Memorandum

DATE:             October 24, 2012
TO:                  All Lockheed Martin Employees
FROM:            Bob Stevens, Chairman and Chief Executive Officer
                        Chris Kubasik, Vice Chairman, President and Chief Operating Officer
 
SUBJECT:      Third-Quarter Results:  Focus On Execution Drives Strong Performance
 
Today we reported third-quarter financial and operating results that continue strong year-to-date momentum and underscore the focus we all have on delivering value to customers and shareholders.  In the quarter, segment operating margin increased to 12.1 percent, cash generation was strong at $1.6 billion, and earnings per share from continuing operations expanded by 11 percent.  Heading into the fourth quarter, we see an improved full year outlook for sales, operating profit, earnings per share and cash.  Thank you for driving these excellent results.

Our commitment to affordability and efforts to stay competitive are paying off.  This year alone we expect to pass on more than $1 billion in savings to customers.  We are working closely with suppliers to reduce the cost of products and services and run the business more efficiently.  At the program level, we are engaging in critical conversations with customers to better align capabilities with requirements and engineer solutions that reduce life-cycle costs.  As you saw in our decision earlier this month to reorganize our Electronic Systems business, we continue to streamline our structure and management to help us meet customer expectations for increased value.

Across our portfolio, we achieved significant milestones during the quarter.  We were awarded a $1.9 billion contract from Taiwan to upgrade 145 F-16 aircraft.  The F-35 program remains ahead of the developmental flight test plan and significantly increased deliveries of production aircraft, including the first aircraft to the United Kingdom.  Our award from the Defense Information Systems Agency to manage the U.S. defense department’s global data network was upheld with the dismissal of a competitor’s protest, and we look forward to beginning work.  Successful intercepts of both tactical ballistic missile and cruise missile targets by our PAC-3 missile added to our legacy of proven performance in missile defense, a growing international market.  And the solid performance of the aeroshell we designed and fabricated for NASA’s Mars Science Laboratory was essential in the flawless landing of the Curiosity rover on Mars.

These results validate the importance of the many missions we support, and they explain why we view with concern the uncertainty about sequestration and its impacts on the missions we support.  We know you’re concerned, too, and we’re aware that there may be confusion about our decision to delay issuing sequestration-related Worker Adjustment and Retraining Notification (WARN) Act notices.  We made the decision in the best interests of our company and employees.
 
While the conditions and events surrounding sequestration and WARN are complicated and continuously evolving, we started with a basic premise that has never changed: We will comply with the law and issue WARN notices at the appropriate time if sequestration actions meet the required conditions.  Federal and state WARN statutes require that we make decisions on the “best information available.”

Throughout the summer and early fall, our judgment based on the best information available was that if sequestration occurred, there would likely be an immediate reduction to government budgets and contracts on January 2, 2013, requiring layoffs in January 2013.  Based on that premise, we were working toward issuing conditional WARN notices to affected employees in October and November.
 
On September 28 we received new information from the Department of Defense (DoD) and the Office of Management and Budget (OMB) that clarified our responsibilities as to the timing of potential sequestration-triggered WARN notices.  Of greatest importance to us was that DoD advised that no contract actions associated with sequestration would occur on January 2, and that no contract actions would likely occur for several months after January 2.  Based on that information, we determined there would be no sequestration-related layoffs in January 2013, and therefore no need to issue WARN notices until we receive additional, specific guidance from the government.

Our objective continues to be to understand the complex issues related to sequestration to the best of our ability, comply fully with law and regulation, keep you advised, and take actions in the best interests of our company and our employees.  In the meantime, we’ll continue to raise awareness about the devastating effects of sequestration so that our government officials can find an alternative that better fits our nation’s fiscal, security and strategic needs.

Our strong operating results this quarter are a reflection of several factors, including your unrelenting focus on affordability and program execution and your unwavering commitment to integrity and innovation in everything you do.  In addition, our strategy is well-aligned with our customers, and we have a proven portfolio of products and technologies.  Let’s continue to work together as a team and finish the year strong, despite the uncertainties that lie ahead.  Thank you.