1995 Annual Report - Lockheed Martin

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F i n a n c i a lH i g h l i g h t sIn millions, except per share dataNet salesEarnings before cumulativeeffect of change in accountingNet earningsEarnings per common share,assuming full dilutionCash dividends percommon shareTotal assetsDebt:Current maturitiesLong-termShareholders' equityNegotiated backlog1995$22,853682 (a)682 (a)3.05 (a)1.3417,6487223,0106,43341,1251994$22,9061,055 (b)1,018 (b)(c)4.66 (b)(c)1.1418,0492853,5946,08642,232See notes 1,2,4, and 10 to the Consolidated Financial Statements.(a) Earnings for 1995 include the effects of pretax charges totaling $690 millionfar merger related and consolidation expenses. These charges reduced net earningsby $436 million, or $1.96 per common share.(b) Earnings for 1994 include the favorable effects of two significant nonrecurringtransactions: a $118 million pretax gain from an initial public offering of a portionof the common stock of a subsidiary and the receipt of a $50 million acquisitiontermination fee. These nonrecurring transactions increased net earnings by$70 million, or $.32 per common share, and $30 million, or $.14 per commonshare, respectively.(c) Effective January 1, 1994, the Corporation changed the method of accountingfor its ESOP. This change resulted in a cumulative effect adjustment which reducednet earnings for 1994 by $3 7 million, or $.17 per common share.ContentsTo Our Shareholders 2Vision Statement 7Operating Companies 8Operating HighlightsAeronautics Sector 14Electronics Sector 20Energy & Environment 26SectorInformation & 31Technology ServicesSectorSpace & Strategic 37Missiles SectorFinancial Information 43Corporate Directory 78General Information 80

M i s s i o n S u c c e s sOur commitment toand totalcustomersatisfactionin every goalwe set and every task we

D e a r F e l l o w S h a r e h o l d e r sA key measure of Lockheed Martin's mission successduring 1995 was our record for meetingmajor program milestones and commitments.A Star is BornBy any measure, 1995 was an extraordinarily successful year. The ambitious merger of Lockheedand Martin Marietta, which we embarked upon just one year ago, has surpassed expectations onalmost every front: We met or exceeded all financial targets, achieved nearly 100 percent missionsuccess, captured vital new business and made tangible progress toward realizing significantcost savings. In addition, we have expanded our opportunities by recently entering into a strategicagreement to acquire Loral's defense electronics and systems integration businesses. This outstandingrecord is attributable to Lockheed Martin's 160,000 men and women whose commitment,performance and willingness to lead and to change have set a new standard.Financial ResultsIn 1995, Lockheed Martin's financial strength further improved; both cash flow and incomewere better than expectations. Net earnings were $1.12 billion (excluding $436 million inmerger related and consolidation charges), an increase of 17 percent over 1994 earnings (adjustedfor non-operating items). On the same basis, 1995 fully diluted earnings per share were $5.01,or 14.6 percent better than the previous year.Significantly, Lockheed Martin's ongoing emphasis on strong cash management paidoff with $882 million in free cash flow during 1995, which we applied in several ways to enhanceshareholder value, including paying dividends, reducing debt, internal growth, acquisitions andrepurchasing 2.3 million shares of common stock.In our first year of operation, sales were steady at $22.85 billion versus $22.90 billion for1994. We ended the year with a healthy backlog of $41 billion.This strong overall financial performance was clearly reflected in the investmentcommunity's confidence in Lockheed Martin stock, which increased in value by more than78 percent during 1995. The total shareholder return for 1995, including dividend reinvestment,topped 81 percent, well above market averages.2

Mission Success"Mission Success" expresses Lockheed Martin's commitment to achieve superior performanceand total customer satisfaction in every goal we set and every task we undertake. A key measureof Lockheed Martin's mission success during 1995 was our record for meeting major programmilestones and commitments. Just in terms of strategic and tactical missile firings, space vehiclelaunches, satellites delivered on orbit, aircraft first flights, and Space Shuttle missions —which totaled 215 during the year — the men and women of Lockheed Martin achieved anextraordinary 96 percent success rate. This outstanding performance was reflected in excellentcustomer award fee ratings.In our first year of operation, we also dealt with a few disappointments. The first test flightof our new small launch vehicle was unsuccessful, and we lost some competitions. We gainedvaluable insights for the future from these experiences and redoubled our commitment to achieve100 percent mission success as we go forward.Competitive PerformanceIn 1995, Lockheed Martin turned in an impressive record of new business awards. Our win ratewas over 60 percent of the number of major competitive bids pursued and just under 60 percentof the dollar value bid. This is a record which far surpasses industry averages. Capturing vital newbusiness across the spectrum of our products and services, for both government and commercialcustomers worldwide, demonstrates Lockheed Martin's broad technological capabilities andcompetitive strengths. Significantly, several major new business awards resulted from synergiesand system solutions realized from our merger.The Operating Highlights portion of our report details Lockheed Martin's numerous specificbusiness achievements throughout the year. From a broad strategic viewpoint, we:• Positioned our launch vehicle, satellite and space vehicle ground operations businesses toprovide customers with total system solutions, unmatched by our competitors.• Reinforced our position in U.S. military aircraft and continued to expand internationally.• Substantially strengthened our position in growing information systems businesses, bothgovernment and commercial, with advanced technology products and services.• Improved our competitive position in defense electronics businesses and created market demandfor next generation systems.• Maintained our role as the Department of Energy's single largest services provider, whilegaining greater presence in the environmental remediation area.• Enhanced our international business base, which accounts for more than 15 percent of total sales,through synergies, strong in-country presence and relationships with international partners.ConsolidationOn June 26, just three months after our merger and on our original schedule, we announced acorporate-wide consolidation plan, which carries out Lockheed Martin's commitment to maximizeefficiencies, improve global competitiveness, expand long-term employment prospects andenhance shareholder value. By year end, we had met all key decision dates; all consolidation

Daniel M. TellepChairmanNorman R. AugustinePresident andChief Executive Officeractivities are on or ahead of schedule; and we had made substantive progress toward realizing thesignificant cost savings anticipated. In the first five years of the plan, we expect to realizenet savings of about $5 billion; when fully implemented, by 1999, we expect to achieve annualsavings of $1.8 billion. By increasing economies of scale, capitalizing on corporate-wide synergiesand leveraging our added financial strength, consolidation will benefit shareholders, customersand employees.Management SuccessionToward the end of Lockheed Martin's first year of operation, we also implemented the successionplan we set in place in the August 1994 agreement to merge. As part of this transition, Dan Tellepretired as chief executive officer effective January 1, 1996 and will continue throughout 1996as chairman of the board. Norm Augustine, previously president, is now president and chief executiveofficer and will also serve as vice chairman of the board of directors. Vance Coffman waselected to the new position of executive vice president and chief operating officer, effectiveJanuary 1, 1996. Vance was formerly president of the Corporation's Space & Strategic MissilesSector and is succeeded in that position by Mel Brashears, previously executive vice president ofLockheed Martin Missiles & Space. This orderly transition helps to ensure the continued smoothevolution of our merger and strong management continuity in pursuing our strategic goals.Other key management changes during 1995 were the retirements of Lockheed Martin executivevice presidents, A. Thomas Young and Vincent N. Marafino, following long and distinguishedcareers during which they made valuable contributions to our heritage Martin Mariettaand Lockheed companies, respectively. Vince will continue as a member of the Lockheed Martinboard of directors.Strategic Combination with LoralIn January 1996, Lockheed Martin and Loral announced a strategic combination to solidify ourindustry leadership position for the 21st century. When the transaction is complete, LockheedMartin's annual sales will approach $30 billion with a total backlog in excess of $50 billion,and we expect to generate between $1.5 billion and $2.0 billion in free cash annually. The Loraltransaction is the "set piece" for our business portfolio, effectively balancing Lockheed Martin'sprodigious strengths in major platform systems with additional capabilities in electronics,information systems and systems integration.Under key terms of the agreement, Loral's defense electronics and systems integrationbusinesses are integrated with those of Lockheed Martin, which also holds a 20 percent equityposition in the newly formed Loral Space & Communications, expected to become one of the twoor three leaders in the fast-growing space communications industry. A major benefit in theagreement is continued participation of Loral's senior management in our new enterprise. Loralchairman and chief executive officer, Bernard Schwartz, will serve as a vice chairman of theLockheed Martin board of directors, along with Norm Augustine. Loral president and chief

operating officer, Frank Lanza, will join Lockheed Martin's board of directors and serve as anexecutive vice president and co-chief operating officer with Vance Coffman. Frank also will serveas acting president of the new Tactical Systems Sector, initially comprising the Loral businesses.This strong executive team will help to ensure a smooth transition and should further enhanceour ability to deliver shareholder value in 1996 and beyond.Looking AheadLockheed Martin's plan for maximizing shareholder value includes ongoing cost reductions,continuing margin expansion, strong positive cash flow and opportunistic portfolio shaping.Major focus will be placed on debt reduction. In 1995, we also announced broadly based executivestock ownership guidelines, under which senior managers are expected over time to invest variousmultiples of their compensation in Lockheed Martin stock. We believe this plan will furtherincentivize management to continue pursuing shareholder value growth.In carrying out the Lockheed Martin merger, we successfully integrated several differentcultures and today are operating as one fully integrated company. A notable accomplishmentis that, in less than a year, we have blended two strong ethics programs into one which is amongthe strongest in any industry. We also launched a comprehensive compliance program tailoredto the various operating environments of all our businesses. Lockheed Martin's success, as always,will depend on our continued adherence to the highest standards of ethical conduct at everylevel, which is our uncompromising pledge to our colleagues, customers, shareholders, suppliersand the public.Lockheed Martin is opening a new chapter in the future of our industry. Success in ourextremely competitive, diverse global business depends on the intelligence, intensity and integritywith which we pursue our goals. We take on this enormous challenge with enthusiasm and asense of stewardship for the future of our many heritage companies and the men and women whoare committed daily to mission success.We also thank all of our shareholders for your continued support.February 9, 1996Daniel M.TellepChairmanNorman R. AugustinePresident and Chief Executive Officer

V i s i o n S t a t e m e n tOur vision is for Lockheed Martinto be recognized as the world's premiersystems engineering and technologyenterprise. Our mission is to build onour aerospace heritage to meet the needsof our customers with high-qualityproducts and services. And, in so doing,produce superior returns for ourshareholders and foster growth andachievement for our employees.

Sector Operating CompaniesAeronauticsLockheed MartinSkunk WorksPalmdale, CaliforniaLockheed MartinAircraft CenterGreenville, South CarolinaLockheed MartinAeronautics InternationalOntario, CaliforniaLockheed MartinLogistics ManagementArlington, TexasPresident and Chief Operating OfficerJames A. Blackwell, Jr.ElectronicsPresident and Chief Operating OfficerThomas A. CorcoranLockheed MartinArmament SystemsBurlington, Vermont;Milan, TennesseeLockheed MartinCommunications SystemsCamden, New JerseyLockheed MartinControl SystemsBinghamton, New York;Fort Wayne, IndianaLockheed MartinDefense SystemsPittsfield, MassachusettsEnergy& EnvironmentPresident and Chief Operating OfficerAlbert NarathLockheed MartinEnergy SystemsOak Ridge, TennesseeLockheed MartinEnergy Research Corp.Oak Ridge, TennesseeInnovative Ventures Corp.Oak Ridge, TennesseeLockheed MartinIdaho TechnologiesIdaho Falls, IdahoSandia CorporationA Lockheed Martin CompanyAlbuquerque, New MexicoInformation& TechnologyServicesPresident and Chief Operating OfficerPeter B. TeetsLockheed Martin IMSTeaneck, New JerseyLockheed MartinManagement & Data SystemsValley Forge, Pennsylvania;Reston, VirginiaLockheed MartinManned Space SystemsMichoud, LouisianaLockheed MartinSpace OperationsTitusville, FloridaLockheed MartinEnterprise InformationSystemsOrlando, FloridaLockheed MartinInformation SystemsOrlando, FloridaSpace& StrategicMissilesLockheed MartinMissiles & SpaceSunnyvale, CaliforniaLockheed MartinAstronauticsDenver, ColoradoPresident and Chief Operating OfficerVance D. Coffman*As of January 1, 1996, Vance Coffman assumed the new post ofexecutive vice president and chief operating officer. Melvin Brashearssucceeded Mr Coffman as president and chief operating officer of theSpace & Strategic Missiles Sector.

Lockheed MartinAeronautical SystemsMarietta, GeorgiaLockheed MartinTactical Aircraft SystemsFort Worth, TexasLockheed MartinAero & Naval SystemsBaltimore, MarylandSubsidiaries and OtherInvestmentsMartin Marietta Materials, Inc.Airport Group International, Inc.Space Imaging, Inc.Lockheed Martin Finance Corp.M4 Environmental, L.P.Lockheed MartinElectronics 8 MissilesOrlando and Ocala, Florida;Troy, AlabamaLockheed MartinGovernment ElectronicSystemsMoorestown, New JerseyLockheed MartinOcean, Radar &Sensor SystemsSyracuse and Utica,New YorkSandersNashua, New HampshireLockheed MartinAdvanced TechnologyLaboratoriesCamden, New JerseyLockheed Martin CanadaKanata, Ontario, CanadaAV Technology, LLCChesterfield, MichiganLockheed MartinEnvironmental Systems &TechnologiesHouston, TexasLockheed MartinNevada Technologies, Inc.Las Vegas, NevadaLockheed MartinUtility ServicesBethesda, MarylandTechnology Ventures Corp.Albuquerque, New MexicoLockheed MartinSpecialty ComponentsLargo, FloridaLockheed MartinServices GroupKAPLA Lockheed Martin CompanyNiskayuna and West Milton,New York;Windsor, ConnecticutLockheed MartinServicesCherry Hill, New Jersey;Houston, TexasLockheed MartinCommercial Systems GroupAccess GraphicsA Lockheed Martin CompanyBoulder, ColoradoCalCompA Lockheed Martin CompanyAnaheim, CaliforniaFormtekA Lockheed Martin CompanyPittsburgh, Pennsylvania;Palo Alto, CaliforniaLockheed MartinCommercial ElectronicsHudson, New HampshireMountainGateA Lockheed Martin CompanyReno, NevadaLockheed MartinIntegrated Business SolutionsOrlando, FloridaReal 3DOrlando, FloridaLockheed MartinAstro Space CommercialSunnyvale, CaliforniaLockheed MartinTechnical OperationsSunnyvale, California9

Fromthe depthsof theEarth'soceans tothe farreachesof spaceLockheed Martinproducts and servicesset the standardfor industry leadershipin aircraft,energy and environmentalremediation,missiles, electronics,information systems,spacecraft andlaunch vehicles.Every day, our talentedand dedicatedemployees utilizeinnovative technologiesand redefinewhat is possible.

SkySea

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A e r o n a u t i c sS e c t o rThe F-22 is designed to dominatethe air combat arena by integrating stealthysupercruise and advanced avionics.F-16 FighterIn 1995, Lockheed Martin Aeronautics Sector successfully pursued a strategy that sets the stagefor continued profitability and enhanced competitiveness. Aeronautics enters 1996 as a major forceready to grow its core lines of military aircraft business as well as expand into related domesticand international markets.In an environment of declining defense budgets worldwide, the Aeronautics Sectorretains a leading competitive position in the military aircraft market due to the breadth of its businesses,the capabilities of its products and the success of its lean manufacturing initiatives. Inaddition, the Aeronautics Sector has a strong international sales base with effective in-countrypresence in key areas.The U.S. Air Force F-22 is a high priority tactical aircraft program. It completed a highlysuccessful Critical Design Review in 1995. The F-22 team began fabrication and assembly,and the first flight of the Engineering and Manufacturing Development aircraft is expected in mid-1997. The F-22 is slated to replace the aging F-15 in the air superiority role in the 21st centuryand bring precision ground attack capability to the battlefield.The F-22 is designed to dominate the air combat arena by integrating stealth, supercruiseand advanced avionics. It will operate freely in the increasingly lethal surface-to-air and air-to-airmissile environment, even when outnumbered. The F-22 is the key to theater air defense strategy;it allows allied forces to attack enemy ballistic and cruise missiles on the launcher or duringboost phase. The aircraft's impressive ground attack capabilities are designed to provide a newlevel of versatility to future Joint Force Commanders. Production of 442 aircraft is expectedto begin in 1998.Lockheed Martin is pursuing a range of tactical aircraft program opportunities thatinclude additional F-16 sales to international customers as well as the U.S. Air Force, a series ofF-16 derivatives, and development of concepts for the future Joint Advanced Strike Technology(JAST) aircraft.International sales of the F-16 fighter are a major factor in the Aeronautics Sector's financialstrength. At year end, Tactical Aircraft Systems delivered the 3,500th F-16 and had a firm backlogof 414 F-16 orders worth about $6 billion, including aircraft to be produced for Taiwan, Turkey,14 South Korea, Greece and Singapore. Japan's FS-X, an F-16 derivative, successfully completed its

The F-22 is the nextgeneration airsuperiority fighter.The F-22 cockpitmockup, here, illustratesthe sophisticationof this 21stcentury aircraft.

