and hexavalent chromium. California is currently reevaluating its existing drinking water standard with respect to perchlorate. In February 2015, California’s health risk agency announced a non-enforceable public health goal for perchlorate that California’s regulatory agency must consider when promulgating an enforceable drinking water standard. The goal calls for maximum perchlorate levels significantly below those allowed under the current standard imposed by California. In addition, the U.S. Environmental Protection Agency (U.S. EPA) is considering whether to regulate perchlorate in drinking water and is also considering whether to impose standards for hexavalent chromium. If substantially lower standards are adopted for perchlorate in either California or at the federal level or if the U.S. EPA were to adopt a standard for hexavalent chromium lower than California’s recently adopted standard of 10 parts per billion, 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 to not be recoverable under U.S. Government contracts would be expensed, which may have a material effect on our earnings in any particular interim reporting period.

Letters of Credit, Surety Bonds and Third-Party Guarantees

We have entered into standby letters of credit, surety bonds and third-party guarantees with financial institutions and other 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 venture partners. We had total outstanding letters of credit, surety bonds and third-party guarantees aggregating $2.7 billion and $2.4 billion at September 27, 2015 and December 31, 2014.

At September 27, 2015 and December 31, 2014, third-party guarantees totaled $1.0 billion and $774 million, of which approximately 89% and 85% related to guarantees of contractual performance of ventures to which we currently are or previously were a party. This amount represents our estimate of the maximum amount we would expect to incur upon the contractual non-performance of the venture partners. In addition, we generally have cross-indemnities in place that may enable us to recover amounts that may be paid on behalf of a venture partner. We believe our current and former venture partners will be able to perform their obligations, as they have done through September 27, 2015, and that it will not be necessary to make payments under the guarantees. In determining our exposures, we evaluate the reputation, performance on contractual obligations, technical capabilities and credit quality of our current and former venture partners.

United Launch Alliance

In connection with our 50% ownership interest of ULA, we and The Boeing Company (Boeing) are required to provide ULA an additional capital contribution if ULA is unable to make required payments under its inventory supply agreement with Boeing. As of September 27, 2015, ULA’s total remaining obligation to Boeing under the inventory supply agreement was $120 million. The parties have agreed to defer the remaining payment obligation as it is more than offset by other commitments to ULA. Accordingly, we do not expect to be required to make a capital contribution to ULA under this agreement.

In addition, both we and Boeing have cross-indemnified each other for guarantees by us and Boeing of the performance and financial obligations of ULA under certain launch service contracts. We believe ULA will be able to fully perform its obligations, as it has done through September 27, 2015, and that it will not be necessary to make payments under the cross-indemnities or guarantees.

FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 27, 2015

FAIR VALUE MEASUREMENTS

NOTE 8 – FAIR VALUE MEASUREMENTS

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


	September 27, 2015						December 31, 2014
	Total		Level 1		Level 2		Total		Level 1		Level 2
Assets
Equity securities	$	86	$	86	$	—	$	92	$	92	$	—
Mutual funds		591		591		—		696		696		—
U.S. Government securities		113		—		113		136		—		136
Other securities		151		—		151		153		—		153
Derivatives		38		—		38		27		—		27
Liabilities
Derivatives		34		—		34		18		—		18

Substantially all assets measured at fair value, other than derivatives, represent investments classified as trading securities held in a separate trust to fund certain of our non-qualified deferred compensation plans and are recorded in other noncurrent assets on our Balance Sheets. The fair values of equity securities and mutual funds are determined by reference to the quoted market price per unit in active markets multiplied by the number of units held without consideration of transaction costs. The fair values of U.S. Government and other securities are determined using pricing models that use observable inputs (e.g., interest rates and yield curves observable at commonly quoted intervals), bids provided by brokers or dealers or quoted prices of securities with similar characteristics. The fair values of derivative instruments, which consist of foreign currency exchange forward and interest rate swap contracts, primarily are determined based on the present value of future cash flows using model-derived valuations that use observable inputs such as interest rates, credit spreads and foreign currency exchange rates. We did not have any transfers of assets or liabilities between levels of the fair value hierarchy during the nine months ended September 27, 2015.

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

The aggregate notional amount of our outstanding interest rate swaps at both September 27, 2015 and December 31, 2014 was $1.3 billion. The aggregate notional amount of our outstanding foreign currency hedges at September 27, 2015 and December 31, 2014 was $1.4 billion and $804 million. Derivative instruments did not have a material impact on net earnings and comprehensive income during the quarters and nine months ended September 27, 2015 and September 28, 2014. Substantially all of our derivatives are designated for hedge accounting.

