Memorandum

DATE:  January 26, 2012
TO:   All Lockheed Martin Employees
FROM:  Bob Stevens, Chairman and Chief Executive Officer
             Chris Kubasik, President and Chief Operating Officer

SUBJECT:  Fourth-Quarter and Year-End Results Point to Consistent Performance Excellence

Today we reported 2011 fourth-quarter and year-end operating results that again demonstrated terrific program and financial performance.  Our momentum going into 2012 included new business awards, improved segment operating profit and strong cash generation, reflecting your focus and sense of accountability for program execution.  These results, combined with ongoing cost reduction initiatives, put us on solid footing amid changing customer budgets and priorities.  In times of uncertainty your commitment to excellence has not wavered, and we’ll continue to need that level of engagement to meet this year’s demands.

In 2011, we increased year-end backlog to a record level of almost $81 billion, booking about $20 billion in new orders in the fourth quarter.  We generated about $4.3 billion in cash from operations during 2011 after contributing $2.3 billion to our pension funds during the year.  In the fourth quarter we deployed cash to retire debt early, and made acquisitions and other investments totaling $625 million.  We also used cash to pay cash dividends of $325 million and make share repurchases at a cost of $139 million.  These results reflect the quality of our workforce – you – and the focus we all share on delivering value to our customers and our shareholders.  Thank you for delivering these results.

Global demand for our products remained strong during the quarter, as we received a $2 billion order to produce the Terminal High Altitude Area Defense (THAAD) missile defense system for the United Arab Emirates; a $1 billion order to upgrade armored fighting vehicles for the United Kingdom; and orders for a combined 30 F-16 aircraft to Iraq and Oman.  In addition, in December the Japanese Ministry of Defense chose the F-35 as that nation’s next generation fighter aircraft.  We also were awarded U.S. Navy contracts totaling more than $1 billion for fleet ballistic missile support and Trident II D5 missile production, and we were selected by the National Science Foundation for a multi-year contract potentially valued at $2 billion to provide operations and infrastructure support for the United States Antarctic Program.

These wins show that our business strategy is well-aligned to meet our customers’ needs as they address global challenges.  You can also see the durability of our innovative portfolio in the new security strategy previewed by Secretary of Defense Panetta earlier this month.  While we haven’t seen details about specific funding levels yet, we believe that our relevant technologies and capabilities complement several critical areas of the strategy’s focus.  These include multiple systems with robust interoperability for coalition forces and advanced intelligence, surveillance and reconnaissance data gathering.

We also continue to drive efficiency and affordability across our company. You can see it in structural cost elimination through more efficient IT systems planning, value-driven engineering and design changes, program restructuring, facilities consolidation and supply chain improvements.  As systems mature, you can also see it on programs such as the Littoral Combat Ship, multiple space-based assets and F-35.  We were especially pleased last week when Secretary Panetta removed the probation status on the F-35B Short-Takeoff/Vertical Landing (STOVL) variant.

This action reflects the Secretary’s commitment to the program and confidence in our Aeronautics team’s focus on performance.  In particular, we’d like to thank Ralph Heath, executive vice president of Aeronautics, whose leadership resulted in the Secretary’s action, for his decades of contributions to our Corporation’s leadership and operational performance, and in supporting a new leadership team for continued growth in Aeronautics.

In 2012 your continuing commitment to superior performance will keep us resilient in a challenging business environment.  Your energy, professionalism, and performance will set us apart from competitors.  Looking ahead, our success will come through program execution, building in affordability at every level of the organization, and – most significantly – preserving a culture that places a premium on doing the right thing and treating others with dignity and respect.  This was the vision laid by our company’s founding aviation pioneers 100 years ago, and it’s why we begin the next 100 years as an enterprise that has grown into a true national asset.

Thanks again for finishing strong in 2011.  Let’s build on that momentum and make 2012 even better.