Making its debuton October 18, 1995,the C-130J is attractingthe attentionof U.S. and internationalmilitary transportcustomers. TheUnited Kingdom andAustralia have selectedthe J as their nextgeneration airlifter.

first flight in October. Tactical Aircraft Systems is assisting the prime contractor, Mitsubishi HeavyIndustries, in development and production of the FS-X aircraft. The Japanese government isexpected to announce full production of the FS-X in 1996.Today's F-16 aircraft is the product of seven major upgrades, and the U.S. Air Force isplanning additional F-16 capability improvements as part of its Fighter Configuration Plan.Congress took the first step toward meeting the force sustainment need by including funds for sixF-16s in the 1996 defense budget. Lockheed Martin also proposed the F-16 program as apilot plant project for acquisition reform during 1995, estimating an additional 15 percent costsavings for future F-16s by applying commercial practices to contracting and production.Implementation could begin in 1996, pending government direction.Lockheed Martin is competing to develop concepts for the next major fighter program,JAST, a common, affordable joint strike fighter for the U.S. Air Force, Navy, Marines and BritishRoyal Navy. Lockheed Martin Tactical Aircraft Systems is coordinating the Corporation's overallJAST effort, which applies technical expertise from companies throughout the Aeronautics Sector.In 1995, the Aeronautics Sector conducted propulsion and wind tunnel tests with a largescalemodel representing the short-takeoff and vertical-landing version of its JAST aircraft concept.Lockheed Martin Skunk Works built the model, accomplishing this phase of the competitionon schedule and within budget. In 1996, the government is scheduled to select two contractors tobuild JAST demonstrator aircraft, with first flights expected before 1999.In the military transport market, interest in the C-130J Hercules program is increasingamong international and U.S. government customers. The United Kingdom and Australia haveselected the C-130J as their next generation airlifter, and numerous international air forceshave requested pricing data on airlift, tanker and airborne early warning variants of this versatileaircraft. To date, Lockheed Martin has delivered more than 2,100 C-130s, and 64 countriesfly the C-130 Hercules aircraft for troop and equipment transport, humanitarian aid missions anddisaster relief.The advanced C-130J utilizes fully integrated digital avionics and dual mission computers;head-up displays for both pilots; a new, highly efficient propulsion system; and all-composite,six-bladed propellers. The U.S. Air Force executed a commercial-type contract for its initial buyof C-130Js. In concert with Defense Department acquisition reform goals, the C-130J program wasdesignated a commercial off-the-shelf item and is a regulatory pilot program.In 1995, we delivered eight P-3 aircraft to the Republic of Korea Navy, the 14th nation toselect the P-3 for its maritime patrol requirements. We submitted a P-3 Orion-2000 proposalto the United Kingdom's Replacement Maritime Patrol program. The United Kngdom anticipatesreplacing its aging fleet of Nimrod aircraft with up to 25 new maritime patrol airplanes.Lockheed Martin is offering a modernized version of the P-3, incorporating new engines, aglass cockpit and an advanced mission avionics system. In an example of the new Corporation'ssynergy, the Aeronautics and Electronics Sectors are jointly studying development of an advanced,low-cost airborne early warning and control suite that could be used on either the C-130 orthe P-3 as an adjunct to AWACS for the international market.

Lockheed Martin Skunk Works, a national asset since its inception during World War II,is a world leader in advanced aircraft design and low-observable technology. In 1995, theSkunk Works refurbished two SR-71A Blackbird reconnaissance aircraft for the U.S. Air Forceand unveiled DarkStar, a low-observable, unpiloted air vehicle developed jointly with Boeing.DarkStar is designed to provide near real-time, continuous, all-weather, wide-area surveillance insupport of tactical battlefield commanders.The Skunk Works' technology leadership also extends to space. NASA selected LockheedMartin as one of three competitors for Phase I of the X-33 program, a subscale version of asingle-stage-to-orbit reusable launch vehicle. NASA is expected to make a downselect this yearand launch the first prototype in 1999.As part of our corporate-wide consolidation plan, we restructured Lockheed MartinAircraft Services as a division within the Skunk Works. In 1995, Aircraft Services delivered 18heavily-modified special mission C-130s to the Air Force and other customers. Modificationwork began on A-4M Skyhawk fighters for Argentina, and Lockheed Argentina began operatingthe former government modification facility at Cordoba. Lockheed Martin Aircraft Center,in Greenville, South Carolina, will continue to pursue modification, maintenance and contractorlogistics support programs. The newly created Aeronautics International is developing a strategyto market and manage offshore modification and maintenance companies, as well as selectedjoint ventures.In 1995, Lockheed Martin was at the forefront of the depot privatization initiative.Led by Lockheed Martin Logistics Management, a 34-member team was formed to examine thebusiness potential of privatization. Initial efforts have focused on the Air Logistics Centers atKelly Air Force Base in San Antonio and McClellan Air Force Base in Sacramento. LockheedMartin's efforts are expected to position the Corporation to win new business opportunities as theAir Force institutes pilot programs for these depots.Aeronautics Sector's Aero & Naval Systems production of General Electric CF6 thrustreversers remained strong in 1995 with production deliveries exceeding plans. The CF6 overhauland repair business doubled in 1995 and is expected to grow in 1996 due to nacelle work for U.S.Air Force KC-10 aircraft and four new airline customers. The improved quality and efficiency ofcomposite thrust reversers produced for Pratt & Whitney 4168 engines has resultedin an excellent flight service record.Aero & Naval's MK-41 Vertical Launching System continues to exceed production schedulesand meet mission success goals, including 13 combat firings in support of NATO peacekeeping.The Turkish Navy has become the first customer to buy the new shortened tactical version of theMK-41, opening a new market for smaller classes of ships around the world.The Aeronautics Sector is implementing a thorough, long-range strategy to remain the leaderin its lines of business, as well as to grow in a declining industry. Continued emphasis on technologicalinnovation, international sales and a lean, effective organization is expected to yield continuedsuccess in the marketplace and contribute to shareholder value well into the next century.

E l e c t r o n i c sS e c t o rThe Electronics Sector's growth strategy focuses on preservingits traditional business base, while expanding its global defenseelectronics and related commercial businesses.Lockheed Martin Electronics Sector moved aggressively in 1995 to capture several new contractsamid intensifying competition in the global defense electronics marketplace. A strong win rateand outstanding program performance reflected Electronics' dedication to be a growing marketdriven,global business. The organization made strides toward its vision of an enterprise in which"the whole is greater than the sum of its parts" by leveraging across its business units itsMillimeter WaveRadar Antennastrengths in terms of market position, ability to reduce costs, employee skills and best practices.Indicative of effective Lockheed Martin synergy is the U.S. Army's selection of LockheedMartin for the project definition/validation phase of the multi-billion dollar Corps SAM/MEADSair defense program. The Lockheed Martin team, led by Electronics & Missiles, includes sixLockheed Martin companies and laboratory operations. An international program to provideground forces with an effective defense against tactical ballistic and cruise missiles and otherthreats, the Corps SAM/MEADS team also includes three European partners.Another example of synergy benefits is the contract award to Lockheed Martin ControlSystems for the avionics systems' central computer on the C-17 Globemaster III aircraft.Sanders is a major subcontractor to Control Systems, providing the central processing unit.Other major competitive wins in 1995 added to Electronics' portfolio of business.Electronics & Missiles, on a team led by Westland Helicopter of Yeovil, England, is to providefire control, missile, night vision and targeting systems for 67 Apache helicopters for the BritishArmy. The potential business from this program is estimated at more than $1 billion. ThirtyApaches ordered by the Netherlands will be equipped with Target Acquisition DesignationSight/Pilot Night Vision Sensor (TADS/PNVS) systems which allow pilots to fly at low altitudesin total darkness or under poor weather conditions. The Royal Netherlands Air Force also placedorders for Hellfire II antiarmor missiles, produced jointly by Lockheed Martin and RockwellInternational.The Netherlands TADS/PNVS units will be the first configured for possible integration withthe Longbow millimeter wave radar fire control and missile systems. The Sector's commitmentto mission success was aptly demonstrated by successful test flights of both Hellfire and itsupgraded derivative, Longbow. Low-rate initial production of Longbow antiarmor missiles is20expected to start in 1996.

Sanders solidified its position among industry leaders in electronics countermeasuressystems with several key wins, including its selection to produce the Advanced Threat InfraredCountermeasures system, the next-generation laser-based system to protect aircraft fromheat-seeking missiles and provide a common missile warning system for U.S. Army, Navy and AirForce aircraft. The long-term potential of these programs is more than $1 billion.Additionally, Sanders was selected to produce the Integrated Defensive ElectronicCountermeasures (IDECM) radio frequency subsystem that is to provide increased survivabilityagainst advanced missile threats for U.S. Navy and Air Force aircraft. The production programfor IDECM could total more than $1 billion.Lockheed Martin Government Electronic Systems is a leader in developing multifunction,phased-array radars for the U.S. Navy, the Electronics Sector's single largest customer. In1995, the Navy selected Government Electronic Systems to continue upgrades to the capabilitiesand performance of its AEGIS combat system. These efforts, which include modification to thephased-array radar, are part of a contract valued at $577 million through the end of the decade,and may lead to similar improvements to AEGIS equipped ships of the Japanese MaritimeSelf Defense Force. In addition, Government Electronic Systems received contracts in 1995worth more than $400 million for AEGIS equipment, production and life cycle support.In another important Navy program, Lockheed Martin Ocean, Radar & Sensor Systemsproduced on cost and delivered on schedule in 1995 the first BSY-2 combat system for theSeawolf submarine. The Navy has characterized initial performance of the system as outstanding.The Electronics Sector continued to demonstrate its competitiveness in internationaldefense and commercial electronics business segments with other significant achievements.The Taiwan Air Force selected Sanders to build computer-based mission planning systems forthat country's F-16 fighters. Ocean, Radar & Sensor Systems will provide long-range radarsystems to the Romanian government for that nation's airspace management system and, ina major advance into an adjacent market, was selected to provide a marine traffic managementsystem for Ras Tanura, a large Saudi Arabian port on the Arabian Gulf. Other traffic managementwins included strategically significant contracts for the Straits of Gibraltar and in Singapore.In other major developments, Lockheed Martin Ordnance Systems won a contract to producethe HYDRA-70 rocket system for the U.S. Army. The most widely used helicopter weapon inthe world today, the HYDRA-70 is a multi-purpose rocket system used by all branches of theU.S. military. Also, the U.S. Marine Corps executed a contract with Lockheed Martin ArmamentSystems to produce 17 Light Armored Vehicle - Air Defense (LAV-AD) systems. The LAV-ADsystem, which protects Marine forces against air attack, utilizes a Blazer air defense turret on alight armored vehicle chassis. The Blazer turret is equipped with a 25mm Gatling gun and a pairof Stinger missile launchers.The U.S. Air Force selected Electronics & Missiles to develop and demonstrate theWind-Corrected Munitions Dispenser, positioning Lockheed Martin to compete for acontract potentially worth several billion dollars. The Wind-Corrected Munitions Dispenser isdesigned to provide all-weather autonomous guidance for air-to-ground tactical munitions

Integrated DefensiveElectronicCountermeasures(IDECM) systemconsists of a varietyof components thattogether improvethe survivabilityof combat aircraft.The Fiber OpticTowed Decoy, here,is used to confuseenemy missiles.

dispensers for fighter and bomber aircraft. The U.S. Navy chose the Low Altitude Navigation& Targeting Infrared for Night system (LANTIRN) for the F-14 Tomcat as part of theservice's Precision Strike Program. Electronics & Missiles also won its third contract under theJoint Advanced Strike Technology (JAST) program, a U.S. Navy/Air Force initiative to developadvanced technologies for a family of fighter aircraft in the next century.Lockheed Martin Defense Systems won a contract to perform transmission design workfor the Crusader program, the U.S. Army's advanced field artillery system. Lockheed MartinCommunications Systems won new business in the electronic key management systems area andwas chosen to develop the next-generation digital secure terminal equipment (STE), whichis designed to provide secure digital communications capability to military and civil governmentagencies into the next century. Lockheed Martin Canada leads a team that won the CanadianArmy Electronic Warfare Control & Analysis Centre, the first in the Army's series of tacticalinformation management programs.Electronics invested in three new operations to strengthen and expand business opportunities.Lockheed Martin acquired from GE Aircraft Engines its engine controls manufacturing andservice business in Fort Wayne, Indiana. Combining the Fort Wayne operation with LockheedMartin Control Systems in Binghamton, New York, creates a world-class organization specializingin design, development, production and service of advanced electronic engine controls, as well asa wide range of controls for other aircraft and industrial applications. Defense Systems formed AVTechnology, LLC, which will supply turret systems and light armored combat vehicles to theglobal defense marketplace. Lockheed Martin has taken an 80 percent interest in the new company.Ocean, Radar & Sensor Systems continued to diversify beyond traditional product offeringswith the purchase of ERAAM, a French firm specializing in the design and development of stateof-the-artsafety and traffic management systems.In 1995, Electronics also initiated consolidation plans to reduce costs and strengthencompetitiveness. Those actions, which will eliminate 2.1 million square feet of excess capacityand reduce employment by roughly nine percent, are expected to be completed in 1996.Electronics also is leading a corporate-wide effort to leverage the combined volume of procurementrequirements of heritage Lockheed and Martin Marietta, an initiative that is expectedto generate more than $50 million in annual savings on the purchase of direct commodities.These plans fulfill the Electronics Sector's commitment to customers to aggressively leveragethe strengths of the new Lockheed Martin to lower costs and improve efficiency.

The AEGIS shipboardcombat system iscapable of simultaneouslyengagingthreats from theair, the surface andunder the sea.Developed for theU.S. Navy, AEGIS alsois deployed by theJapanese MaritimeSelf Defense Force.

E n e r g y & E n v i r o n m e n t S e c t o rAn important achievement in 1995 was winning theperformance-based contract to provide support services forthe Department of Energy's Nevada Test Site.One of Lockheed Martin's early decisions in 1995 was to establish a fifth sector — Energy &Environment — to strengthen its role in managing and operating Department of Energyfacilities. Establishment of the new sector also signals the Corporation's intent, directly andthrough ventures with other corporations, to gain a large presence in the domestic and internationalenvironmental remediation business.Molten MetalTechnology:The Science ofRecyclingThe Energy & Environment Sector's overall strategy is to apply its technology skills tomanage Department of Energy facilities and leverage that experience to create new businessopportunities. For example, the Energy & Environment Sector is positioned to pursueDepartment of Energy privatization initiatives that, in turn, lead to other privatization andmilitary base environmental remediation opportunities in the United States and abroad.An important achievement in 1995 was winning the performance-based contract to providesupport services for the Department of Energy's Nevada Test Site. Lockheed Martin, as anintegrated subcontractor to Bechtel National, Inc., will manage the testing, counterproliferationand technology base of the Nevada Test Site, beginning in 1996. We established a new operatingunit in the Energy & Environment Sector, Lockheed Martin Nevada Technologies, Inc.,for the effort.Lockheed Martin Energy Systems signed a two-year extension to manage and operate theDepartment of Energy's Oak Ridge facilities and the environmental management programs atthe Portsmouth, Ohio, and Paducah, Kentucky, facilities. This extension continues our managementof these facilities through March 31, 1998, with an estimated Department of Energy budgetof $3.5 billion. In December, the Department of Energy and Lockheed Martin agreed to operatethe Oak Ridge National Laboratory, a major national science center, under a separate contract,which will be performed by a new operating unit in the Energy & Environment Sector, LockheedMartin Energy Research Corporation.26

Sandia NationalLaboratories, managedby Lockheed Martinfor the Department ofEnergy, is at theforefront of roboticvehicle design. Robots,like the Ratler, mayexplore the moon.

The Rimfire highvoltage switch,shown left, controlsmore than 5 millionvolts for theParticle Beam FusionAccelerator (PBFA) IIat Sandia NationalLaboratories. PBFAis made up of36 modules, eachproducing a powerfulpulse of energy.Rimfire switchessynchronize thosepulses to within10 billionths of asecond.In 1995, the Department of Energy approved the resumption of nuclear materials receipt,storage and shipment operations at Oak Ridge's Y-12 plant. This was the culmination of a comprehensivereview and revamping of operations and procedures by the government and LockheedMartin over the past year. The assessment involved critical surveys of every aspect of operationsin the program as the nation's nuclear materials stewardship transitions from the Cold War.Lockheed Martin's Energy & Environment Sector also manages the Idaho NationalEngineering Laboratory and Sandia National Laboratories, both of which are in the forefrontof military and civil research, as well as technology development for possible transfer to theprivate sector.In 1995, Sandia offered a revolutionary automobile airbag design — the result of a businessgovernmentpartnership that permits Department of Energy laboratories to commercializecertain technologies. Currently, the Idaho National Engineering Laboratory is working on aneutron cancer treatment program. Lockheed Martin Specialty Components is the managementand operating contractor for the Department of Energy's Pinellas Plant. For more than 40 years,the plant's Energy Department mission was to manufacture components for nuclear weapons. Thedefense production mission was successfully completed, and the mission now is environmentalmanagement and restoration of the facility.Concurrently, Specialty Components is using the facility, technology, equipment andpersonnel, once used solely for defense activities, to develop a commercial business.Specialty Components' service centers, developed around core technologies, offer extensivelaboratory and technical consulting to local businesses. Technology transfer funding and othergrant programs provided by the Department of Energy have enabled many local, small businessesto take advantage of the plant's resources for product design and/or manufacturing.As the single largest provider of services to the Department of Energy, Lockheed Martin isfocused on maintaining high quality operations, providing rapid response when corrective actionsare needed and carrying out the laboratories' challenging missions.This year, the Energy & Environment Sector is expected to implement the "system oflaboratories" concept among the three national laboratories operated by Lockheed Martin. Theconcept is designed to enhance the interchange of information and skills among sites and across29

programs. Our strategy is to implement the best management practices across all LockheedMartin-managed facilities to reduce operating costs and improve their efficiency. We are examiningways to improve such functions as procurement, finance, training and construction, andwill submit recommendations to the Secretary of Energy this year. We also are confident that thisapproach will yield significant new business opportunities in the public and private sectors.Last year, Lockheed Martin Utility Services was awarded a three-year extension, throughSeptember 30, 1998, with an option for an additional two years under its existing contract, tomaintain the Portsmouth and Paducah uranium enrichment facilities for the U.S. EnrichmentCorporation. Under the extension, Lockheed Martin and the U.S. Enrichment Corporation willmanage an operating budget in excess of $1 billion.Lockheed Martin and Molten Metal Technology, Inc. have entered into agreementsintended to strengthen their environmental services business. Under these agreements, which aresubject to certain conditions, including regulatory approvals, Lockheed Martin EnvironmentalSystems & Technologies will sell its Retech environmental division to M4 Environmental L.P.,a limited partnership jointly-owned by Lockheed Martin and Molten Metal Technology. Retechdesigns and manufactures plasma furnaces for the metallurgical and remediation markets.M4 Environmental was created in 1994 to supply Molten Metal Technology's waste recyclingtechnology to Department of Defense and Department of Energy customers.This year, the Energy & Environment Sector is expected toimplement the "system of laboratories" concept among the threenational laboratories operated by Lockheed Martin.30

I n f o r m a t i o n & T e c h n o l o g y S e r v i c e s S e c t o rLockheed Martin is penetrating the federal civil market,supporting a number of government agencies as they updatetheir information systems.Lockheed Martin Information & Technology Services Sector provides systems design, development,integration and operations for federal, state and municipal governments, as well as informationsystems and products to commercial customers. In 1995, the Information & TechnologyServices Sector continued an outstanding competitive win rate by providing cost-effective flexible,full-service solutions for complex customer problems.Information at aKeystrokeThe Lockheed Martin IMS experience in providing solutions to state and municipalgovernment agencies served the Corporation well in 1995. Lockheed Martin, supporting Citibank,won contracts in eleven states in the emerging Electronic Benefit Transfer business. Under thesecontracts, state and federal benefits, including food stamps, Aid to Families with DependentChildren and other assistance programs will be converted from traditional paper based systems toa debit card system, enhancing benefit distribution and reducing fraud.IMS is implementing Child Support Enforcement Systems in several states, includingCalifornia, Pennsylvania and Massachusetts. These systems facilitate implementation of courtorders, greatly increasing collection of child support payments. In 1995, IMS won additionalprograms in Florida and Hawaii.An industry leader in transportation systems and services, IMS is positioned to capture newbusiness as the majority of U.S. toll roads convert to electronic toll collection by the year 2000.In addition, in 1995 IMS began providing a weigh station bypass service in California calledPrePass. Through PrePass, truck operators save time and money by having their credentialsverified and weight checked electronically, without having to stop at weigh stations.Lockheed Martin Services Group is penetrating the federal civil market, supporting anumber of government agencies as they update their information systems. The Services Groupis currently under contract to modernize the information systems of the Social SecurityAdministration (SSA). Development of a paperless processing pilot at the SSA Great LakesProcessing Center was deemed so exemplary that the President's National PerformanceReview Committee selected the SSA/Lockheed Martin team to receive a Hammer Award forleadership in reinventing government.