In addition to the financial instruments listed in the table above, we hold other financial instruments, including cash and cash equivalents, receivables, accounts payable and debt. The carrying amounts for cash and cash equivalents, receivables and accounts payable approximated their fair values. The estimated fair value of our outstanding debt was $9.7 billion and $7.9 billion at September 27, 2015 and December 31, 2014 and the outstanding principal amount was $9.3 billion and $7.0 billion at September 27, 2015 and December 31, 2014, excluding unamortized discounts of $881 million and $872 million. The estimated fair values of our outstanding debt were determined based on quoted prices for similar instruments in active markets (Level 2).

OTHER

9 Months Ended

Sep. 27, 2015

OTHER

NOTE 9 – OTHER

Changes in Estimates

Accounting for contracts using the percentage-of-completion method requires judgment relative to assessing risks, estimating contract sales and costs (including estimating award and incentive fees and penalties related to performance) and making assumptions for schedule and technical issues. Due to the number of years it may take to complete many of our contracts and the scope and nature of the work required to be performed on those contracts, estimating total sales and costs at completion is complicated and subject to many variables and, accordingly estimates are subject to change. When adjustments in estimated total contract sales or estimated total costs are required, any changes from prior estimates are recognized in the current period for the inception-to-date effect of such changes. When estimates of total costs to be incurred on a contract exceed estimates of total sales to be earned, a provision for the entire loss on the contract is recorded in the period in which the loss is determined.

Many of our contracts span several years and include highly complex technical requirements. At the outset of a contract, we identify and monitor risks to the achievement of the technical, schedule and cost aspects of the contract and assess the effects of those risks on our estimates of total costs to complete the contract. The estimates consider the technical requirements (e.g., a newly-developed product versus a mature product), the schedule and associated tasks (e.g., the number and type of milestone events) and costs (e.g., material, labor, subcontractor, overhead and the estimated costs to fulfill our industrial cooperation agreements, sometimes referred to as offset agreements, required under certain contracts with international customers). The initial profit booking rate of each contract considers risks surrounding the ability to achieve the technical requirements, schedule and costs in the initial estimated total costs to complete the contract. Profit booking rates may increase during the performance of the contract if we successfully retire risks surrounding the technical, schedule and cost aspects of the contract which decreases the estimated total costs to complete the contract. Conversely, our profit booking rates may decrease if the estimated total costs to complete the contract increase. All of the estimates are subject to change during the performance of the contract and may affect the profit booking rate.

Comparability of our segment sales, operating profit and operating margins may be impacted favorably or unfavorably by changes in profit booking rates on our contracts accounted for using the percentage-of-completion method of accounting. Increases in the profit booking rates, typically referred to as risk retirements, usually relate to revisions in the estimated total costs that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate resulting in an increase in the estimated total costs to complete and a reduction in the profit booking rate. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes. Segment operating profit and margins may also be impacted favorably or unfavorably by other items. Favorable items may include the positive resolution of contractual matters, cost recoveries on restructuring charges, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual matters; restructuring charges, except for significant severance actions which are excluded from segment operating results; reserves for disputes; asset impairments; and losses on sales of assets. Our consolidated net adjustments not related to volume, including net profit booking rate adjustments and other matters, increased segment operating profit by $435 million and $1.5 billion for the quarter and nine months ended September 27, 2015 and $400 million and $1.4 billion for the quarter and nine months ended September 28, 2014. These adjustments increased net earnings by $285 million ($0.91 per share) and $960 million ($3.03 per share) for the quarter and nine months ended September 27, 2015 and $260 million ($0.81 per share) and $885 million ($2.74 per share) for the quarter and nine months ended September 28, 2014.

Restructuring Charges

Third Quarter 2015 Action

During the quarter ended September 27, 2015, we recorded severance charges totaling $35 million related to our IS&GS business segment, which reduced our net earnings by $24 million ($0.08 per share). These severance actions resulted from a review of future workload projections and to reduce our overhead costs in order to improve the affordability of our products and services. The charges consisted of severance costs associated with the planned elimination of certain positions through either voluntary or involuntary actions. Upon separation, terminated employees will receive lump-sum severance payments primarily based on years of service, the majority of which are expected to be paid by mid-2016.

Fourth Quarter 2013 Action

In November 2013, we committed to a plan to close and consolidate certain facilities and reduce our total workforce by approximately 4,000 positions within our IS&GS, MST and Space Systems business segments. As of September 27, 2015, we have paid approximately $146 million of the total expected $171 million severance payments associated with this action, of which $39 million was paid during the nine months ended September 27, 2015.

In connection with our plan to consolidate facilities, during the quarter ended June 28, 2015, we sold two properties in California and received aggregate cash proceeds of approximately $70 million. Gains related to the sale of these facilities have been deferred and will be recognized in future periods once our continuing involvement associated with the properties has been completed, which we expect to occur in late 2016.

We continue to incur accelerated costs (e.g., accelerated depreciation expense related to long-lived assets at the sites to be closed) and incremental costs (e.g., relocation of equipment and other employee related costs), which we expect to total approximately $15 million, $50 million and $190 million at our IS&GS, MST and Space Systems business segments by the completion of the plan. As of September 27, 2015, we have incurred total accelerated and incremental costs of $204 million, inclusive of amounts incurred during the nine months ended September 27, 2015. The accelerated and incremental costs are recorded as incurred in cost of sales on our Statements of Earnings and included in the respective business segment’s results of operations.

The remaining payments associated with the severance and incremental costs are expected to be substantially completed by the end of 2015. We expect to recover a substantial amount of the restructuring charges through the pricing of our products and services to the U.S. Government and other customers, with the impact included in the respective business segment’s results of operations.

Income Taxes

Our effective income tax rates were 30.9% and 30.8% for the quarter and nine months ended September 27, 2015 and 32.3% for both the quarter and nine months ended September 28, 2014. The rates for all periods benefited from tax deductions for U.S. manufacturing activities and for dividends paid to our defined contribution benefit plans with an employee stock ownership plan feature. The effective tax rate for the nine months ended September 27, 2015 was lower than the prior year period primarily due to tax reserve adjustments recorded in the quarter ended June 29, 2014. The effective rates during all periods did not include a benefit from the U.S. research and development tax credit because the credit had expired.

We made net income tax payments of approximately $1.2 billion and $1.0 billion during the nine months ended September 27, 2015 and September 28, 2014. The 2014 payments are net of $200 million in tax refunds primarily attributable to our tax-deductible pension contributions made during the quarter ended December 31, 2013.

Stockholders’ Equity

Repurchases of Common Stock

During the nine months ended September 27, 2015, we repurchased 12.0 million shares of our common stock for $2.4 billion. On September 24, 2015, we increased our share repurchase program by $3.0 billion. Inclusive of this increase, the total remaining authorization for future common share repurchases under our program was $4.3 billion as of September 27, 2015. 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.

Dividends

We declared cash dividends totaling $507 million ($1.65 per share) and $1.9 billion ($6.15 per share) during the quarter and nine months ended September 27, 2015. Dividends declared in the quarter ended September 27, 2015 represent our 2015 fourth quarter dividend payment of $1.65 per share, an increase of 10% over our 2015 third quarter dividend payment of $1.50 per share, which we declared in the second quarter of 2015. We declared cash dividends totaling $479 million ($1.50 per share) and $1.8 billion ($5.49 per share) during the quarter and nine months ended September 28, 2014. The 2014 dividend amounts include the declaration of our 2014 fourth quarter dividend of $1.50 per share, which totaled $479 million.

Restricted Stock Unit Grants

In January 2015, we granted certain employees approximately 0.6 million restricted stock units (RSUs) with a grant-date fair value of $192.28 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.

Accumulated Other Comprehensive Loss

Changes in the balance of accumulated other comprehensive loss (AOCL), net of tax, consisted of the following (in millions):


	Postretirement Benefit Plans		Other, net		AOCL
Balance at December 31, 2014	$	(11,813)	$	(57)	$	(11,870)
Other comprehensive loss before reclassifications		—		(88)		(88)
Amounts reclassified from AOCL
Recognition of net actuarial losses ^(a)		831		—		831
Amortization of net prior service credits ^(a)		(194)		—		(194)
Total reclassified from AOCL		637		—		637
Total other comprehensive income (loss)		637		(88)		549
Balance at September 27, 2015	$	(11,176)	$	(145)	$	(11,321)

Balance at December 31, 2013	$	(9,649)	$	48	$	(9,601)
Other comprehensive loss (income) before reclassifications
Net actuarial losses ^(b)		(3,778)		—		(3,778)
Prior service credits ^(b)		3,043		—		3,043
Other		—		(48)		(48)
Total other comprehensive (loss) income before reclassifications		(735)		(48)		(783)
Amounts reclassified from AOCL
Recognition of net actuarial losses ^(a)		556		—		556
Amortization of net prior service credits ^(a)		(36)		—		(36)
Total reclassified from AOCL		520		—		520
Total other comprehensive loss		(215)		(48)		(263)
Balance at September 28, 2014	$	(9,864)	$	—	$	(9,864)

^(a)

Reclassifications from AOCL related to our postretirement benefit plans were recorded as a component of net periodic benefit cost for each period presented (Note 6). These amounts include $212 million and $186 million for the quarters ended September 27, 2015 and September 28, 2014, which are comprised of the recognition of net actuarial losses of $277 million and $250 million for the quarters ended September 27, 2015 and September 28, 2014 and the amortization of net prior service (credits) costs of $(65) million and $(64) million for the quarters ended September 27, 2015 and September 28, 2014.