Lockheed MartinInformation Systemsis developing anAutomated FingerprintIdentificationSegment (AFIS) forthe FBI that willprovide 24-hour turnaroundon requeststhat now take monthsto process.

Motorists using theVerrazano-NarrowsBridge in New YorkCity can save timeand avoid linesby using the E-ZPasselectronic tollcollection serviceprovided byLockheed Martin IMS.

The Services Group also operates information systems for the Environmental ProtectionAgency, including the National Environmental Supercomputing Center, where advanced scientificvisualization techniques are used to model the movement of pollutants through the air and waterand to assess the effectiveness of possible control mechanisms. Services Group during 1995enjoyed competitive wins with the U.S. Department of Treasury, the General ServicesAdministration and the U.S. Patent and Trademark Office. During 1995, Lockheed MartinInformation Systems was under contract with the FBI to demonstrate key elements of the futureAutomated Fingerprint Identification Segment (AFIS). When operational, AFIS will be able tomatch, within minutes, a high priority set of ten fingerprints against a data base of 400 million fingerprints— a significant improvement over today's search process.Lockheed Martin Information Systems enhanced its position in the simulation and trainingbusiness during 1995 by winning the U.S. Army's Advanced Distributed Simulation Technology IIPhoto Right:NASA has selectedUnited Space Alliance,a joint venturebetween LockheedMartin and RockwellInternational, tonegotiate a solesourcecontract thatwill consolidate theSpace Shuttle Programunder a singleprime contractor.program and a simulation and training support contract for the U.S. Air Force 58th SpecialOperations Wing. These simulation products are designed to assist our armed forces in improvingweapons systems, analyzing resource allocations, and training and evaluating personnel in realisticsimulated combat environments.Building on its heritage in military simulation systems, Information Systems launched acommercial product line of three dimensional computer graphics. This state-of-the-artReal 3D product line includes arcade graphics boards developed for Sega Enterprises, graphicsengines for commercial training and chip sets for the personal computer market, and realtime software applications.The Information & Technology Services Sector is on the cutting edge of rapidly evolvingdistributed client-server computing. Numerous customers have contracted with the Sector to helpre-engineer their business processes and introduce this advanced technology. Lockheed MartinManagement & Data Systems (M&DS) has developed a system that entails nearly three millionlines of code and a 300 gigabyte operational data base to support 80 worldwide user sites.Enterprise Information Systems employs client-server technology to develop LockheedMartin internal information systems, providing efficiencies to the operating companies and honingthe skills of our development cadres for external applications. MountainGate designs, develops andsells commercially a wide variety of modern, cost-effective information storage subsystems thatcan be integral components of such information systems. Formtek develops and sells commerciallyenterprise software that permits integration of existing applications and data bases into modernenterprise systems. Access Graphics sells and supports UNIX-based computing solutions fromcorporations such as Sun Microsystems and Silicon Graphics.Highlighting a successful year in providing commercial information technology productsand services, Lockheed Martin Integrated Business Solutions solidified its role as the technologypartner of choice for outsourcing by signing a contract with Melville Corporation, a leadingretail conglomerate including such well-known chains as Thorn McAn, Foot Action and Kay BeeToys. Integrated Business Solutions will consolidate and modernize Melville's existing information34systems operations to provide better service at lower costs.

CalComp, a Lockheed Martin company, had a successful year in 1995 focusing onGraphics Arts applications, including color inkjet printing and a 4 x 5-inch input tablet, andrestructured its global distribution channels. Lockheed Martin Commercial Electronicscontinued its outstanding record of high quality electronic manufacturing services for itsdiverse set of customers in the computer and telecommunications industries.Underlying the Sectors growth businesses is a solid core of NASA programs. TheCorporation's effort to achieve 100 percent mission success has been a key to sustaining our rolewith this important customer. In 1995, that commitment to mission success was demonstratedby seven successful Space Shuttle launches, including two historic linkups with the RussianMir space station. Lockheed Martin Space Operations performs all ground processing operationsfrom Shuttle landing through launch, as well as solid rocket booster retrieval and launchfacility maintenance.NASA has announced its intention to negotiate on a sole-source basis a contract for itsSpace Flight Operations with the United Space Alliance (USA), a joint venture between LockheedMartin and Rockwell International. USA was formed to provide NASA and its Space Shuttleprogram reduced costs through streamlined operations while maintaining dedication to safetyand mission success.Lockheed Martin Manned Space Systems continues to develop the Super Light WeightTank (SLWT) for the Space Shuttle's scheduled December 1997 launch. Employing a newLockheed Martin-developed aluminum-lithium alloy, which is both lighter and significantlystronger than the aluminum currently in use, SLWT will increase the Shuttle's payload capacityby 34 percent for the orbit needed to support the International Space Station program.In addition, Services Group provides a wide range of support to NASA, including development,integration and operation of life sciences experiments at Johnson Space Center andAmes Research Center, satellite control at Goddard Space Flight Center and research and technologysupport at Langley Research Center.Products and services provided to the Department of Defense are broad and diverse.In 1995, the Sector also won the U.S. Army Global Command and Control System contract tointegrate three existing systems and link the Army with the Joint Staff; won the U.S. Air ForceNetwork Support Program for tracking military satellites; contracted for continued production ofthe U.S. Navy's Consolidated Automated Support System for avionics test equipment; and signedan extension to our contract supporting the U.S. Navy nuclear-powered fleet at the KnollsAtomic Power Laboratory.These important awards augment a substantial business portfolio providing for design,development, training, operation and maintenance of complex information systems for theDefense Department. As modernization and privatization continue, Defense Department salesare expected to be stable.

S p a c e & S t r a t e g i c M i s s i l e s S e c t o rOur commitment to mission success was demonstrated in 1995 with thesuccessful launches of four national security payloads aboard Titan IV vehicles,12 Atlas launches and seven Lockheed Martin-built satellites placed into orbit.The Space & Strategic Missiles Sector took actions last year that should position LockheedMartin to remain the world's space systems leader well into the 21st century. To this end, in1995, Lockheed Martin announced a strategic investment in its family of launch vehicles, expandedits presence in the telecommunications services market, and consolidated its commercialsatellite production.Art of Solar ArraysA key element of the Corporation's $300 million Launch Vehicle Leadership strategy is todevelop a re-engined single-stage Atlas booster with a single-engine cryogenic Centaur upperstage. The new Atlas IIAR is designed for greater reliability and cost effectiveness due principallyto simplifying and reducing the number of propulsion systems. The first Atlas IIAR should belaunched in late 1998.The Atlas IIAR is the building block of Lockheed Martin's plan for common hardware. Theuse of common boosters, Centaur upper stages, common adapters, avionics and engines simplifiesmanufacturing and reduces launch costs. The Atlas IIAR also effectively positions LockheedMartin to compete for the U.S. Air Force's Evolved Expendable Launch Vehicle (EELV). In 1995,Lockheed Martin Astronautics was one of four companies selected to develop EELV designs.Another element of our launch vehicle strategy is an improved Titan IV/B with a Solid RocketMotor Upgrade that is expected to increase the Titan's lift capability significantly.As part of Lockheed Martin's strategy to serve the broadest range of launch vehiclecustomers, we formed ILS International Launch Services in 1995 — a joint venture with Russia'sKhrunichev State Research and Production Space Center and RSC Energia — to market theAtlas and Proton rockets to commercial customers worldwide. The combined capabilities of Titan,Atlas, Proton and Lockheed Martin Launch Vehicle will offer customers services across theorbit and payload spectrum, making Lockheed Martin a powerful competitor in the global launchservices business. In 1995, the Corporation progressed on its strategy to realize near-term costsavings by consolidating launch vehicle production and operations in Denver.Lockheed Martin's continued commitment to mission success was well demonstrated in1995 with the successful launches of four national security payloads aboard Titan IV vehicles, 12successful Atlas launches and seven Lockheed Martin-built satellites successfully placed into orbit.37

Lockheed Martin isa premier designerand producer ofenvironmental monitoringsatellitessuch as TIROS, here.Today, TIROS weathersatellites meet thedata requirementsof 140 nations.

The Space & Strategic Missiles Sector in 1995 laid the groundwork for a global telecommunicationsbusiness with plans to build, launch and operate a satellite system, called Astrolink. TMThis project reflects the Corporation's commitment to the commercial space business andshould expand our role in the growing telecommunications services industry. Lockheed Martinexpects to proceed with the project after obtaining regulatory approval, strategic alliancecommitments and external investment.Lockheed Martin's Astro Space Commercial will build on a rich heritage of commercialsatellite design and production. A new world-class facility in Sunnyvale, California, should accelerateproduction cycle times and reduce costs. Our initial commercial goals call for making the newfactory operational in early 1997 and capable of meeting an 18-month delivery cycle, with capacityfor producing eight satellites annually. We expect productivity improvements eventually willincrease the annual throughput to 16 spacecraft.Indicative of Lockheed Martin's commitment to provide customers with total system solutionsis the Asia Cellular Satellite System (ACeS). With this key win in 1995, Lockheed Martin willprovide a full turnkey operation — the first regional wireless mobile system of its kind — with twoA2100 spacecraft, the Corporation's most advanced global communications satellite. In addition,under the $650 million contract, Lockheed Martin is to provide full ground architecture, as well asoverall systems engineering and integration, and launch services.When complete in 1998, ACeS will offer voice, facsimile and pager services to hand-heldmobile and fixed telephone users in Southeast Asia. ACeS is an important international winfor Lockheed Martin in a burgeoning communications industry. The ACeS consortium includesPT. Pasifik Satelit Nusantara of Indonesia, Philippine Long Distance Telephone Companyand Jasmine International PLC of Thailand.Another major international win in 1995 was the ChinaStar-1 satellite program for ChinaOrient Telecomm Satellite Co. Ltd. of Beijing. ChinaStar-1 will be an A2100 spacecraft to provideservice in Ku and C frequency bands for voice, data and television services to the People'sRepublic of China.In 1995, the U.S. Air Force selected Lockheed Martin Missiles & Space to build the fifthand sixth Milstar satellites, an award valued at $1.3 billion. Milstar, a cornerstone of America'sdefense preparedness, provides rapid, secure, multi-service military communications to tactical andstrategic users anywhere in the world. Milstar, which functions as a secure switchboard in space,provides U.S. military forces with capabilities not available through current satellites, includingimmunity to jamming and interception.In addition, Lockheed Martin is now producing second generation satellites for the GlobalPositioning System (GPS), which provides highly accurate position location to military and civilianusers worldwide. The first of 21 satellites for the GPS IIR program is scheduled for delivery in 1996.

NASA last year chose Lockheed Martin Astronautics to provide the lander and orbitingspacecraft for the Mars Surveyor Program, which will study the martian atmosphere and soil aswell as search for water on the red planet. Late in the year, NASA also selected Astronautics tobuild the Stardust spacecraft for its Discovery Program. Stardust will collect interstellar materialand dust from a comet and return them to Earth for laboratory studies. In addition, we remain aprincipal subcontractor on the International Space Station with work valued at $1.3 billion.Lockheed Martin Technical Operations continued its record of mission success in engineeringand technical services for the Department of Defense, NASA and other government and privatesector customers, and has consistently received award fees in the "excellent" category. Amongthe 50 orbiting satellites controlled from Lockheed Martin Technical Operations is Hubble SpaceThe complementary capabilities inherent in theLockheed Martin merger are evident in the products andservices of the Space & Strategic Missiles Sector.Telescope, which is providing some of the most startling images of the universe, including stellarformation. Missiles & Space also provides NASA with a wide range of Hubble-related service andsupport functions, including preparation and execution of servicing missions, as well as telescopeoperations support at Goddard Space Flight Center.Another dynamic element of Space & Strategic Missiles Sector's business is ballisticmissile development and production. In 1995, 14 Trident fleet ballistic missiles were successfullylaunched as part of the Navy's 1995 operational test flight program. Missiles & Space has producedsix generations of submarine-launched strategic missiles for the U.S. Navy's Fleet BallisticMissile program.The Sector also completed four demonstration/validation flights of the Theater HighAltitude Area Defense (THAAD), the first weapon system designed specifically to defend againsttheater ballistic missiles. As prime contractor for THAAD, Lockheed Martin is working undera four-year, $745 million contract awarded in 1992 by the U.S. Army.The complementary capabilities inherent in the Lockheed Martin merger are evident inthe products and services of the Space & Strategic Missiles Sector, which is solidifying itsposition as a leader in satellite construction and launch services. As demands for high-speedglobal communications and remote sensing rise, Lockheed Martin is well poised to grow itscommercial and international space business.

The secondTitan IV launch of aDepartment ofDefense Milstar satelliteon November 7demonstrates theunique synergy ofcapabilities inherentin Lockheed Martin,which built thelaunch vehicle, itsCentaur upper stageand the satellite,and integrated thestack before launch.

F i n a n c i a lI n f o r m a t i o n44 Management's Discussion andAnalysis of Financial Conditionand Results of Operations57 The Corporation's Responsibilityfor Financial Reporting57 Report of Ernst & Young LLP,Independent Auditors58 Consolidated Statementof Earnings59 Consolidated Statementof Cash Flows60 Consolidated Balance Sheet61 Consolidated Statementof Stockholders' Equity62 Notes to ConsolidatedFinancial Statements77 Six Year Summary

M a n a g e m e n t ' s D i s c u s s i o n a n dA n a l y s i s o f F i n a n c i a l C o n d i t i o n a n dR e s u l t s o f O p e r a t i o n sOn March 15, 1995, following the approval of the stockholders of each corporation, LockheedCorporation (Lockheed) and Martin Marietta Corporation (Martin Marietta) consummated atransaction (the Business Combination) pursuant to which Lockheed and Martin Marietta becamewholly-owned subsidiaries of a newly created holding corporation, Lockheed Martin Corporation(Lockheed Martin or the Corporation). The Business Combination qualified for the pooling ofinterests method of accounting (see Note 2). Subsequent to the Business Combination, Lockheed,Martin Marietta and certain other subsidiaries were merged with and into the Corporation. Thediscussion which follows reflects the combined financial condition and results of operations ofLockheed Martin, and should be read in conjunction with the audited consolidated financial statementsincluded herein.Recent DevelopmentsOn January 7, 1996, the Corporation entered into an Agreement and Plan of Merger (the MergerAgreement) with Loral Corporation (Loral) for a series of interrelated transactions with a totalestimated value of approximately $9.4 billion. Loral is a leading supplier of advanced electronicsystems, components and services to U.S. and foreign governments for defense and non-defensepurposes. Under the terms of the Merger Agreement, the Corporation intends to acquire the defenseelectronics and systems integration businesses and certain other businesses of Loral for approximately$9.1 billion, including $2.1 billion of assumed debt. Of the total, approximately S7 billion willbe paid directly to Loral shareholders by the Corporation through a tender offer for all outstandingshares of Loral common stock for $38.00 per share in cash. Following the consummation of thetender offer, Loral will distribute, for each share of Loral common stock previously held, one shareof common stock of a newly-formed company, Loral Space & Communications, Ltd. (Loral Space),which will own substantially all of the space and satellite telecommunications interests of Loral.Finally, the Corporation will invest $344 million in Loral Space for the acquisition of shares ofpreferred stock that are convertible into 20 percent of Loral Space's common stock on a fully dilutedbasis. The Corporation's offer is contingent, among other things, on the tendering of two-thirds ofLoral's outstanding shares and on regulatory approvals, and is expected to close in the first half of1996. If the business combination with Loral is consummated, the purchase method of accountingwill be used to record the transactions, resulting in a combined entity with anticipated annual netsales of approximately $30 billion. As more fully described in the Capital Structure and Resourcessection below, management intends to arrange through a syndicate of banks two credit facilitiestotalling $10 billion which would be available to finance the transactions. If the business combinationwith Loral is consummated, these credit facilities would replace the $1.5 billion revolving creditfacility in effect at December 31, 1995.44