^(b)

Changes in AOCL before reclassifications in 2014 related to our postretirement benefit plans include net actuarial losses from the re-measurement of substantially all our defined benefit pension plans in June 2014 and prior service credits from the June 2014 plan amendments to freeze future retirement benefits in certain of our qualified and non-qualified defined benefit pension plans for non-union employees.

Long-term Debt

At September 27, 2015, we had a $1.5 billion revolving credit facility with various banks, which was scheduled to expire in August 2019. There were no borrowings outstanding under the credit facility through September 27, 2015 and we were in compliance with all covenants contained in the credit facility and other debt agreements.

On October 9, 2015, we entered into a new $2.5 billion revolving credit facility (the 5-year Facility) with various banks and concurrently terminated our existing $1.5 billion revolving credit facility described in the preceding paragraph. The 5-year Facility, which expires on October 9, 2020, is available for general corporate purposes. The undrawn portion of the 5-year Facility is also available to serve as a backup facility for the issuance of commercial paper. We may request and the banks may grant, at their discretion, an increase in the borrowing capacity under the 5-year Facility of up to an additional $500 million.

As part of our pending acquisition of Sikorsky, on October 9, 2015, we also entered into a 364-day revolving credit facility (the 364-day Facility and together with the 5-year Facility the Facilities) with various banks that provides $7.0 billion of funding for general corporate purposes, including the acquisition of Sikorsky. Funding under the 364-day Facility for the Sikorsky acquisition would occur substantially concurrently with the consummation of the acquisition. Although the 364-day Facility matures on October 7, 2016, we have the option to cause outstanding loans to continue as one-year term loans. We plan to repay borrowings under the 364-day Facility with proceeds from future long-term debt issuances. We expect to fund the purchase price for Sikorsky in excess of any borrowings under the 364-day Facility through issuances of commercial paper supported by the 5-year Facility or with cash on hand.

Borrowings under the Facilities bear interest at rates based, at our option, on a Eurodollar Rate or a Base Rate, as defined in the Facilities agreements. Each bank’s obligation to make loans under the Facilities is subject to, among other things, our compliance with various representations, warranties, and covenants, including covenants limiting our ability and certain of our subsidiaries’ ability to encumber assets and a covenant not to exceed a maximum leverage ratio, as defined in the Facilities agreements. Subject to certain exceptions, net cash proceeds arising from certain equity or debt issuances will result in the mandatory reduction of the total borrowing capacity and mandatory repayment of any loans outstanding under the 364-day Facility.

On February 20, 2015, we issued $2.25 billion of notes in a registered public offering consisting of $750 million maturing in 2025 with a fixed interest rate of 2.90%, $500 million maturing in 2035 with a fixed interest rate of 3.60% and $1.0 billion maturing in 2045 with a fixed interest rate of 3.80%. We may, at our option, redeem some or all of the notes at any time by paying the principal amount of notes being redeemed plus any make-whole premium and accrued and unpaid interest to the date of redemption. Interest on the notes is payable on March 1 and September 1 of each year, beginning on September 1, 2015. These notes rank equally in right of payment with all of our existing unsecured and unsubordinated indebtedness.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard that will change the way we recognize revenue and significantly expand the disclosure requirements for revenue arrangements. On July 9, 2015, the FASB approved a one-year deferral of the effective date of the standard to 2018 for public companies, with an option that would permit companies to early adopt the standard in 2017. Early adoption prior to 2017 is not permitted. The new standard may be adopted either retrospectively or on a modified retrospective basis whereby the new standard would be applied to new contracts and existing contracts with remaining performance obligations as of the effective date, with a cumulative catch-up adjustment recorded to beginning retained earnings at the effective date for existing contracts with remaining performance obligations. In addition, the FASB is contemplating making additional changes to certain elements of the new standard. We are currently evaluating the methods of adoption allowed by the new standard and the effect the standard is expected to have on our consolidated financial statements and related disclosures. As the new standard will supersede substantially all existing revenue guidance affecting us under GAAP, it could impact revenue and cost recognition on thousands of contracts across all our business segments, in addition to our business processes and our information technology systems. As a result, our evaluation of the effect of the new standard will extend over future periods.

EARNINGS PER COMMON SHARE (Tables)

9 Months Ended

Sep. 27, 2015

Schedule of Weighted Average Shares Outstanding Used to Compute 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

Nine Months Ended

September 27,
2015

September 28,
2014

September 27,
2015

September 28,
2014

Weighted average common shares outstanding for basic computations

308.4

316.3

311.9

317.4

Weighted average dilutive effect of equity awards

4.3

5.5

4.4

5.6

Weighted average common shares outstanding for diluted computations

312.7

321.8

316.3

323.0

INFORMATION ON BUSINESS SEGMENTS (Tables)

9 Months Ended

Sep. 27, 2015

Summary of Financial Information for Each Business Segment

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


	Quarters Ended				Nine Months Ended
	September 27, 2015		September 28, 2014		September 27, 2015		September 28, 2014
Net sales
Aeronautics	$	3,921	$	3,544	$	11,186	$	10,785
Information Systems & Global Solutions		1,870		1,949		5,637		5,800
Missiles and Fire Control		1,938		1,908		5,218		5,666
Mission Systems and Training		1,802		1,679		5,261		5,078
Space Systems		1,930		2,034		5,913		5,741
Total net sales	$	11,461	$	11,114	$	33,215	$	33,070

Operating profit
Aeronautics	$	418	$	362	$	1,233	$	1,208
Information Systems & Global Solutions		163		175		459		524
Missiles and Fire Control		336		335		931		1,038
Mission Systems and Training		220		193		673		628
Space Systems		232		281		779		783
Total business segment operating profit		1,369		1,346		4,075		4,181
Unallocated items
FAS/CAS pension adjustment
FAS pension expense		(284)		(258)		(852)		(885)
Less: CAS pension cost		403		342		1,210		1,140
FAS/CAS pension adjustment		119		84		358		255
Stock-based compensation		(29)		(31)		(118)		(128)
Severance charges ^(a)		(35)		—		(35)		—
Other, net		(70)		(7)		(125)		(58)
Total unallocated items		(15)		46		80		69
Total consolidated operating profit	$	1,354	$	1,392	$	4,155	$	4,250

Intersegment sales
Aeronautics	$	21	$	21	$	65	$	78
Information Systems & Global Solutions		148		159		513		507
Missiles and Fire Control		102		81		291		244
Mission Systems and Training		342		331		987		944
Space Systems		36		25		96		78
Total intersegment sales	$	649	$	617	$	1,952	$	1,851

^(a)	Severance charges for 2015 consist of amounts associated with the planned elimination of certain positions at our IS&GS business segment (Note 9, under the caption “Restructuring Charges”). Severance charges for initiatives that are not significant are included in business segment operating profit.

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


	September 27, 2015		December 31, 2014
Assets
Aeronautics	$	6,908	$	6,021
Information Systems & Global Solutions		5,884		6,228
Missiles and Fire Control		4,424		4,050
Mission Systems and Training		6,217		6,277
Space Systems		4,182		3,914
Total business segment assets		27,615		26,490
Corporate assets ^(a)		12,002		10,583
Total assets	$	39,617	$	37,073

^(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.

INVENTORIES, NET (Tables)

9 Months Ended

Sep. 27, 2015

Inventories

Inventories, net consisted of the following (in millions):


	September 27, 2015		December 31, 2014
Work-in-process, primarily related to long-term contracts and programs in progress	$	7,280	$	6,728
Less: customer advances and progress payments		(4,635)		(4,701)
		2,645		2,027
Other inventories		592		855
Total inventories, net	$	3,237	$	2,882

POSTRETIREMENT BENEFIT PLANS (Tables)

9 Months Ended

Sep. 27, 2015

Pretax Net Periodic Benefit Cost

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


	Quarters Ended				Nine Months Ended
	September 27, 2015		September 28, 2014		September 27, 2015		September 28, 2014
Qualified defined benefit pension plans
Service cost	$	217	$	208	$	652	$	694
Interest cost		448		468		1,343		1,444
Expected return on plan assets		(683)		(687)		(2,050)		(2,006)
Recognized net actuarial losses		399		365		1,199		807
Amortization of prior service credits		(97)		(96)		(292)		(54)
Total net periodic benefit cost	$	284	$	258	$	852	$	885

Retiree medical and life insurance plans
Service cost	$	6	$	5	$	16	$	16
Interest cost		28		31		83		92
Expected return on plan assets		(37)		(36)		(111)		(109)
Recognized net actuarial losses		10		5		32		17
Amortization of prior service costs		1		1		3		3
Total net periodic benefit cost	$	8	$	6	$	23	$	19

FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 27, 2015

Fair Value, Assets and Liabilities Measured on Recurring Basis

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


	September 27, 2015						December 31, 2014
	Total		Level 1		Level 2		Total		Level 1		Level 2
Assets
Equity securities	$	86	$	86	$	—	$	92	$	92	$	—
Mutual funds		591		591		—		696		696		—
U.S. Government securities		113		—		113		136		—		136
Other securities		151		—		151		153		—		153
Derivatives		38		—		38		27		—		27
Liabilities
Derivatives		34		—		34		18		—		18