Lockheed Martin CorporationBusiness AcquisitionsEffective May 1, 1994, the Corporation purchased the Space Systems Division of General DynamicsCorporation (GD Space Systems) for approximately $160 million in cash, expanding theCorporation's presence in the intermediate-lift space launch vehicle market with the Atlas series oflaunch vehicles. On April 2, 1993, the Corporation consummated a transaction with General ElectricCompany (GE) valued at approximately $3 billion to combine the aerospace and certain otherbusinesses of GE (collectively, the GE Aerospace businesses) with the businesses of the Corporationin the form of affiliated corporations. Effective February 28, 1993, the Corporation acquired thetactical military aircraft business of General Dynamics for approximately $1.5 billion in cash, plus theassumption of certain liabilities related to the business. All of the acquisitions discussed above wererecorded under the purchase method of accounting, with operating results from each acquisitionincluded with those of the Corporation beginning on the respective closing dates.Results of OperationsNet SalesThe Corporation's operating cycle is long-term and involves various types of production contractsand varying production delivery schedules. Accordingly, results of a particular year, or year-to-yearcomparisons of recorded sales and profits, may not be indicative of future operating results. Thefollowing comparative analysis should be viewed in this context.The Corporation's consolidated net sales for 1995 were $22.9 billion. Net sales for the yearremained relatively unchanged as compared to 1994 net sales, which in turn were two percent overthe $22.4 billion reported for 1993. Sales increases for 1995 in the Space & Strategic Missilessegment and the Information & Technology Services segment were largely offset by sales declinesin the Aeronautics segment and the Electronics segment. Sales for 1994 increased over 1993 levelsat Aeronautics and at Information & Technology Services, while sales at Electronics remainedrelatively flat and sales at Space & Strategic Missiles decreased in that year. Although the U.S.Government remained the Corporation's largest customer, the percentage of net sales decreased to69 percent in 1995 from 72 percent in 1994 and 78 percent in 1993. Sales to foreign governments,including sales made through the U.S. Government, as a percentage of net sales were 13 percent in1995, 15 percent in 1994 and 12 percent in 1993, while commercial sales in those same periods were18 percent, 13 percent and 10 percent, respectively.The Corporation's operating profit (earnings before interest and taxes) decreased in 1995 to $1.4billion from $2.0 billion in 1994. On June 26, 1995, the Corporation announced a corporate-wideconsolidation plan which, once fully implemented, is expected to yield annual savings of approximately$1.8 billion. Under the consolidation plan, the Corporation will close 12 facilities and laboratoriesas well as 26 duplicative field offices in the U.S. and abroad, eliminating up to approximately12,000 positions and 7.7 million square feet of unneeded capacity over the next five years. The totalcost to implement the plan, which will be largely completed over the next two years, is approximately$1.7 billion. Operating profit in 1995 included the effects of pretax charges totaling $690 million

Management's Discussion and Analysis of Financial Condition and Results of Operations ContinuedNet Earnings(a) Excluding the effects of the MaterialsIPO, the acquisition termination fee, andthe change in ESOP accounting, 1994 netearnings would have been $955 million.(b) Excluding the merger related andconsolidation charges, 1995 net earningswould have been $I,118 million.Earnings perCommon Share,Assuming FullDilution(a) Excluding the effects of the MaterialsIPO, the acquisition termination fee, andthe change in ESOP accounting, 1994earnings per share would have been $4.37.(b) Excluding the merger related andconsolidation charges, 1995 earnings pershare would have been $5.01.representing the portion of the consolidation plan and merger related expenses not expected to berecovered under future pricing of U.S. Government contracts. Operating profit in 1994 included theeffect of two significant nonrecurring transactions: a $118 million pretax gain from the February 1994initial public offering (IPO) of approximately 8.8 million shares, or 19 percent, of Martin MariettaMaterials, Inc. (Materials) common stock; and the receipt of a $50 million termination fee pursuantto the agreement for the proposed acquisition of Grumman Corporation. Excluding the effectsof these nonrecurring events for each year, operating profit for 1995 would have been approximately14 percent greater than the 1994 amount. Earnings growth excluding these items resulted fromimprovements in the Space & Strategic Missiles, Information & Technology Services andAeronautics segments, more than offsetting declines at the Electronics segment. The operatingprofit in 1994 of $2.0 billion was 25 percent higher than the $1.6 billion recorded in 1993, or14 percent higher after excluding the effects of the 1994 nonrecurring transactions.Net earnings for 1995 were $682 million, or $3.05 per common share assuming full dilution.Both amounts represent decreases from the reported 1994 net earnings of $1.0 billion and earningsper common share assuming full dilution of $4.66. However, the 1995 reported amounts include theafter-tax effects of the merger related and consolidation charges identified above of $436 million,or $1.96 per common share assuming full dilution. The 1994 reported net earnings include thefavorable after-tax effects of the Materials IPO ($70 million, or $.32 per share), the Grummantermination fee ($30 million, or $.14 per share) and a charge due to the adoption of a change inaccounting for the ESOP under the American Institute of Certified Public Accountants Statementof Position No. 93-6 ($37 million, or $.17 per share). Excluding the effects of these nonrecurringitems, net earnings for 1995 would have been approximately $1.1 billion, or $5.01 per common shareassuming full dilution, an increase of 17 percent and 15 percent, respectively, from the adjusted 1994net earnings of $955 million, or $4.37 per common share assuming full dilution. The 1994 netearnings and earnings per common share assuming full dilution, after adjusting for the nonrecurringitems, were 15 percent and 17 percent greater, respectively, than the corresponding 1993reported amounts.The Corporation's debt to capitalization ratio was reduced from 39 percent at December 31,1994 to 37 percent at December 31, 1995, with total debt decreasing from $3.9 billion to $3.7 billionand stockholders' equity increasing from $6.1 billion to $6.4 billion. However, if the business combinationwith Loral is consummated, the Corporation's debt to capitalization ratio is expected toincrease to approximately 67 percent. The Corporation paid common dividends of $254 millionin 1995, or $1.34 per common share. The Corporation's backlog of undelivered orders wasapproximately $41 billion at the end of 1995.Industry ConsiderationsThe Corporation's primary lines of business are in high technology systems for aerospace anddefense, serving both government and commercial customers. In recent years, domestic and

Lockheed Martin Corporationworldwide political and economic developments have strongly affected these markets, requiringsignificant adaptation by market participants.The Federal defense budgets for research, development, test and evaluation and procurementhave been reduced dramatically (after adjusting for inflation) over the last decade. These reductionshave caused participants in the aerospace/defense industry to consolidate in order to maintain criticalmass and production economies. The Corporation has actively participated in this consolidationactivity. The Corporation's recent acquisitions described above are examples of actions that havebeen taken to blend successful operations and broaden the business portfolio, create opportunitiesfor increased efficiency and cost competitiveness, improve access to new markets and reduceexposure to further defense budget program reductions. In prior years, the Corporation acquiredboth the tactical military aircraft and space systems businesses of General Dynamics, as well as theGE Aerospace businesses. Additionally, the Corporation has undertaken major cost reductionefforts throughout its operating units, continuously monitoring and adjusting employment levelsconsistent with changing business requirements.In light of the anticipated continuation of the recent consolidations in the aerospace/defenseindustry, executive management and the Board of Directors periodically review the Corporation'sstrategic plans related to joint ventures and business combinations with companies engaged insimilar or related businesses, as well as potential internal investments. During 1995, these effortsresulted in, among other actions, the establishment of a joint venture with Rockwell Internationalto negotiate a contract with NASA for space shuttle operations, and the purchase of the aircraftcontrols business of GE. As noted previously, in early 1996, the Corporation announced it hadentered into a merger agreement with Loral for a business combination which, if consummated,will create synergy by bringing together the technologies and resources of two successful defenseelectronics companies.In December 1995, President Clinton signed the fiscal year 1996 defense appropriations bill.This legislation is significant in that it marked the first increase in defense budget appropriations inseveral years. Many analysts and political observers expect that the fiscal 1996 budget represents thebeginning of a period of flat to modestly growing defense spending. Management believes that itsstrategic actions will place the Corporation in an advantageous position in the industry once thedefense budget climate starts to improve.To date, the Corporation's major programs generally have been well supported during thebudget decline, but uncertainty exists over the size and scope of future defense and space budgets andtheir impact on specific programs. Some of the Corporation's programs have been delayed, curtailedor terminated, and future spending reductions and funding limitations could further impact theseprograms or have similar effects on other existing or emerging programs.As a U.S. Government contractor, the Corporation's government contracts and operations aresubject to government oversight. The government may investigate and make inquiries of theCorporation's business practices and conduct audits of contract performance and cost accounting.These investigations may lead to claims against the Corporation. Under U.S. Government

Management's Discussion and Analysis of Financial Condition and Results of Operations Continuedprocurement regulations and practices, an indictment of a government contractor could result inthat contractor being fined and/or suspended for a period of time from eligibility for bidding on,or for award of, new government contracts; a conviction could result in debarment for a specifiedterm from government contracts. Although the outcome of such investigations and inquiries cannotbe predicted, in the opinion of management there are no claims, audits or investigations pendingagainst the Corporation that are likely to have a material adverse effect on either the Corporation'sbusiness or its consolidated financial position or results of operations.The Corporation remains exposed to other inherent risks associated with U.S. Governmentcontracting. These risks include technological uncertainties and obsolescence, changes in governmentpolicies and dependence on annual Congressional appropriation and allotment of funds.Certain of the Corporation's contracts contain mission success incentive provisions that couldsignificantly impact the future profitability of these programs. The provisions enable the Corporationto earn fees for successful performance, but also significantly reduce fee availability in the eventof unsuccessful missions. The Corporation's commercial launch vehicle business contains market,pricing and other associated risks.Progress has been made in expanding the Corporation's presence in related commercial andnondefense markets, most notably in space related activities, energy and environmental services,information management and integration, and communications. The Corporation also participatesin the construction aggregates and specialty chemical businesses through its 81% ownership inMaterials. These lines of business share many of the risks associated with the Corporation's primarybusinesses, as well as others unique to the commercial marketplace, although they are not dependenton defense budgets.Discussion of Business SegmentsThe Corporation's operations are divided into five reportable business segments: Space & StrategicMissiles; Aeronautics; Information & Technology Services; Electronics; and Energy, Materials andOther. The following table displays net sales for the Lockheed Martin business segments for each ofthe three years in the period ended December 31, 1995 and directly corresponds to the segmentinformation presented in Note 15 to the consolidated financial statements.(In millions)199519941993Net SalesSpace & Strategic MissilesAeronauticsInformation & Technology ServicesElectronicsEnergy, Materials and Other$ 7,5216,6174,5283,294893$ 6,7197,0914,2714,055770$ 7,2936,6013,7124,092699$22,853$22,906$22,397

Lockheed Martin CorporationOperating profit by industry segment for each of the three years in the period ended December 31,1995 is also presented in Note 15 to the consolidated financial statements. The following tabledisplays the pretax impact of the nonrecurring items as reflected in operating profit for both 1995and 1994 as identified to each segment.(In millions)Nonrecurring ItemsSpace & Strategic MissilesAeronauticsInformation & Technology ServicesElectronicsEnergy, Materials and Other1995$(263)(138)(24)(93)(172)$(690)1994$ ————168$168The 1995 total in the above table reflects the merger related and consolidation expenses discussedpreviously, while the 1994 total consists of the $118 million Materials IPO gain and the receiptof the $50 million acquisition termination fee from the proposed Grumman acquisitiondiscussed previously.The following table depicts operating profit excluding nonrecurring items for each of the threeyears in the period ended December 31, 1995. The subsequent discussion of significant operatingresults of each business segment excludes the impact of the nonrecurring items. This discussionshould also be read in conjunction with the industry segment information contained in Note 15 tothe consolidated financial statements.(In millions)199519941993Operating Profit, ExcludingNonrecurring ItemsSpace & Strategic MissilesAeronauticsInformation & Technology ServicesElectronicsEnergy, Materials and Other$ 694532293354194$ 476511228456140$ 507479145331122$2,067$1,811$1,584Space & Strategic MissilesNet sales of the Space & Strategic Missiles segment increased by 12 percent in 1995 compared to1994 after decreasing by eight percent in 1994 compared to 1993. The increase in 1995 can beattributed primarily to the inclusion for the full year of the former GD Space Systems, which theCorporation acquired on May 1, 1994. The operations of this acquired unit consist primarily of theAdas launch services program, which recorded twelve successful Atlas II and Atlas E launches in

Management's Discussion and Analysis of Financial Condition and Results of Operations Continued1995 versus four launches in the eight months of 1994 when the program results were included inthe Corporation's results of operations. The 1995 net sales were also favorably impacted by anincrease in activity in various classified programs throughout the segment.The decrease in net sales between 1994 and 1993 was principally the result of a 21 percent salesdecline in the Air Force Titan IV program due to the stretch-out of the program and the impact ofcertain 1993 nonrecurring launch pad and engineering activities. This segment also experiencedlower activity in 1994 on various classified programs, lower revenues due to the terminations of theFollow-on Early Warning System program and the Advanced Solid Rocket Motor program, anddecreased production contract requirements for the Trident II fleet ballistic missile program. Thesedecreases were partially offset by the aforementioned addition of the former GD Space Systems.Operating profit for the segment increased by 46 percent in 1995 compared to 1994 afterdecreasing by six percent in 1994 compared to 1993. The 1995 increase was attributable to theinclusion of the Atlas launch services program for the full year, the receipt of a favorable settlementresulting from the prior termination of the Advanced Solid Rocket Motor program and the inclusionin 1994 of charges related to certain fixed-price programs, including a charge of $22 million relatedto the cancellation and final settlement on the Mobile Satellite Antenna subcontract and chargestotaling $43 million related to a military air command, control and communication programfor a foreign government. The decrease in operating profit for 1994 compared to 1993 principallyreflects the sales decreases and the charges described above, offset partially by improved performancerelated to the Milstar communications satellite program and fleet ballistic missiles contractsrecorded in 1994.AeronauticsNet sales of the Aeronautics segment decreased by seven percent in 1995 compared to 1994 dueto fewer deliveries of F-16 fighter aircraft and C-130 airlift aircraft. These decreases were partiallyoffset by the delivery of eight P-3 maritime patrol aircraft to the Republic of Korea in 1995,compared to no deliveries in 1994. Net sales for 1994 increased by more than seven percent comparedto 1993, reflecting the inclusion of a full year's operation of the former tactical military aircraftbusiness of General Dynamics, which was purchased effective February 28,1993. In addition, thesegment recorded in 1994 additional C-130 deliveries and F-22 development revenues which werepartially offset by decreases in certain contract field support programs.Operating profit increased by four percent in 1995 compared to 1994 even though salesdecreased for that period. This increase is principally due to recognition of earnings related to theP-3 aircraft deliveries which more than offset the 1995 increase in the C-130J development costs, andthe inclusion in 1994 of charges taken against earnings in connection with the Pratt & Whitney fanreverser program. Operating profit in 1994 increased by nearly seven percent compared with 1993,with the inclusion of the former tactical military aircraft business of General Dynamics for the fullyear being the most significant element of that increase. Other positive factors included the net effect

Lockheed Martin Corporationof the 1994 sales variances described above, improved performance in C-130 programs and higherprofit margins in special tactical aircraft systems programs.Information & Technology ServicesNet sales of the Information & Technology Services segment increased by six percent in 1995compared to 1994, and by 15 percent for 1994 compared with 1993. The increase in this segmentin 1995 was caused primarily by increases in sales for commercial product manufacturing anddistribution activities. In addition, the segment recorded increased revenues in informationmanagement and space activities. The increase for 1994 compared to 1993 reflects increased salesof command control systems and information processing services as well as commercial productmanufacturing activities.Operating profit for the segment increased by 29 percent in 1995 compared to 1994 and by57 percent in 1994 compared to 1993. The variance in 1995 reflects increased award fee recognition,sales volume increases and continued improvements in margin performance throughout thesegment. The 1994 operating profit increase was principally the result of improved performancein commercial product manufacturing operations and improved margin performance throughoutthe segment.ElectronicsNet sales of the Electronics segment decreased by almost 19 percent in 1995 compared to 1994 afterremaining relatively flat in 1994 compared to 1993. The decrease in 1995 was primarily the result ofvolume decreases in various programs, particularly in AEGIS surface ship combat system programsand the AN/BSY-2 submarine combat system program. In addition, the 1995 sales performancerepresents an expected transition from mature production programs into new development programs.In 1994, sales gains from AEGIS programs were offset by sales decreases related to theLANTIRN targeting and navigation system, other fire control systems programs and certain radarand undersea surveillance systems.Operating profit for the segment decreased by 22 percent in 1995 compared with 1994,reflecting the sales volume decreases described above, the negative earnings implications ofcontract charges related to the LANTIRN program close-out and from investments in newbusinesses, and substantial completion of subcontract activities on the Patriot and other matureproduction programs. The 38 percent increase in operating profit for 1994 compared to 1993reflected the performance on the AEGIS program, fire control systems programs and armamentsystems programs, and improved margin expansion across the segment.Energy, Materials and OtherNet sales of this segment increased by 16 percent in 1995 compared with 1994 and by ten percentin 1994 compared with 1993. Sales for both Energy and Materials grew in 1995, reflecting the