OTHER (Tables)

9 Months Ended

Sep. 27, 2015

Accumulated Other Comprehensive Loss

Changes in the balance of accumulated other comprehensive loss (AOCL), net of tax, consisted of the following (in millions):


	Postretirement Benefit Plans		Other, net		AOCL
Balance at December 31, 2014	$	(11,813)	$	(57)	$	(11,870)
Other comprehensive loss before reclassifications		—		(88)		(88)
Amounts reclassified from AOCL
Recognition of net actuarial losses ^(a)		831		—		831
Amortization of net prior service credits ^(a)		(194)		—		(194)
Total reclassified from AOCL		637		—		637
Total other comprehensive income (loss)		637		(88)		549
Balance at September 27, 2015	$	(11,176)	$	(145)	$	(11,321)

Balance at December 31, 2013	$	(9,649)	$	48	$	(9,601)
Other comprehensive loss (income) before reclassifications
Net actuarial losses ^(b)		(3,778)		—		(3,778)
Prior service credits ^(b)		3,043		—		3,043
Other		—		(48)		(48)
Total other comprehensive (loss) income before reclassifications		(735)		(48)		(783)
Amounts reclassified from AOCL
Recognition of net actuarial losses ^(a)		556		—		556
Amortization of net prior service credits ^(a)		(36)		—		(36)
Total reclassified from AOCL		520		—		520
Total other comprehensive loss		(215)		(48)		(263)
Balance at September 28, 2014	$	(9,864)	$	—	$	(9,864)

^(a)

^(b)

Strategic Actions - Additional Information (Detail) $ in Billions	Jul. 20, 2015 USD ($) Employee
Strategic Actions [Line Items]
Estimated 2015 sales for programs potentially impacted by strategic review	$ 5.5
Number of employees in programs potentially impacted by strategic review \| Employee	16,500
Sikorsky Aircraft Corporation
Strategic Actions [Line Items]
Acquisition purchase price	$ 9.0
Cash tax benefit, estimated net present value	$ 1.9

Schedule of Weighted Average Shares Outstanding Used to Compute Earnings Per Common Share (Detail) - shares shares in Millions	3 Months Ended		9 Months Ended
	Sep. 27, 2015	Sep. 28, 2014	Sep. 27, 2015	Sep. 28, 2014
Weighted Average Shares Used In Computing Earnings Per Share [Line Items]
Weighted average common shares outstanding for basic computations	308.4	316.3	311.9	317.4
Weighted average dilutive effect of equity awards	4.3	5.5	4.4	5.6
Weighted average common shares outstanding for diluted computations	312.7	321.8	316.3	323.0

Information on Business Segments - Additional Information (Detail) - Segment	3 Months Ended		9 Months Ended
	Sep. 27, 2015	Sep. 28, 2014	Sep. 27, 2015	Sep. 28, 2014
Segment Reporting Information [Line Items]
Number of business segments			5
Aeronautics \| Product Concentration Risk \| F-35 program \| Sales Revenue, Net
Segment Reporting Information [Line Items]
Program net sales as percent of total net sales	20.00%	17.00%	20.00%	17.00%

Summary of Financial Information for Each Business Segment (Detail) - USD ($)
$ in Millions

3 Months Ended

9 Months Ended

Sep. 27, 2015

Sep. 28, 2014

Sep. 27, 2015

Sep. 28, 2014

Dec. 31, 2014

FAS/CAS pension adjustment

$ 11,461

$ 11,114

$ 33,215

$ 33,070

Less: CAS pension cost

403

342

1,210

1,140

119

358

255

Stock-based compensation

(29)

(31)

(118)

(128)

^[1]

(35)

(70)

(7)

(125)

(58)

Total unallocated items

(15)

1,354

1,392

4,155

4,250

Qualified defined benefit pension plans

39,617

$ 37,073

FAS pension expense

(284)

(258)

(852)

(885)

Business segments

1,369

1,346

4,075

4,181

Business segments | Aeronautics

27,615

26,490

3,921

3,544

11,186

10,785

418

362

1,233

1,208

Business segments | Information Systems & Global Solutions

6,908

6,021

1,870

1,949

5,637

5,800

163

175

459

524

Business segments | Missiles and Fire Control

5,884

6,228

1,938

1,908

5,218

5,666

336

335

931

1,038

Business segments | Mission Systems and Training

4,424

4,050

1,802

1,679

5,261

5,078

220

193

673

628

Business segments | Space Systems

6,217

6,277

1,930

2,034

5,913

5,741

232

281

779

783

4,182

3,914

Intersegment elimination

Intersegment elimination | Aeronautics

649

617

1,952

1,851

Intersegment elimination | Information Systems & Global Solutions

Intersegment elimination | Missiles and Fire Control

148

159

513

507

Intersegment elimination | Mission Systems and Training

102

291

244

Intersegment elimination | Space Systems

342

331

987

944

$ 25

$ 78

Corporate

^[2]

$ 12,002

$ 10,583

[1]	Severance charges for 2015 consist of amounts associated with the planned elimination of certain positions at our IS&GS business segment (Note 9, under the caption "Restructuring Charges"). Severance charges for initiatives that are not significant are included in business segment operating profit.
[2]	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.

Inventories (Detail) - USD ($) $ in Millions	Sep. 27, 2015	Dec. 31, 2014
Inventory [Line Items]
Work-in-process, primarily related to long-term contracts and programs in progress	$ 7,280	$ 6,728
Less: customer advances and progress payments	(4,635)	(4,701)
Inventory for long term contracts or programs net of customer advances and progress payments	2,645	2,027
Other inventories	592	855
Total inventories, net	$ 3,237	$ 2,882

Pretax Net Periodic Benefit Cost (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 27, 2015	Sep. 28, 2014	Sep. 27, 2015	Sep. 28, 2014
Qualified defined benefit pension plans
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 217	$ 208	$ 652	$ 694
Interest cost	448	468	1,343	1,444
Expected return on plan assets	(683)	(687)	(2,050)	(2,006)
Recognized net actuarial losses	399	365	1,199	807
Amortization of prior service (credits) costs	(97)	(96)	(292)	(54)
Total net periodic benefit cost	284	258	852	885
Retiree medical and life insurance plans
Defined Benefit Plan Disclosure [Line Items]
Service cost	6	5	16	16
Interest cost	28	31	83	92
Expected return on plan assets	(37)	(36)	(111)	(109)
Recognized net actuarial losses	10	5	32	17
Amortization of prior service (credits) costs	1	1	3	3
Total net periodic benefit cost	$ 8	$ 6	$ 23	$ 19

Postretirement Benefit Plans - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 27, 2015	Sep. 28, 2014	Sep. 27, 2015	Sep. 28, 2014
Defined Benefit Plan Disclosure [Line Items]
Recognition of previously deferred postretirement benefit plan amounts, net of tax	$ 212	$ 186	$ 637	$ 520
Recognition of previously deferred postretirement benefit plan amounts, tax	117	102	349	285
Other postretirement benefit plans
Defined Benefit Plan Disclosure [Line Items]
Recognition of previously deferred postretirement benefit plan amounts, before tax	$ 16	13	$ 44	32
Qualified defined benefit pension plans
Defined Benefit Plan Disclosure [Line Items]
Contributions made by the employer		$ 485		$ 1,000

Legal Proceedings and Contingencies - Additional Information (Detail) - USD ($) $ in Millions	9 Months Ended	12 Months Ended	77 Months Ended
	Sep. 27, 2015	Dec. 31, 2014	Sep. 27, 2015	Apr. 24, 2009
Legal Proceedings And Contingencies [Line Items]
Liabilities recorded relative to environmental matters	$ 976	$ 965	$ 976
Environmental costs eligible for future recovery	$ 847	836	847
Time period environmental costs and recovery of environmental costs are projected over, years	20 years
Percentage of expenditures that are reimbursed for certain remediation activities	50.00%
Outstanding letters of credit, surety bonds, and third-party guarantees	$ 2,700	2,400	2,700
Third-party guarantees outstanding	$ 1,000	$ 774	1,000
Percentage of total guarantees that relate to guarantees of contractual performance of joint ventures	89.00%	85.00%
N.Y. Metropolitan Transportation Authority
Legal Proceedings And Contingencies [Line Items]
Contract value				$ 323
Contract payments received to date	$ 241		241
Damages sought by plaintiff			190
Claims for monetary damages against the plaintiff			$ 95
United Launch Alliance
Legal Proceedings And Contingencies [Line Items]
Percentage of ownership interest in affiliated entity	50.00%		50.00%
Inventory supply agreement	$ 120		$ 120

Fair Value, Assets and Liabilities Measured on Recurring Basis (Detail) - Fair Value, Measurements, Recurring - USD ($) $ in Millions	Sep. 27, 2015	Dec. 31, 2014
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative assets	$ 38	$ 27
Derivative liabilities	34	18
Equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of investments measured on recurring basis	86	92
Mutual funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of investments measured on recurring basis	591	696
U.S. Government securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of investments measured on recurring basis	113	136
Other securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of investments measured on recurring basis	151	153
Fair value, inputs, level 1 \| Equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of investments measured on recurring basis	86	92
Fair value, inputs, level 1 \| Mutual funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of investments measured on recurring basis	591	696
Fair value, inputs, level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative assets	38	27
Derivative liabilities	34	18
Fair value, inputs, level 2 \| U.S. Government securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of investments measured on recurring basis	113	136
Fair value, inputs, level 2 \| Other securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of investments measured on recurring basis	$ 151	$ 153