Management's Discussion and Analysis of Financial Condition and Results of Operations Continuedcommencement of activities under the Idaho National Engineering Laboratories Managementand Operations and Pit 9 contracts in the fourth quarter of 1994 and the January 1995 Materialsacquisition of the construction aggregates business of Dravo Corporation. The primary reasonfor the increase in 1994 net sales was the increase in sales of construction aggregates, reflectingimprovements in construction markets and increased production volume from acquisitionsand new activities.Operating profit for this segment increased by 39 percent in 1995 compared to 1994 and by15 percent in 1994 compared to 1993. The increase in 1995 was the result of the inclusion of a fullyear of activities under the Idaho National Engineering Laboratories Management and Operationscontract and earnings growth due to increased production volume at Materials. The increase in1994 was principally due to production volume growth in the Materials business.Negotiated BacklogBacklogTotal negotiated backlog of $41.1 billion at December 31, 1995 included both unfilled firm ordersfor the Corporation's products for which funding has been both authorized and appropriated by thecustomer (Congress, in the case of U.S. Government customers) and firm orders for which fundinghas not been appropriated. The following table shows total backlog by segment at the end of eachof the last three years:(In millions)199519941993BacklogSpace & Strategic MissilesAeronauticsInformation & Technology ServicesElectronicsEnergy, Materials and Other$16,26114,7754,6695,4128$15,92016,1464,8555,23873$14,05219,8225,5266,08723$41,125$42,232$45,510Total Space & Strategic Missiles backlog increased by two percent in 1995 as compared to 1994and by 13 percent in 1994 as compared to 1993. The increase in 1995 occurred principally becauseof growth in new orders for classified programs. The primary factor in the 1994 increase was theacquisition of backlog related to the former GD Space Systems.In the Aeronautics segment, total backlog decreased by eight percent in 1995 compared to 1994,having decreased by 19 percent in 1994 compared to 1993. For both years, the fighter aircraft backlogdecreased significantly, primarily reflecting deliveries of aircraft to the U.S. Government withoutthe addition of new orders. In 1995, this decrease was partially offset by the receipt of orders from theUnited Kingdom and Australia to provide 37 C-130J aircraft, with options for 58 additional aircraftfor those two nations and New Zealand.52

Lockheed Martin CorporationTotal Information & Technology Services backlog decreased by nearly four percent in 1995compared to 1994 and by 12 percent in 1994 compared to 1993. The 1995 decrease was primarily theresult of reduced contract volume in the segment's space shuttle processing program and adjustmentsresulting from cost underruns in manned space activities. The 1994 decrease was principally causedby the maturation of several information and simulation systems programs.In the Electronics segment, total backlog increased by over three percent in 1995 comparedto 1994, having decreased by 14 percent in 1994 compared to 1993. The primary reasons for the1995 increase were key new awards for U.K. Apache helicopter night vision/fire control systems,HYDRA-70 munitions and electronic warfare Countermeasures. These increases offset the declines inthis segment's defense electronics programs and AEGIS program volume. The 1994 decreasereflected declines in the segment's radar and undersea surveillance systems programs as well as areduction in AEGIS program volume.Net Cash Providedby OperatingActivitiesDividends PerCommon ShareLiquidity and Cash FlowsThe Corporation's primary source of liquidity in the past three years has been cash generated fromoperating activities. Cash provided by operating activities was approximately $1.3 billion in 1995as compared to the $1.5 billion reported for 1994 and 1993. The 1995 amount includes the effect ofthe pretax merger related and consolidation expenditures to date of $208 million. As in prior years,positive cash flows were derived in large part from operating profits before deducting non-cashcharges for depreciation and amortization of property and intangible assets, offset in part by workingcapital increases.Additions to property, plant and equipment, net of purchased operations, were four percenthigher in 1995 compared to 1994, and about equal to 1993. The Corporation continually monitorsits capital spending in relation to current and anticipated business needs. Facilities are added,consolidated, disposed of or modernized as business circumstances dictate. In 1995, approximately$294 million was expended on acquisition, investment and divestiture activities, a $169 millionincrease from the prior year. In 1994, other investing activities resulted in net positive cash flow, asthe proceeds from the Materials IPO and the Grumman termination fee more than offset the cashexpended for the acquisition of GD Space Systems.The Corporation continued to reduce outstanding long-term debt in 1995, consistent with 1994and 1993. Approximately $287 million of long-term debt was repaid in 1995 using cash generatedfrom operations. In December 1995, Materials issued $125 million of long-term debentures, theproceeds from which will be used to retire $100 million of Notes maturing in 1996. Approximately$700 million of long-term debt will mature in 1996. As stated previously, the proposed transactionswith Loral, if consummated, would cause a significant increase in long-term debt.Cash dividends per common share were $1.34, $1.14, and $1.09 for 1995, 1994 and 1993,respectively. The initial regular quarterly common dividend rate after consummation of the BusinessCombination was $0.35 per share. However, following the receipt of court approval of a settlementreached by the parties of certain class action lawsuits filed on behalf of the former shareholders of

Management's Discussion and Analysis of Financial Condition and Results of Operations ContinuedLockheed and Martin Marietta, Lockheed Martin expects, in accordance with the terms of thesettlement, to pay a regular quarterly dividend of $0.40 per share for each of the next three quartersbeginning with the first quarter of 1996.After the adoption of the 1995 Omnibus Performance Award Plan, the Corporation's Boardof Directors authorized the repurchase of up to six million common shares under a systematicrepurchase plan. Additionally, the Board authorized the repurchase of up to nine million commonshares to counter the dilutive effect of common stock issued under the Corporation's other benefitand compensation programs and for other purposes related to such plans. Approximately 2.3 millioncommon shares were repurchased by the Corporation in the second half of 1995 for approximately$150 million.Capital Structure and ResourcesLong-term debt, including current maturities, declined to approximately $3.7 billion at the endof 1995 from approximately $3.9 billion at the end of 1994, while stockholders' equity grew to over$6.4 billion from nearly $6.1 billion a year ago. Total debt represented approximately 37 percentand 39 percent of total capitalization at December 31, 1995 and 1994, respectively. Most of theCorporation's debt is in the form of publicly issued, fixed-rate Notes Payable and Debentures.As stated previously, if the transactions with Loral are consummated, the Corporation's debtto capitalization ratio will increase to approximately 67 percent. Consequently, the ratings on theCorporation's long-term debt were downgraded to a lower investment grade.On March 15, 1995, the Corporation entered into a revolving credit agreement (the CreditAgreement) with a group of domestic and foreign banks. The Credit Agreement makes available$1.5 billion for commercial paper backup and general corporate purposes through March 14, 2000.Borrowings under the Credit Agreement would be unsecured and bear interest, at the Corporation'soption, at rates based on the Eurodollar rate or a bank base rate (as defined). The Credit Agreementcontains a financial covenant relating to leverage, and provisions which relate to certain changes incontrol. There have been no borrowings under the Credit Agreement.In connection with the proposed business combination with Loral, the Corporation intends toarrange with a syndicate of banks to obtain credit facilities of $10 billion (the New Credit Facilities),comprised of a $5 billion five-year unsecured revolving credit facility and a $5 billion 364-dayunsecured revolving credit facility. The New Credit Facilities would be available to finance thepurchase of Loral's common stock, to fund the $344 million investment in Loral Space, to refinancea portion of Loral's existing debt, to pay related transaction expenses, to provide for future workingcapital needs and for general corporate purposes. Alternatively, the Corporation may obtain all or aportion of the necessary financing through the issuance of commercial paper backed by the NewCredit Facilities. If the business combination with Loral is consummated, the Credit Facility will beterminated and replaced with the New Credit Facilities. Following the closing of the transactions, itis anticipated that the Corporation will refinance all or a portion of the borrowings under the NewCredit Facilities with funds raised in the public or private securities markets. The Corporation may

Lockheed Martin Corporationenter into interest rate hedging agreements to offset a portion of its exposure to rising interest ratesrelated to the anticipated long-term financings.The Corporation receives advances on certain contracts and uses them to finance the inventoriesrequired to complete the contracted work. Approximately $1.8 billion of advances related to work inprocess have been received from customers and were recorded as reductions of 1995 inventories inthe Corporation's consolidated financial statements. In addition, advances of approximately $1 billionat the end of 1995 have been recognized as current liabilities, mostly related to contracts with foreigngovernments and commercial customers.Cash on hand and temporarily invested, internally generated funds, and available financingresources as detailed above are expected to be sufficient to meet the anticipated operating, consolidationand debt service requirements, discretionary investment needs and capital expenditures of theCorporation. If the business combination with Loral is consummated, management will evaluatepotential near-term actions which may permit the Corporation to reduce its long-term debt. Theseactions may include the disposition of non-core businesses or surplus properties and the suspensionof the share repurchase programs.Environmental MattersAs more fully described in Note 14 to the consolidated financial statements, the Corporation enteredinto a consent decree with the U.S. Environmental Protection Agency (EPA) in 1991 relating tocertain property in Burbank, California, which obligates the Corporation to design and constructfacilities to monitor, extract and treat groundwater and operate and maintain such facilities forapproximately eight years. The Corporation has also been operating under a cleanup and abatementorder from the California Regional Water Quality Control Board affecting its Burbank facilities.This order requires site assessment and action to abate groundwater contamination through acombination of groundwater and soil cleanup and treatment. Anticipated future costs for theseprojects are estimated to approximate $205 million. The Corporation has also begun discussionswith the EPA to structure a second consent decree to cover the groundwater operations related to theBurbank property for the years 2000 through 2018. Any potential financial exposure related to thisperiod is not expected to be material.The Corporation records appropriate financial statement accruals for environmental issuesin the period in which liability is established and the amounts can reasonably be estimated. In additionto the amounts described above, the Corporation has accrued approximately $285 million atDecember 31, 1995 for other matters in which an estimate of financial exposure could be determined.Management believes, however, that it is unlikely that any additional liability it may incur for knownenvironmental issues would have a material adverse effect on its consolidated financial position orresults of operations.The Corporation is a party to various other proceedings and potential proceedings related toenvironmental clean-up issues, including matters at various sites where it has been designated aPotentially Responsible Party (PRP) by the EPA. In the event the Corporation is ultimately found to

Management's Discussion and Analysis of Financial Condition and Results of Operations Continuedhave liability at those sites where it has been designated a PRP, the Corporation anticipates that theactual burden for the costs of remediation will be shared with other liable PRPs. Generally, PRPs thatare ultimately determined to be responsible parties are strictly liable for site cleanups and usuallyagree among themselves to share, on an allocated basis, the costs and expenses for investigation andremediation of hazardous materials. Under existing environmental laws, however, responsible partiesare jointly and severally liable and, therefore, the Corporation is potentially liable for the full cost offunding such remediation. In the unlikely event that the Corporation were required to fund theentire cost of such remediation, the statutory framework provides that the Corporation maypursue rights of contribution from the other PRPs. Among the variables management must assessin evaluating costs associated with these sites are changing cost estimates, continually evolvinggovernment environmental standards and cost allowability issues. Therefore, the nature of theseenvironmental matters makes it extremely difficult to estimate the timing and amount of anyfuture costs that may be necessary for remedial measures. The Corporation currently is unable topredict the outcome of these matters, inasmuch as the actual costs of remedial actions have not beendetermined and the allocation of liabilities among parties that ultimately may be found liableremains uncertain.New Accounting StandardsIn 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial AccountingStandards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that certain long-lived assets to be held andused be reviewed for impairment whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable. Additionally, SFAS No. 121 requires that certainlong-lived assets to be disposed of be reported at the lower of carrying amount or fair value less costto sell. The Corporation will adopt SFAS No. 121 in 1996, as required. Management anticipates thatthe impact of the adoption of this standard will not be material to the Corporation's consolidatedearnings and financial position.Also in 1995, the FASB adopted SFAS No. 123, "Accounting for Stock-Based Compensation."While SFAS No. 12 3 establishes financial accounting and reporting standards for stock-basedemployee compensation plans using a fair value method of accounting, it allows companies tocontinue to measure compensation cost for those plans using the intrinsic value method ofaccounting as prescribed in Accounting Principles Board (APB) Opinion No. 25, "Accounting forStock Issued to Employees." Should a company choose not to change its accounting method, it mustdisclose the pro forma effect on net earnings and earnings per share as if the fair value method hadbeen adopted. Currently, the Corporation intends to continue its present APB Opinion No. 25accounting treatment for stock-based compensation, and plans to adopt the disclosure provisions ofSFAS No. 123 beginning in 1996, as required.

Lockheed Martin CorporationT h e C o r p o r a t i o n ' s R e s p o n s i b i l i t yf o r F i n a n c i a l R e p o r t i n gThe management of Lockheed Martin Corporation prepared and is responsible for the consolidated financial statements and all relatedfinancial information contained in this report. The consolidated financial statements, which include amounts based on estimates andjudgments, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis.The Corporation maintains a system of internal accounting controls designed and intended to provide reasonable assurance that assetsare safeguarded, transactions are properly executed and recorded in accordance with management's authorization, and accountability forassets is maintained. An environment that establishes an appropriate level of control consciousness is maintained and monitored and includesexaminations by an internal audit staff and by the independent auditors in connection with their annual audit.The Corporation's management recognizes its responsibility to foster a strong ethical climate. Management has issued written policystatements which document the Corporation's business code of ethics. The importance of ethical behavior is regularly communicated to allemployees through the distribution of written codes of ethics and standards of business conduct and through ongoing education and reviewprograms designed to create a strong compliance environment.The Audit and Ethics Committee of the Board of Directors is composed of eight outside directors. This Committee meets periodicallywith the independent auditors, internal auditors and management to review their activities.The consolidated financial statements have been audited by Ernst & Young LLP, independent auditors, whose report follows.Marcus C. BennettSenior Vice President and Chief Financial OfficerRobert E. RulonVice President and ControllerR e p o r t o f E r n s t & Y o u n g L L P ,I n d e p e n d e n t A u d i t o r sBoard of Directors and StockholdersLockheed Martin CorporationWe have audited the accompanying consolidated balance sheet of Lockheed Martin Corporation as of December 31, 1995 and 1994,and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period endedDecember 31, 1995. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express anopinion on these financial statements based on our audits.We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and performthe audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of Lockheed Martin Corporation at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flowsfor each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles.The Corporation changed its method of accounting for the Employee Stock Ownership Plan effective January 1, 1994 as discussed inNote 1 to the consolidated financial statements.Washington, D.C.January 23, 199657

C o n s o l i d a t e d S t a t e m e n t o f E a r n i n g sLockheed Martin Corporation(In millions, except per share data)Net salesCosts and expenses:Cost of salesMerger related and consolidation expensesEarnings from operationsOther income and expenses, netInterest expenseEarnings before income taxes and cumulative effectof change in accountingIncome tax expenseEarnings before cumulative effect of change in accountingCumulative effect of change in accountingNet earningsEarnings per common share:Assuming no dilution:Before cumulative effect of change in accountingCumulative effect of change in accountingAssuming full dilution:Before cumulative effect of change in accountingCumulative effect of change in accountingYear Ended December 311995 1994$22,85320,8816901,282951,3772881,089407682$ 682$ 3.28$ 3.28$ 3.05$ 3.05$22,90621,1271,7792001,9793041,6756201,055(37)$ 1,018$ 5.32(.20)$ 5.12$ 4.83(.17)$ 4.661993$22,397$$%$$20,8571,540441,5842781,3064778298293.993.993.753.7558See accompanying Notes to Consolidated Financial Statements.

C o n s o l i d a t e d S t a t e m e n t o f C a s h F l o w sLockheed Martin Corporation(In millions)Operating ActivitiesEarnings before cumulative effect of change in accountingAdjustments to reconcile earnings to net cashprovided by operating activities:Merger related and consolidation — expenses— paymentsDepreciation and amortizationAmortization of intangible assetsDeferred federal income taxesGain—Materials public offeringAcquisition termination feeChanges in operating assets and liabilities:ReceivablesInventoriesCustomer advances and amounts in excessof costs incurredOtherNet cash provided by operating activities1995$ 682690(208)605316(116)——(394)430(294)(419)1,292Year Ended December 311994$1,055——63829973(118)(50)(169)(221)20(34)1,4931993$ 829——680256165——8063(209)(405)1,459Investing ActivitiesAdditions to properties, net of purchased operationsAcquisition, investment and divestiture activitiesNet proceeds — Materials public offeringOther(531)(294)—126(509)(125)189(57)(536)(2,420)—148Net cash used for investing activities(699)(502)(2,808)Financing ActivitiesDecreases in short-term borrowingsIncreases in long-term debtRepayments and extinguishments of long-term debtIssuances of common stockPurchases of common stockDividends on common stockDividends on preferred stock(14)125(287)61(150)(254)(60)(7)43(512)32—(214)(60)(9)2,281(741)88—(215)(45)Net cash (used for) provided by financing activities(579)(718)1,359Net increase in cash and cash equivalentsCash and cash equivalents at beginning of year1463927336610356Cash and cash equivalents at end of year$ 653$ 639$ 366•See accompanying Notes to Consolidated Financial Statements.

Lockheed Martin CorporationC o n s o l i d a t e d B a l a n c e S h e e t(In millions)AssetsCurrent assets:Cash and cash equivalentsReceivablesInventoriesDeferred income taxesOther current assetsTotal current assets1995$ 6533,8762,8045802648,177December 31,1994$ 6393,4733,1595063668,143Property, plant and equipmentIntangible assets related to contracts and programs acquiredCost in excess of net assets acquiredOther assetsLiabilities and Stockholders' EquityCurrent liabilities:Accounts payableCustomer advances and amounts in excess of costs incurredSalaries, benefits and payroll taxesIncome taxesCurrent maturities of long-term debtOther current liabilitiesTotal current liabilitiesLong-term debtPost-retirement benefit liabilitiesOther liabilities3,1651,8082,8171,681$17,648$ 7871,5705672927221,3535,2913,0101,7781,1363,4551,9712,8311,649$18,049$ 1,3061,872767862851,3195,6353,5941,756978Stockholders' equity:Series A preferred stock, $50 liquidation preference per shareCommon stock, $1 par value per shareAdditional paid-in capitalRetained earningsUnearned ESOP sharesTotal stockholders' equity1,0001996834,838(287)6,433$17,6481,0001997344,470(317)6,086$18,049See accompanying Notes to Consolidated Financial Statements.

Lockheed Martin CorporationC o n s o l i d a t e d S t a t e m e n t o fS t o c k h o l d e r s ' E q u i t y(In millions)Balance at December 31, 1992Net earningsPreferred stock issuedDividends declared on preferredstock ($2.25 per share)Dividends declared on commonstock ($1.09 per share)Stock awards and options, andESOP activityPreferredStock$ ——1,000———CommonStock$195————3AdditionalPaid-in RetainedCapital Earnings$582————107$3,136829—(45)(215)16UnearnedESOPShares$ ——————Guarantee Totalof ESOP Stockholders'Obligations Equity$(431)————24$3,4828291,000(45)(215)150Balance at December 31, 1993Earnings before cumulative effectof change in accountingCumulative effect of change inaccountingDividends declared on preferredstock ($3.00 per share)Dividends declared on commonstock ($1.14 per share)Stock awards and options, andESOP activity1,000—————198————1689————453,721 —1,055 —(37) (350)(60) —(214) —5 33(407)—407———5,2011,05520(60)(214)84Balance at December 31, 1994Net earningsDividends declared on preferredstock ($3.00 per share)Dividends declared on commonstock ($1.34 per share)Repurchases of common stockStock awards and options, andESOP activity1,000—————199———(2)2734———(148)974,470682(60)(254)——(317) —— ————30————6,086682(60)(254)(150)129Balance at December 31, 1995$1,000$199$683$4,838$ (287)$ —$6,433See accompanying Notes to Consolidated Financial Statements.

N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s62Note 1 - Summary of SignificantAccounting PoliciesOrganization - Lockheed Martin Corporation(Lockheed Martin or the Corporation) is engaged inthe design, manufacture, integration and operationof a broad array of products and services rangingfrom aircraft, spacecraft and launch vehicles toenergy management, missiles, electronics, andinformation systems. The Corporation serves customersin both domestic and international defenseand civilian markets, with its principal customersbeing agencies of the U.S. Government.Basis of consolidation and use of estimates - Theconsolidated financial statements include theaccounts of wholly-owned and majority-owned subsidiaries.All material intercompany balances andtransactions have been eliminated in consolidation.The preparation of consolidated financial statementsin conformity with generally acceptedaccounting principles requires management to makeestimates and assumptions, in particular estimates ofanticipated contract costs and revenues utilized inthe earnings recognition process, that affect thereported amounts in the financial statements andaccompanying notes. Actual results could differfrom those estimates.Classifications - Receivables and inventories areprimarily attributable to long-term contracts or programsin progress on which the related operatingcycles are longer than one year. In accordance withindustry practice, these items are included in currentassets.Certain amounts for the prior years have beenreclassified to conform with the 1995 presentation.Cash and cash equivalents - Cash and cash equivalentsare net of outstanding checks that are fundeddaily as presented for payment. Cash equivalents aregenerally comprised of highly liquid instrumentswith maturities of three months or less when purchased.Due to the short maturity of these instruments,carrying value on the Corporation'sconsolidated balance sheet approximates fair value.Inventories - Inventories are stated at the lower ofcost or estimated net realizable value. Costs onlong-term contracts and programs in progress representrecoverable costs incurred for production,allocable operating overhead, and, where appropriate,research and development and general andadministrative expenses, less amounts attributed tocost of sales. Pursuant to contract provisions, theU.S. Government and other customers have title to,or a security interest in, certain inventories as aresult of progress payments and advances. Generaland administrative expenses related to commercialproducts and services essentially under commercialterms and conditions are expensed as incurred.Costs of other product and supply inventories areprincipally determined by the first-in, first-out oraverage cost methods.Property, plant and equipment - Property, plantand equipment are carried principally at cost.Depreciation is provided on plant and equipmentgenerally using accelerated methods of depreciationduring the first half of the estimated useful lives ofthe assets; thereafter, generally straight-line depreciationis used. Estimated useful lives generallyrange from 8 years to 40 years for buildings and 2years to 20 years for machinery and equipment.Intangible assets - Intangible assets related tocontracts and programs acquired are amortized overthe estimated periods of benefit (15 years or less)and are displayed on the consolidated balance sheetnet of accumulated amortization of $448 millionand $305 million at December 31, 1995 and 1994,respectively. Cost in excess of net assets acquired(goodwill) is amortized ratably over appropriateperiods, primarily 40 years, and is displayed on theconsolidated balance sheet net of accumulatedamortization of $438 million and $343 million atDecember 31, 1995 and 1994, respectively. The carryingvalues of intangible assets are reviewed if thefacts and circumstances indicate potential impairmentof their carrying value, and any impairmentdetermined is recorded in the current period.Environmental matters - The Corporation recordsa liability for environmental matters when it isprobable that a liability has been incurred and theamount can be reasonably estimated. A substantialportion of the costs are expected to be reflected insales and costs of sales pursuant to U.S. Governmentagreement or regulation. At the time a liability isrecorded for future environmental costs, an asset isrecorded for probable future recovery through pricingU.S. Government business. The portion of thosecosts expected to be allocated to commercial businessis reflected in costs and expenses at the time theliability is established.Sales and earnings - Sales and anticipated profitsunder long-term fixed-price production contractsare recorded on a percentage of completion basis,generally using units of delivery as the measurementbasis for effort accomplished. Estimated contract

Lockheed Martin Corporationprofits are taken into earnings in proportion torecorded sales. Sales under certain long-term fixedpricecontracts which, among other things, providefor the delivery of minimal quantities or require asignificant amount of development effort in relationto total contract value are recorded using the percentageof completion cost-to-cost method ofaccounting where sales and profits are recordedbased on the ratio of costs incurred to estimatedtotal costs at completion.Sales under cost-reimbursement-type contractsare recorded as costs are incurred. Applicableestimated profits are included in earnings in theproportion that incurred costs bear to total estimatedcosts. Sales of products and services essentiallyunder commercial terms and conditionsare recorded upon shipment or completion ofspecified tasks.Amounts representing contract changeorders, claims or other items are included in salesonly when they can be reliably estimated and realizationis probable. Incentives or penalties andawards applicable to performance on contractsare considered in estimating sales and profit ratesand are recorded when there is sufficient informationto assess anticipated contract performance.Incentive provisions which increase or decreaseearnings based solely on a single significant eventwould generally not be recognized until the eventhas occurred.When adjustments in contract value or estimatedcosts are determined, any changes from priorestimates are reflected in earnings in the currentperiod. Any anticipated losses on contracts orprograms in progress are charged to earningswhen identified.Research and development and similar costs -Corporation-sponsored research and developmentcosts primarily include research and developmentand bid and proposal effort related to governmentproducts and services. Except for certain arrangementsdescribed below, these costs are generallyincluded as part of the general and administrativecosts that are allocated among all contracts andprograms in progress under U.S. Government contractualarrangements. Corporation-sponsoredproduct development costs not otherwise allocableare charged to expense when incurred. Under certainarrangements in which a customer shares inproduct development costs, the Corporation's portionof such unreimbursed costs is expensed asincurred. Customer-sponsored research and developmentcosts incurred pursuant to contracts areaccounted for as contract costs.Income taxes - The Corporation accounts forincome taxes as prescribed in Statement of FinancialAccounting Standards (SFAS) No. 109, "Accountingfor Income Taxes." Deferred income tax assets andliabilities on the consolidated balance sheet reflectthe net tax effects of temporary differences betweenthe carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts usedfor income tax purposes.Employee Stock Ownership Plan - The Corporationelected to adopt, effective January 1,1994, theAmerican Institute of Certified Public Accountants(AICPA) Statement of Position (SOP) No. 93-6,"Employers' Accounting for Employee StockOwnership Plans," to account for the EmployeeStock Ownership Plan (ESOP). Adoption of thisaccounting method resulted in a cumulative effectadjustment which reduced net earnings for 1994by $37 million, or $.17 per common share assumingfull dilution. In accordance with the provisions ofthe SOP, the unallocated common shares held bythe ESOP trust (Unallocated ESOP Shares) havebeen considered outstanding for voting and otherCorporate purposes, but have been excluded fromweighted average outstanding shares in calculatingearnings per share. For 1995 and 1994, the weightedaverage Unallocated ESOP Shares excluded incalculating earnings per share totalled approximately10.3 million and 11.5 million commonshares, respectively.Earnings per common share - Earnings per commonshare were based on the weighted average numberof common shares outstanding during the year.Earnings per common share, assuming no dilution,were computed based on net earnings less the dividendrequirement for preferred stock. The weightedaverage number of common shares outstanding,assuming no dilution, was approximately 189.3 millionin 1995, 187.0 million in 1994 and 196.6 millionin 1993.Earnings per common share, assuming fulldilution, were computed assuming that the averagenumber of common shares was increased by theconversion of preferred stock. The weightedaverage number of common shares outstanding,assuming full dilution, was approximately 223.2 millionin 1995, 218.3 million in 1994 and 221.1 millionin 1993.

Notes to Consolidated Financial Statements ContinuedNote 2 - Formation of Lockheed Martinand Related Consolidation ActivitiesOn August 29, 1994, Lockheed Martin Corporation,a newly formed corporation, Lockheed Corporation(Lockheed) and Martin Marietta Corporation(Martin Marietta) (collectively, the Corporations)entered into an Agreement and Plan of Reorganization(the Reorganization Agreement) whereby theCorporations would merge through an exchange ofstock (the Business Combination). The BusinessCombination was consummated after stockholders'approval on March 15,1995.Under the terms of the ReorganizationAgreement, each outstanding share of Lockheedcommon stock was exchanged for 1.63 shares ofLockheed Martin common stock, and each outstandingshare of Martin Marietta common stockand preferred stock was exchanged for one share ofLockheed Martin common stock and preferredstock, respectively.The Business Combination constituted a taxfreereorganization and qualified for the pooling ofinterests method of accounting. Under this accountingmethod, the assets and liabilities of Lockheedand Martin Marietta were carried forward toLockheed Martin at their historical recordedbases. Subsequent to the Business Combination,Lockheed, Martin Marietta and certain othersubsidiaries were merged with and into theCorporation. The accompanying consolidatedfinancial statements, which reflect the combinedbalance sheets, results of operations and cash flowsfor Lockheed Martin, have been derived from thebalance sheets, results of operations and cash flowsof the separate Corporations for periods before theBusiness Combination, combined, reclassified andconformed, as appropriate, to reflect amounts forthe combined entity. Sales and earnings of theindividual entities were as follows:(In millions, except per share data)Year ended December 31, 1994:Net salesEarnings before cumulative effect ofchange in accountingEarnings per share before cumulativeeffect of change in accounting,assuming full dilutionYear ended December 31, 1993:Net salesNet earningsEarnings per share, assuming full dilutionAs Previously ReportedLockheed$13,1304454.29 (a)$13,0714224.11 (a) MartinMarietta$9,8746365.05$9,436450 (b)3.80 (b) CombiningAdjustments$ (98)(26).$(110)(43)—LockheedMartinCombined$22,906(a) Amounts for Lockheed have been adjusted for the 1.63 exchange ratio related to the Business Combination.(b) Amounts for Martin Marietta do not include the cumulative effect of changes in accounting for post-retirement benefits other than pensions and forpostemployment benefits as the timing of the adoption of such changes was adjusted to January 1, 1992 to conform to Lockheed's timing of adoption.1,0554.83$22,3978293.75Combining adjustments were recorded toeliminate intercompany sales and cost of sales ineach year. No adjustments were made to eliminatethe related intercompany profit in ending inventoriesas such amounts were not material. Adjustmentswere also made to conform Lockheed's method ofaccounting for timing differences in cost recognitionbetween SFAS No. 87, "Employers' Accountingfor Pensions," and applicable government contractaccounting principles to be consistent with MartinMarietta's method, and to conform Lockheed's provisionsfor state income taxes to Martin Marietta'smethodology. Further adjustments were recorded toreflect the tax impact of these adjustments.During the first quarter of 1995, theCorporation recorded a $165 million pretax chargefor merger related expenses. On June 26, 1995,the Corporation announced a corporate-wide consolidationplan under which the Corporation wouldclose 12 facilities and laboratories as well as 26duplicative field offices in the U.S. and abroad, eliminatingup to approximately 12,000 positions. In conjunctionwith the announcement, the Corporationrecorded accruals for severance, lease terminationand certain other costs as well as approximately$220 million of adjustments to reflect affected realestate and other property, plant and equipment attheir estimated net realizable values. Under existing

Lockheed Martin CorporationU.S. Government regulations, certain costs incurredfor consolidation actions that can be demonstratedto result in savings in excess of the cost to implementcan be amortized for government contractingpurposes and included in future pricing of theCorporation's products and services. TheCorporation anticipates that a substantial portionof the total costs of the consolidation plan will bereflected in future sales and cost of sales. TheCorporation recorded a pretax charge of $525 millionfor the consolidation plan which represents theportion of the accrued costs and net realizable valueadjustments that are not probable of recovery. Theafter-tax effect of these charges was $436 million, or$1.96 per common share assuming full dilution. Asof December 31, 1995, the total merger related andconsolidation plan expenditures were approximately$208 million which primarily relate to the BusinessCombination, the elimination of positions and theclosure of foreign and domestic marketing offices.Approximately $400 million of accrued merger andconsolidation costs are included in other currentliabilities at December 31, 1995.Other costs of the consolidation plan, whichinclude relocation of personnel and programs,retraining, process re-engineering and certain capitalexpenditures, among others, generally will berecognized when incurred. The Corporation currentlyanticipates that the remaining consolidationcosts will be incurred by the end of 1997.Note 3 - Transaction Agreement withLoral CorporationIn January 1996, the Corporation entered into anAgreement and Plan of Merger (the MergerAgreement), dated as of January 7, 1996, with LoralCorporation (Loral) for a series of interrelatedtransactions with a total estimated value of approximately$9.4 billion. Under the terms of the MergerAgreement, the Corporation intends to acquire thedefense electronics and systems integration businessesand certain other businesses of Loral forapproximately $9.1 billion, including $2.1 billion ofassumed debt. Of the total, approximately $7 billionwill be paid directly to Loral shareholders by theCorporation through a tender offer for all outstandingshares of Loral common stock for $38.00 pershare in cash. A Schedule 14D-1 relating to the tenderoffer was filed with the Securities and ExchangeCommission on January 12, 1996. Following theconsummation of the tender offer, Loral will distribute,for each share of Loral common stockpreviously held, one share of common stock of anewly-formed company, Loral Space &Communications, Ltd. (Loral Space), which willown substantially all of the space and satellitetelecommunications interests of Loral. Finally,the Corporation will invest $344 million in LoralSpace for the acquisition of shares of preferredstock that are convertible into 20 percent of LoralSpace's common stock on a fully diluted basis. TheCorporation's offer is contingent, among otherthings, on the tendering of two-thirds of Loral'soutstanding shares and on regulatory approvals, andis expected to close in the first half of 1996. If thebusiness combination with Loral is consummated,the purchase method of accounting will be usedto record the transactions.In connection with the transactions, theCorporation intends to arrange with a syndicateof banks to obtain credit facilities of $10 billion (theNew Credit Facilities), comprised of a $5 billionfive-year unsecured revolving credit facility anda $5 billion 364-day unsecured revolving creditfacility. The New Credit Facilities would be availableto finance the purchase of Loral's commonstock, to fund the $344 million investment in LoralSpace, to refinance a portion of Loral's existing debt,to pay related transaction expenses, to provide forfuture working capital needs and for general corporatepurposes. Alternatively, the Corporation mayobtain all or a portion of the necessary financingthrough the issuance of commercial paper backed bythe New Credit Facilities. If the business combinationwith Loral is consummated, the Credit Facilityin effect at December 31, 1995 (see Note 8) willbe terminated and replaced with the New CreditFacilities. Following the closing of the transactions,it is anticipated that the Corporation will refinanceall or a portion of the borrowings under the NewCredit Facilities with funds raised in the public orprivate securities markets.Note 4 - AcquisitionsOn May 1, 1994, the Corporation completed itsacquisition of the Space Systems Division ofGeneral Dynamics Corporation (the Space SystemsDivision) for cash. This transaction was recordedunder the purchase method of accounting. Operationsof the Space Systems Division have beenincluded in the Corporation's Space & StrategicMissiles segment from the closing date. Pro formafinancial data related to this transaction has not beenpresented, based on materiality considerations.On April 2, 1993, the Corporation consummateda transaction (the GE Transaction) with

Notes to Consolidated Financial Statements ContinuedGeneral Electric Company (GE) to combine theaerospace and certain other businesses of GE (collectively,the GE Aerospace businesses) with thebusinesses of the Corporation in the form of affiliatedcorporations. The exchange consideration ofapproximately $3 billion for the GE Transactionconsisted of approximately $900 million in cash,convertible preferred stock (valued at $1 billion),retention by GE of certain accounts receivable andthe assumption of payment obligations related tocertain GE indebtedness ($750 million). The GETransaction was recorded under the purchasemethod of accounting. The GE Aerospace operationshave been included in the Corporation's resultsof operations since the closing date. If the GETransaction were presented on an unaudited proforma basis as if it had occurred as of January 1,1993, the Corporation's 1993 net sales wouldincrease by approximately $1 billion and net earningswould increase by less than 1.5%.Effective February 28, 1993, the Corporationacquired the tactical military aircraft business ofGeneral Dynamics Corporation (formerly, the GDFort Worth Division) for approximately $1.5 billionin cash, plus the assumption of certain liabilitiesrelated to the business. The acquisition wasrecorded under the purchase method of accounting.Pro forma financial data for 1993 related to thistransaction has not been presented based onmateriality considerations.Note 5 - ReceivablesReceivables consisted of the following components:(In millions)U.S. Government:Amounts billedUnbilled costs andaccrued profitsCommercial and foreigngovernments:Amounts billedUnbilled costs andaccrued profits,primarily relatedto commercial contracts1995$ 9251,622654675$3,876Unbilled costs and accrued profits consistedprimarily of revenues on long-term contractsthat had been recognized for accounting purposes1994$ 9841,383662444$3,473but not yet billed to customers. Approximately$185 million of the December 31, 1995 unbilledcosts and accrued profits are not expected to bebilled within one year.Note 6 - InventoriesInventories consisted of the following components:(In millions)Work in process, primarily onlong-term contracts andprograms in progressLess customer advances andprogress paymentsOther inventoriesCustomer advances and progress paymentsapplied above are those where the customer hastitle to, or a security interest in, inventories identifiedwith the related contracts. Other customeradvances are classified as current liabilities.Inventories include unamortized deferred costs ofapproximately $300 million at December 31, 1995which are anticipated to be recovered throughfuture contracts.An analysis of general and administrative costs,including research and development costs, includedin work in process inventories follows:(In millions)Beginning of yearIncurred during the yearCharged to costs andexpenses duringthe year:Research anddevelopmentOther general andadministrativeEnd of year1995$ 4801,704(548)(1,205)$ 4311995$3,721(1,772)1,949855$2,8041994$ 4991,761(659)(1,121)$ 4801994$4,291(1,785)2,506653$3,1591993$ 2431,882(696)(930)$ 499In addition, included in costs and expenses in1995, 1994 and 1993 were general and administrativecosts, including research and development costs, ofapproximately $230 million, $154 million and $155million, respectively, incurred by commercial businessunits or programs.66