Fair Value Measurements - Additional Information (Detail) - USD ($) $ in Millions	Sep. 27, 2015	Dec. 31, 2014
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Estimated fair values of debt instruments	$ 9,700	$ 7,900
Outstanding principal amount of debt instruments	9,300	7,000
Unamortized discount on long-term debt	881	872
Foreign currency contracts \| Designated as hedges
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Aggregate notional amount of derivatives	1,400	804
Interest rate swaps \| Designated as hedges
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Aggregate notional amount of derivatives	$ 1,300	$ 1,300

Other - Additional Information (Detail)
$ / shares in Units, shares in Millions

1 Months Ended

3 Months Ended

9 Months Ended

23 Months Ended

Oct. 09, 2015

USD ($)

Sep. 27, 2015

USD ($)

$ / shares

Feb. 20, 2015

USD ($)

Jan. 31, 2015

$ / shares

Nov. 30, 2013

Employee

Sep. 27, 2015

USD ($)

$ / shares

Jun. 28, 2015

USD ($)

Property

Sep. 28, 2014

USD ($)

$ / shares

Sep. 27, 2015

USD ($)

$ / shares

Sep. 28, 2014

USD ($)

$ / shares

Sep. 27, 2015

USD ($)

$ / shares

Dec. 31, 2014

$ / shares

$ 1,354,000,000

$ 1,392,000,000

$ 4,155,000,000

$ 4,250,000,000

Diluted earnings per common share in USD | $ / shares

$ 865,000,000

$ 888,000,000

$ 2,672,000,000

$ 2,710,000,000

$ 2.77

$ 2.76

$ 8.45

$ 8.39

Reduction in net earnings due to severance charges

^[1]

$ 35,000,000

$ 24,000,000

Decrease in diluted earnings per share due to severance charges | $ / shares

$ 0.08

Proceeds from the sale of properties

$ 70,000,000

Number of properties sold | Property

Effective income tax rate

30.90%

32.30%

30.80%

32.30%

Tax refunds received, from IRS

$ 200,000,000

Income tax payments, net of refunds received

$ 1,200,000,000

1,000,000,000

Repurchases of common stock, shares | shares

12.0

Repurchases of common stock

$ 2,364,000,000

1,676,000,000

Remaining authorized repurchase amount under share repurchase program

$ 4,300,000,000

4,300,000,000

$ 4,300,000,000

Additional share repurchase program authorized amount

$ 3,000,000,000

Common stock, par value (in USD per share) | $ / shares

$ 1

Dividends declared

$ 507,000,000

$ 479,000,000

$ 1,926,000,000

$ 1,763,000,000

Dividends declared, per share (in USD) | $ / shares

$ 1.65

$ 1.50

$ 6.15

$ 5.49

Percentage increase in per share quarterly dividend declared

10.00%

Line of credit facility

$ 1,500,000,000

Line of credit facility expiration date

2019-08

Credit facility, outstanding amount

$ 0

2015 Third Quarter Dividend

Dividends declared, per share (in USD) | $ / shares

$ 1.50

2014 Third Quarter Dividend

Dividends declared

$ 479,000,000

Dividends declared, per share (in USD) | $ / shares

$ 1.50

Contracts Accounted for under Percentage of Completion

$ 435,000,000

$ 400,000,000

$ 1,500,000,000

$ 1,400,000,000

Diluted earnings per common share in USD | $ / shares

$ 285,000,000

$ 260,000,000

$ 960,000,000

$ 885,000,000

$ 0.91

$ 0.81

$ 3.03

$ 2.74

November 2013 Severance Actions

Severance payments

$ 39,000,000

146,000,000

Incremental expected costs as a result of the November 2013 restructuring plan

Accelerated and incremental costs incurred

204,000,000

$ 204,000,000

204,000,000

Notes Issued In Twenty Fifteen

Two Point Nine Zero Percent Notes Due Twenty Twenty Five

$ 2,250,000,000

Long-term debt maturity year

$ 750,000,000

2025

Interest Rate

2.90%

Three Point Six Zero Percent Notes Due Twenty Thirty Five

Long-term debt maturity year

$ 500,000,000

2035

Interest Rate

3.60%

Three Point Eight Zero Percent Notes Due Twenty Forty Five