Lockheed Martin CorporationNote 7 - Property, Plant and EquipmentProperty, plant and equipment consisted of the followingcomponents:(In millions)LandBuildingsMachinery and equipmentLess accumulated depreciationand amortizationNote 8 - Debt1995$ 3622,4945,3298,185(5,020)$3,165Long-term debt consisted of the followingcomponents:Type(Maturity Dates)(In millions)Notes Payable:Fixed rate(1996-2023)Variable rate(1995)Debentures(2011-2025)ESOP obligations(1996-2004)Payment obligationsassumed fromGE (1996)Other obligationsLess current maturitiesRange ofInterestRates4.5-9.4%(a)7.0-7.9%8.3-8.4%5.0%6.0-9.0%(a) Interest rates vary based on the Eurodollar rate.1995$2,172—828355303743,732(722)$3,0101994$ 3322,4195,4258,176(4,721)$3,4551994$2,215200703382310693,879(285)$3,594During the second quarter of 1995, theCorporation retired $200 million of variable rateNotes Payable and $43 million of fixed rate NotesPayable. During the fourth quarter, Martin MariettaMaterials, Inc. (Materials), a public company owned81% by the Corporation, issued $125 million of 7%debentures due in 2025.Included in Notes Payable are $300 million of9.375% notes due in 1999 which stipulate that, inthe event of both a "designated event" and a related"rating decline" occurring within a specified periodof time, holders of the notes may require the Corporationto redeem the notes and pay accrued interest.In general, a "designated event" occurs when anyone of certain ownership, control, or capitalizationchanges takes place. A "rating decline" occurs whenthe ratings assigned to the Corporation's debt arereduced below investment-grade levels.Included in Debentures are $150 million of7.75% obligations which may be redeemed by theCorporation at specified prices on or after April 15,2003. Also included in Debentures are $103 millionof 7% obligations ($175 million at face value) whichwere originally sold at approximately 54% of theirprincipal amount. These debentures, which areredeemable in whole or in part at the Corporation'soption at 100% of their face value, have an effectiveyield of 13.25%.A leveraged ESOP incorporated into theLockheed Salaried Savings Plan (401(k)) (see Note12) borrowed $500 million through a private placementof notes in 1989. These notes are being repaidin quarterly installments over terms ending in 2004.The ESOP note agreement stipulates that, in theevent that the ratings assigned to the Corporation'slong-term senior unsecured debt are below investmentgrade, holders of the notes may requirethe Corporation to purchase the notes and payaccrued interest. These notes are obligations of theESOP but guaranteed by the Corporation and arereported as debt on the Corporation's consolidatedbalance sheet.The Corporation's long-term debt maturitiesfor the five years following December 31, 1995, are:$722 million in 1996; $166 million in 1997; $374million in 1998; $350 million in 1999; $44 millionin 2000 and $2,076 million thereafter.Certain of the financing agreements of theCorporation contain certain restrictive covenantsrelating to debt, requirements for limitations onencumbrances and on sale and lease-back transactions,and provisions which relate to certain changesin control.SFAS No. 107, "Disclosures about Fair Valueof Financial Instruments," and SFAS No. 119,"Disclosure about Derivative Financial Instrumentsand Fair Value of Financial Instruments," requirethe disclosure of the fair value of financial instruments,both assets and liabilities recognized and notrecognized on the consolidated balance sheet, forwhich it is practicable to estimate fair value. Unlessotherwise indicated elsewhere in the notes to theconsolidated financial statements, the carrying valueof the Corporation's financial instruments approximatesfair value. The estimated fair values of theCorporation's long-term debt instruments atDecember 31, 1995, aggregated approximately

Notes to Consolidated Financial Statements Continued$4.0 billion, compared with a carrying amount ofapproximately $3.7 billion on the consolidated balancesheet. The fair values were estimated based onquoted market prices for those instruments publiclytraded. For privately placed debt, the fair valueswere estimated based on the quoted market pricesfor the same or similar issues, or on current ratesoffered to the Corporation for debt of the sameremaining maturities.On March 15, 1995, the Corporation enteredinto a revolving credit agreement (the CreditAgreement) with a group of domestic and foreignbanks. The Credit Agreement makes available$1.5 billion through March 14, 2000. Borrowingsunder the Credit Agreement would be unsecuredand bear interest, at the Corporation's option, atrates based on the Eurodollar rate or a bank baserate (as defined). The Credit Agreement contains afinancial covenant relating to leverage, and provisionswhich relate to certain changes in control.There have been no borrowings under theCredit Agreement.Interest payments were $275 million in 1995,$276 million in 1994 and $262 million in 1993.Note 9 - Income TaxesThe provision for federal and foreign income taxesconsisted of the following components:(In millions)Federal income taxes:CurrentDeferredTotal federal incometaxesForeign income taxesTotal income taxesprovided1995$510(116)39413$4071994$538736119$6201993$3041654698$477The Corporation's effective income tax ratevaried from the statutory federal income tax ratebecause of the following tax differences:Statutory federal tax rateIncrease (reduction) in taxrate from:NondeductibleamortizationRevisions to prior years'estimated liabilitiesOther, netThe primary components of the Corporation'sfederal deferred income tax assets and liabilities atDecember 31 were as follows:(In millions)Deferred tax assets related to:Accumulated post-retirementbenefit obligations199535.0%3.2(3.4)2.637.4%Accrued compensation and benefit!Merger related andconsolidation reservesContract accounting methodsOtherDeferred tax liabilities related to:Intangible assetsProperty, plant and equipmentNet deferred tax assets199435.0%2.1(.9).837.0%1995$ 6742901681321101,374547247794$ 580199335.0%Federal and foreign income tax payments, netof refunds received, were $223 million in 1995, $502million in 1994 and $455 million in 1993.2.01.2(1.7)36.5%1994$ 680356—761161,228520244764$ 464Net provisions for state income taxes areincluded in general and administrative expenses,which are primarily allocable to government contracts.Such state income taxes were $86 million for1995, $50 million for 1994 and $86 million for 1993.68

Lockheed Martin CorporationNote 10 - Other Income and ExpensesOther income and expenses, net consisted of thefollowing components:(In millions)Royalty incomeInterest incomeGain—Materialspublic offeringAcquisition termination feeOtherIn February 1994, Materials sold through aninitial public offering approximately 8.8 millionshares of its common stock. The Corporationretains approximately 81% of the outstanding stockof Materials. Minority interest of $84 million and$71 million was included in other liabilities atDecember 31, 1995 and 1994, respectively. A portionof the proceeds from the offering was used todefease in substance $125 million of 9.5% Notes.The Corporation recognized a pretax gain, net of aloss on debt defeasance, of $118 million fromMaterials' initial public offering. The net after-taxgain from these transactions was $70 million, or$.32 per common share assuming full dilution.During March 1994, the Corporation enteredinto an Agreement and Plan of Merger withGrumman Corporation (Grumman) and made anoffer to purchase for cash all outstanding sharesof common stock of Grumman. Subsequently,Grumman reached agreement with and acceptedNorthrop Corporation's competing offer to purchaseits outstanding common shares. In April 1994,the Corporation received $50 million plus reimbursementof expenses from Grumman pursuant tothe termination provisions of the Agreement andPlan of Merger. The Corporation recorded an aftertaxgain of $30 million, or $.14 per common shareassuming full dilution.Note 11 - Stockholders' Equityand Related Items1995$6433——(2)$951994$ 593411850(61)$2001993$3322——(11)$44Capital structure - The authorized capital structureof the Corporation is composed of 750 millionshares of common stock (199 million shares issued),50 million shares of series preferred stock (no sharesissued), and 20 million shares of Series A preferredstock (20 million shares issued). Approximately70 million common shares have been reserved forissuance under benefit and incentive plans.The Series A preferred stock has a par valueof $1 per share (liquidation preference of $50 pershare). As part of the consideration for the GETransaction, the Corporation issued to GE all of theauthorized and outstanding shares of Series A preferredstock. Dividends are cumulative and paid atan annual rate of $3.00 per share, or 6%. The sharesheld by GE are currently convertible into approximately13% of the shares of the Corporation's commonstock after giving effect to such conversion,have an aggregate liquidation preference of $1 billion,and are nonvoting except in special circumstances.Accordingly, 29 million common shareshave been reserved for this potential conversion. InMarch 1998 and thereafter, the Corporation will beentitled to redeem, at its option, any or all shares ofthe Series A preferred stock for either cash or commonstock. The Series A preferred stock is heldunder a Standstill Agreement which, among otherthings, imposes certain limitations on either theincrease or disposal of GE's interest in voting securitiesof the Corporation, on GE's solicitation ofproxies and stockholder proposals, on GE's votingof its shares and on GE's ability to place or removemembers of the Corporation's Board of Directors.In addition, the Standstill Agreement requires theCorporation to recommend to its shareholders theelection of two persons designated by GE to serve asdirectors of the Corporation.On July 27, 1995, the Corporation's Board ofDirectors authorized the repurchase of up to sixmillion common shares under a systematic repurchaseplan to counter the future dilutive effect ofcommon stock issued by the Corporation underits 1995 Omnibus Performance Award Plan. Additionally,the Board authorized the repurchase ofup to nine million common shares to counter thedilutive effect of common stock issued under theCorporation's other benefit and compensation programsand for other purposes related to such plans.Approximately 2.3 million common shares wererepurchased by the Corporation in the secondhalf of 1995.Stock option and award plans - On March 15, 1995,the stockholders approved the Lockheed Martin1995 Omnibus Performance Award Plan (OmnibusPlan). Under the Omnibus Plan, employees of theCorporation may be granted stock-based incentiveawards, including options to purchase commonstock, stock appreciation rights, restricted stock orother stock-based incentive awards. Employees may

Notes to Consolidated Financial Statements Continuedalso be granted cash-based incentive awards, such asperformance units. These awards may be grantedeither individually or in combination with otherawards. Options to purchase common stock will beat an exercise price of not less than 100% of themarket value of the underlying stock on the date ofgrant. The number of shares of Lockheed Martincommon stock that may be issued in respect ofawards under the Omnibus Plan will not exceed 12million shares. The Omnibus Plan does not imposeany minimum vesting periods on options or otherawards. The maximum term of an option or anyother award is ten years. The Omnibus Plan allowsthe Corporation to provide for financing of purchases,subject to certain conditions, by interestbearingnotes payable to the Corporation.Prior to the Business Combination, Lockheedand Martin Marietta had also utilized share-basedand cash-based incentive award plans. Under theterms of certain of these plans, consummation of theBusiness Combination resulted in the accelerationof payment of certain benefits that would otherwisehave been payable over time, early vesting of certainbenefits that would otherwise not be fully vested,and, in some cases, the use of modified formulas forcalculating the amounts of such benefits. In addition,the Reorganization Agreement provided foreach outstanding stock option, stock appreciationright and other stock-based incentive award to beconverted into a similar instrument of LockheedMartin upon consummation of the BusinessCombination. Effective with the adoption of theOmnibus Plan, no further grants of share-based orcash-based incentive awards will be made under anyof Lockheed's and Martin Marietta's prior plans.Accordingly, shares available for grant under theseprior plans have been removed from registration.The following table summarizes the stockoption activity under the Corporation's plansduring 1995:(In thousands)December 31,1994AdditionsOptionsgrantedRemoved fromregistrationExercisedTerminatedDecember 31,1995Number of SharesAvailablefor Grant3,65212,000(2,228)(3,674) — —— (1,943) $19.75-$44.8881 (109) $19.60-$59.389,831OptionsOutstanding9,244—2,2289,420OptionPrice Range$19.60-$44.88—$59.38$19.60-$59.38At December 31, 1995, approximately 6.5 millionoptions outstanding were exercisable.Note 12 - Post-Retirement Benefit PlansThe Corporation maintains separate plans forpost-retirement benefits for heritage Lockheedand Martin Marietta employees.Defined Contribution PlansThe Corporation maintains a number of contributory401(k) savings plans for salaried employees (theSalaried Plans) and hourly employees (the HourlyPlans) which cover substantially all employees.The Lockheed Salaried Plans - The LockheedSalaried Plan includes an ESOP which purchasedapproximately 17.4 million shares of the Corporation'scommon stock with the proceeds from a$500 million note issue which is guaranteed by theCorporation (see Note 8). Shares are held in a suspenseaccount in a salaried ESOP awaiting releaseand allocation to participants as described below.Under provisions of the Lockheed SalariedPlan, employees' eligible contributions are matchedby the Corporation at an established rate. TheCorporation's matching obligation was $98 millionin 1995, $103 million in 1994 and $104 millionin 1993.Since inception of the ESOP, some portionof the Corporation's match has consisted of theCorporation's common stock. The common stockportion of the matching obligation is fulfilled, in

Lockheed Martin Corporationpart, with stock released from the suspense accountat approximately 1.2 million shares per year basedupon the debt repayment schedule through theyear 2004. The balance of the stock portion of thematching obligation is fulfilled through purchasesof common stock from terminating participants oron the open market.Effective January 1, 1994, the Corporationadopted SOP No. 93-6. Among other things, underthis method of accounting, the cost of the ESOPincludes the interest paid by the ESOP trust toservice the debt (approximately $31 million and$33 million for 1995 and 1994, respectively).The Lockheed salaried ESOP trust heldapproximately 22 million and 23 million issuedshares of the Corporation's common stock atDecember 31, 1995 and 1994, respectively, representingabout 11 percent of the Corporation's totalcommon shares outstanding in each period. The 22million shares held at December 31, 1995 consistedof approximately 12 million allocated shares and10 million unallocated shares. The fair value of theunallocated ESOP shares at December 31, 1995 wasapproximately $780 million.The Lockheed Hourly Plans - ESOPs were createdand incorporated into the Lockheed Hourly Plans.The Corporation matches an established rate ofparticipating employees' eligible contributions tothe Hourly Plans through payments to the ESOPtrusts. A portion of the Corporation's match consistsof Corporation common stock purchased by theESOPs on the open market and from terminatingparticipants. The required match was $12 millionin 1995, $12 million in 1994 and $15 million in 1993.The hourly ESOP trusts held approximately twomillion issued and outstanding shares of commonstock at December 31,1995.which are held in a master trust, included approximately10 million shares of the Corporation'scommon stock.Defined Benefit PlansMost employees are covered by contributory ornoncontributory defined benefit pension plans.Benefits for salaried plans are generally based onaverage compensation and years of service, whilethose for hourly plans are generally based on negotiatedbenefits and years of service. Substantially allbenefits are paid from funds previously contributedto trustees. The Corporation's funding policy is tomake contributions that are consistent with U.S.Government cost allowability and Internal RevenueService deductibility requirements, subject to thefull-funding limits of the Employee RetirementIncome Security Act of 1974 (ERISA). When anyfunded plan exceeds the full-funding limits ofERISA, no contribution is made to that plan.The net pension cost of the Corporation'sdefined benefit plans includes the followingcomponents:(In millions)Service costbenefitsearnedduring the yearInterest costNet amortization andother componentsActual return on assetsEmployee contributionsNet pension cost1995$ 3508961,545(2,577)(3)$ 2111994$ 440842(1,060)64(3)$ 2831993$ 386807326(1,259)(3)$ 257Dividends on allocated shares - Dividends paid tothe Lockheed salaried and hourly ESOP trusts onthe allocated shares are paid annually by the ESOPtrusts to the participants based upon the number ofshares allocated to each participant.The Martin Marietta Plans - The Corporationsponsors a number of contributory 401(k) savingsplans which cover substantially all Martin Mariettaheritage employees. Under the provisions of theplans, certain contributions of eligible employeesare matched by the Corporation at an establishedrate. The Corporation's contributions for the yearsended December 31, 1995,1994 and 1993 were$70 million, $77 million and $48 million, respectively,which were reflected as compensationexpense. Plan assets at December 31, 1995,

Notes to Consolidated Financial Statements ContinuedThe following table sets forth the defined benefitplans' funded status and amounts recognized inthe Corporation's consolidated balance sheet as ofDecember 31:(In millions)Plan assets at fair valueActuarial present value ofbenefit obligations:VestedNon-vestedAccumulated benefit obligationEffect of projected futuresalary increasesProjected benefitobligation (PBO)Plan assets greater than PBOReconciling items:Unrecognized net assetexisting at the date of initialapplication of SFAS No. 87Unrecognized prior-service costUnrecognized gainPrepaid pension assetThe increase in the fair value of plan assetsin 1995 from 1994 was primarily due to favorableinvestment returns. The increase in the projectedbenefit obligation in 1995 from 1994 was primarilydue to a decrease in the assumed discount rate.At December 31, 1995, approximately 50 percentof the plan assets were equity securities and therest were primarily fixed income securities and cashequivalents. Actuarial determinations were basedon various assumptions displayed in the followingtable. Net pension costs in 1995, 1994 and 1993 werebased on assumptions in effect at the end of therespective preceding year. Benefit obligations as ofeach year-end were based on assumptions in effectas of those dates.Assumptions:Plan discount ratesRates of increasein future compensationlevelsExpected long-termrate of returnon assets.19957.5%6.08.81995$13,848$10,83912110,9601,64812,6081,240(279)536(1,332)$ 16519948.2-8.5%5.5-6.08.0-8.81994$11,845$ 9,4231189,5411,33010,871974(369)584(984)$ 20519937.0-7.5%•6.08.0-8.8Retiree Medical and Life Insurance PlansCertain health care and life insurance benefits areprovided to eligible retirees by the Corporation.These benefits are paid by the Corporation orfunded through several trusts.The net periodic post-retirement benefit costfor the years ended December 31, included thefollowing components:(In millions)Service cost—benefitsearned during the yearInterest costNet amortization andother componentsActual return on assetsCurtailment gainNet periodic costThe Corporation has made contributions toirrevocable trusts (including Voluntary Employees'Beneficiary Association (VEBA) trusts and 401(h)accounts) established to pay future medical benefitsto eligible retirees and dependents.The following table sets forth the post-retirementbenefit plans' obligations and funded status asof December 31:(In millions)Plan assets at fair valueActuarial present value ofbenefit obligations:Active employees,eligible to retireActive employees, noteligible to retireFormer employeesAccumulated post-retirementbenefit obligation (APBO)Assets less than APBOUnrecognized prior service costUnrecognized gainPost-retirement benefitunfunded liability1995$ 3417744(82)—$1731994$ 54164(29)(3)(21)$1651995$ 590$ 3444281,5042,2761,6861693$1,7951993$ 4715311(35)(28)$1481994$ 423$ 3714021,4802,2531,830(5)24$1,84972

Lockheed Martin CorporationActuarial determinations were based on variousassumptions displayed in the following table. Netretiree medical costs for 1995, 1994 and 1993 werebased on assumptions in effect at the end of therespective preceding years. Benefit obligations as ofthe end of each year reflect assumptions in effect asof those dates.have a remaining term of more than one year were$781 million ($178 million in 1996, $130 million in1997, $106 million in 1998, $90 million in 1999,$74 million in 2000, and $203 million in later years).Certain major plant facilities and equipment are furnishedby the U.S. Government under short-term orcancelable arrangements.Assumptions:Plan discount ratesExpected long-termrate of returnon assetsThe following table presents the medical trendrates for the plans:Initial:Lockheed early retirees(pre-65)Lockheed other retireesMartin Marietta retireesUltimate Lockheed:Early (a)Other (b)Ultimate Martin Marietta(7 years and after)(a) 8 years and after for 1995; 20 years and after for 1994 and 1993.(b) 13 years and after for 1995; 16 years and after for 1994 and 1993.An increase of one percentage point in theassumed medical trend rates would result inan increase in the APBO of approximately 7.9% atDecember 31, 1995, and a 1995 post-retirementbenefit cost increase of approximately 10.3%. TheCorporation believes that the cost containmentfeatures it has previously adopted and the fundingapproaches underway will allow it to effectivelymanage its retiree medical expenses, but it willcontinue to monitor the costs of retiree medicalbenefits and may further modify the plans if circumstanceswarrant.Note 13 - Leases19957.5%8.819958.0%8.07.54.52.04.519948.2-8.5%8.0-8.8199411.0%6.07.55.02.04.519937.0-7.5%8.0-8.81993Total rental expense under operating leases, net ofimmaterial amounts of sublease rentals and contingentrentals, were $236 million, $265 million and$257 million for 1995, 1994 and 1993, respectively.Future minimum lease commitments atDecember 31, 1995, for all operating leases that13.0%9.07.55.02.04.5Note 14 - Commitments and ContingenciesThe Corporation or its subsidiaries are parties to orhave property subject to litigation and other proceedings,including matters arising under provisionsrelating to the protection of the environment, thathave the potential to affect the results of theCorporation's operations or its financial position.These matters include the following items:Environmental matters - In 1991, the Corporationentered into a consent decree with the U.S.Environmental Protection Agency (EPA) relating tocertain property in Burbank, California, whichobligates the Corporation to design and constructfacilities to monitor, extract, and treat groundwaterand operate and maintain such facilities for approximatelyeight years. The Corporation estimates thatexpenditures required to comply with the termsof the consent decree over the remaining term ofthe project will be approximately $50 million.The Corporation has also been operatingunder a cleanup and abatement order from theCalifornia Regional Water Quality Control Boardaffecting its facilities in Burbank, California. Thisorder requires site assessment and action to abategroundwater contamination by a combination ofgroundwater and soil cleanup and treatment. Basedon experience derived from initial remediationactivities, the Corporation estimates the anticipatedcosts of these actions in excess of the requirementsunder the EPA consent decree to approximate$155 million over the remaining term of the project;however, this estimate is likely to change as workprogresses and as additional experience is gained.In addition, the Corporation is involved in severalother proceedings and potential proceedingsrelating to environmental matters, including disposalof hazardous wastes and soil and water contamination.The extent of the Corporation's financialexposure cannot in all cases be reasonably estimatedat this time. A liability of approximately $285 millionfor those cases in which an estimate of financialexposure can be determined has been recorded.Under an agreement with the U.S. Government,the Burbank groundwater treatment and soil

Notes to Consolidated Financial Statements Continued74remediation expenditures referenced above arebeing allocated to the Corporation's operations asgeneral and administrative costs and, under existinggovernment regulations, these and other environmentalexpenditures related to U.S. Governmentbusiness, after deducting any recoveries from insuranceor other responsible parties, are allowable inestablishing the prices of the Corporation's productsand services. As a result, a substantial portion of theexpenditures will be reflected in the Corporation'ssales and cost of sales pursuant to U.S. Governmentagreement or regulation. The Corporation hasrecorded a liability for probable future environmentalcosts as discussed above, and has recorded anasset for probable future recovery of the portion ofthese costs in pricing of the Corporation's productsand services for U.S. Government business. Theportion that is expected to be allocated to commercialbusiness has been reflected in cost of sales. Therecorded amounts do not reflect the possible recoveryof portions of the environmental costs throughinsurance policy coverage or from other potentiallyresponsible parties to the contamination, which theCorporation is pursuing as required by agreementand U.S. Government regulation. Any such recoveries,when received, would reduce the Corporation'sliability as well as the allocated amounts to beincluded in the Corporation's U.S. Governmentsales and cost of sales.Legal proceedings - The Corporation or its subsidiariesare parties to or have property subject tolitigation and other proceedings, including mattersarising under provisions relating to the protection ofthe environment, in addition to those describedabove. In the opinion of management and counsel,the probability is remote that the outcome of litigationand proceedings will have a material adverseeffect on the results of the Corporation's operationsor its financial position.Letters of credit and other matters - TheCorporation has entered into standby letter of creditagreements and other arrangements with financialinstitutions primarily relating to the guaranteeof future performance on certain contracts. AtDecember 31, 1995, the Corporation had contingentliabilities on outstanding letters of credit, guarantees,and other arrangements aggregating approximately$560 million.At December 31, 1995, Lockheed MartinFinance Corporation (LMFC) had entered intoapproximately $140 million in interest rate swapagreements to reduce the impact of changes ininterest rates on its operations. The effect of theseagreements is that the aggregate of the carryingvalue of LMFC's financial instruments approximatestheir fair market value. LMFC is exposed to creditloss, to the extent of future interest rate differentials,in the event of nonperformance by the intermediariesto the interest rate swap agreements. TheCorporation does not anticipate nonperformanceby the intermediaries.Note 15 - Information on IndustrySegments and Major CustomersThe Corporation operates in four principal businesssegments: Space & Strategic Missiles, Aeronautics,Information & Technology Services, and Electronics.All other activities of the Corporation fall withinthe Energy, Materials and Other segment.Space & Strategic Missiles - Engaged in the design,development, engineering and production of civil,commercial and military space systems, includingspacecraft, space launch vehicles and supportingground systems and services; satellites; strategic fleetballistic missiles; tactical defense missiles; electronicsand instrumentation; remote sensing technology;space and ground-based strategic systems; andsurface and space-based information and communicationssystems.Aeronautics - Engaged in the design, development,engineering and production of fighter, bomber,special mission, airlift, antisubmarine warfare,reconnaissance, surveillance and high performanceaircraft; aircraft controls and subsystems; thrustreversers and shipboard vertical missile launchingsystems; and aircraft modification and maintenanceand logistics support for military and civiliancustomers.Information & Technology Services - Engaged inthe development and operation of large, complexinformation systems; designing, manufacturing andmarketing computer graphics products; developingand manufacturing high capacity data storage products;electronics contract manufacturing services;and providing advanced transportation systems andservices, and payload integration, astronaut trainingand flight operations support.Electronics - Engaged in the design, development,engineering and production of high-performanceelectronic systems for undersea, shipboard, landbasedand airborne applications. Major productlines include advanced technology missiles, nightnavigation and targeting systems for aircraft; submarineand surface ship combat systems; airborne,

Lockheed Martin Corporationship and land-based radar; radio frequency, infrared,and electro-optical countermeasure systems; surveillancesystems; control systems; ordnance; andaircraft component manufacturing and assembly.Energy, Materials and Other - The Corporationmanages certain facilities for the U.S. Department ofEnergy. The contractual arrangements provide forthe Corporation to be reimbursed for the cost ofoperations and receive a fee for performing managementservices. The Corporation reflects only themanagement fee in its sales and earnings for thesegovernment-owned facilities. In addition, while theemployees at such facilities are employees of theCorporation, applicable employee benefit plans areseparate from the Corporation's plans. TheCorporation also provides construction aggregatesand specialty chemical products to commercial andcivil customers through its Materials subsidiary,provides environmental remediation services tocommercial and U.S. Government customers, andhas investments in airport development and managementas well as other businesses.Selected Financial Data By Business Segment(In millions) 1995 1994 1993Depreciation andamortizationSpace & StrategicMissilesAeronauticsInformation &Technology ServicesElectronicsEnergy, Materialsand OtherExpenditures forproperty, plantand equipmentSpace & StrategicMissilesAeronauticsInformation &Technology ServicesElectronicsEnergy, Materialsand Other$2051426712566$605$165586499145$531$2171267713979$638$175966710170$509$2181379216172$680$163155777764$536(In millions) 1995 1994 1993Net salesSpace & StrategicMissilesAeronauticsInformation &Technology ServicesElectronicsEnergy, Materialsand Other$ 7,5216,6174,5283,294893$22,853$ 6,7197,0914,2714,055770$22,906$ 7,2936,6013,7124,092699$22,397Identifiable assetsSpace & StrategicMissilesAeronauticsInformation &Technology ServicesElectronicsEnergy, Materialsand Other$ 3,7344,0822,7583,8063,268$17,648$ 4,1954,5912,4503,3383,475$18,049$ 3,3415,1192,1383,4853,025$17,108Operating profitSpace & StrategicMissilesAeronauticsInformation &Technology ServicesElectronicsEnergy, Materialsand Other$ 43139426926122$ 476511228456308$ 507479145331122$1,377$1,979$1,58475

Net Sales By Customer Category(In millions)U.S. Government (a)Space & StrategicMissilesAeronauticsInformation &Technology ServicesElectronicsEnergy, Materialsand Other1995$ 6,0254,2742,8852,418168$15,7701994$ 5,5944,9702,8492,999152$16,5641993$ 6,6634,9372,7373,042118$17,497Note 16 - Summary of Quarterly Information(Unaudited)(In millions,except per share data) First (a)Net sales $5,644Earnings (loss)from operations 290Net earnings (loss) 137Earnings (loss)per common share,assuming full dilution .621995 QuartersSecond (a)Third Fourth$5,606 $5,551 $6,052(55) 510(53) 287(b)1.295373111.38Foreign governmentsSpace & StrategicMissilesAeronauticsInformation &Technology ServicesElectronicsEnergy, Materialsand OtherCommercialSpace & StrategicMissilesAeronauticsInformation &Technology ServicesElectronicsEnergy, Materialsand Other$ 1121,96672837—$2,987$1,3843771,57139725$4,096$ 2901,9581551,037—$3,440$ 8351631,26719618$2,902$ 2821,40891,028—$2,727$ 34825696622581$2,173(In millions,except per share data) First (c)(d)Net sales $5,036Earnings fromoperations 402Earnings beforecumulative effect ofchange in accounting 272Earnings percommon share beforecumulative effect ofchange in accounting,assuming full dilution 1.251994 QuartersSecond (e)Third$5,562 $5,704453 443259 2541.19 1.16Fourth$6,6044812701.23(a) Sales made to foreign governments through the U.S. Government areincluded in sales to foreign governments.Export sales were $3.7 billion, $3.6 billion and$2.8 billion in 1995, 1994 and 1993, respectively.

Lockheed Martin CorporationC o n s o l i d a t e d F i n a n c i a l D a t aS i x Y e a r S u m m a r y(In millions, except per share data)Operating ResultsNet salesCosts and expensesEarnings from operationsOther income and expenses, netInterest expenseEarnings before income taxes and cumulativeeffect of changes in accountingIncome tax expenseEarnings before cumulative effect ofchanges in accountingCumulative effect of changes in accountingNet earnings (loss)Per Common ShareAssuming no dilution:Before cumulative effect of changesin accountingCumulative effect of changes in accountingAssuming full dilution:Before cumulative effect of changesin accountingCumulative effect of changes in accountingCash DividendsCondensed Balance Sheet DataCurrent assetsProperty, plant and equipmentIntangible assets related to contractsand programs acquiredCost in excess of net assets acquiredOther assetsTotalCurrent liabilities—otherCurrent maturities of long-term debtLong-term debtPost-retirement benefit liabilitiesOther liabilitiesStockholders' equityTotal1995$22,85321,5711,282951,3772881,089407682$ 682$$$$$3.283.283.053.051.34$ 8,1773,1651,8082,8171,681$17,648$ 4,5697223,0101,7781,1366,433$17,6481994$22,90621,1271,7792001,9793041,6756201,055(37)$ 1,018$ 8,1433,4551,9712,8311,649$18,049$ 5,3502853,5941,7569786,086$18,0491993$22,39720,8571,540441,5842781,306477829$ 829$ 6,9613,6432,1272,6971,680$17,108$ 4,8453464,0261,7199715,201$17,1081992$16,03014,8911,139421,1811771,004355649(1,010)$ (361)$ 5,1573,139428411,648$10,827$ 3,1763271,8031,5794603,482$10,8271991$15,87114,7671,104(49)1,055176879261618$ 618$ 5,5533,15552864895$10,519$ 3,8332981,997541124,225$10,5191990$16,08915,17891134945180765161604$ 604$ 5,4423,20059882883$10,466$ 4,235302,392—383,771$10,466Common Shares Outstanding at Year End 198.6 199.1 197.9 194.1 201.4 200.7$$$$$5.32(.20)5.124.83(.17)4.661.14$$$$$3.993.993.753.751.09$$$$$3.31(5.15)(1.84)3.31(5.15)(1.84)1.04$$$$$3.053.053.053.05.98$$$$$2.972.972.972.97.90

C o r p o r a t eD i r e c t o r yBoard of DirectorsNorman R. AugustinePresident andChief Executive Officer,Lockheed Martin CorporationMarcus C. BennettSenior Vice President andChief Financial Officer,Lockheed Martin CorporationLynne V. CheneyW.H.Brady, Jr.,Distinguished Fellow,American Enterprise InstituteA. James ClarkChairman and President,Clark Enterprises, Inc.Vance D. CoffmanExecutive Vice Presidentand Chief Operating Officer,Lockheed Martin CorporationEdwin I. ColodnyOf Counsel, Paul, Hastings,Janofsky & WalkerLodwrick M. CookChairman Emeritus, ARCOJames L. Everett, IIIRetired Chairman,Philadelphia Electric CompanyHouston I. FlournoySpecial Assistant to the President,Governmental Affairs,University of Southern CaliforniaJames E GibbonsDean, School of Engineering,Stanford UniversityEdward L. Hennessy, Jr.Retired Chairman,AlliedSignal Inc.Edward E. Hood, Jr.Retired Vice Chairman,General Elective CompanyCaleb B. HurttRetired President andChief Operating Officer,Martin MariettaGwendolyn S. KingSenior Vice President,Corporate and Public Affairs,PECO Energy CompanyLawrence O. KitchenRetired Chairman of the Boardand Chief Executive Officer,Lockheed CorporationGordon S. MacklinChairman, White River CorporationVincent N. MarafinoRetired Executive Vice President,Lockheed Martin CorporationEugene E MurphyPresident andChief Executive Officer,GE Aircraft EnginesAllen E. MurrayRetired Chairman andChief Executive Officer,Mobil CorporationDavid S. PotterRetired Vice Presidentand Group Executive,General Motors CorporationFrank SavageChairman, Alliance CapitalManagement InternationalDaniel M. TellepChairman of the Board,Lockheed Martin CorporationCarlisle A. H. TrostRetired Chief of Naval OperationsJames R. UkropinaPartner, O'Melveny & MyersDouglas C. YearleyChairman, Presidentand Chief Executive Officer,Phelps Dodge CorporationCommitteesAudit and Ethics CommitteeMr. Potter, Chairman.Mrs. King, Messrs. Everett,Flournoy, Hood, Kitchen,Macklin and Ukropina.Compensation CommitteeMr. Murray, Chairman.Messrs. Clark, Cook, Hennessy,Hood, Potter, Trost and Yearley.Executive CommitteeMr. Tellep, Chairman.Mrs. Cheney, Messrs. Augustine,Clark, Colodny, Macklin,Savage and Trost.Finance CommitteeMr. Ukropina, Chairman.Mmes. Cheney and King,Messrs. Colodny, Everett, Hurtt,Kitchen, Murphy, Savageand Yearley.Nominating CommitteeMr. Hennessy, Chairman.Messrs. Cook, Flournoy, Gibbons,Hurtt and Murphy.OfficersDean O. AllenVice PresidentJoseph D. AntinucciVice PresidentM. Sam ArakiVice PresidentNorman R. AugustinePresident and Chief Executive OfficerWilliam F. BallhausVice PresidentMarcus C. BennettSenior Vice President andChief Financial Officer78

Lockheed Martin CorporationJames A. Blackwell, Jr.Vice President and Presidentand Chief Operating Officer,Aeronautics SectorHarold T. BowlingVice PresidentPeter A. BrackenVice PresidentMelvin R. BrashearsVice President and Presidentand Chief Operating Officer,Space & Strategic Missiles SectorWilliam B. BullockVice PresidentMichael F. CamardoVice PresidentJoseph R. ClevelandVice PresidentVance D. CoffmanExecutive Vice Presidentand Chief Operating OfficerThomas A. CorcoranVice President and Presidentand Chief Operating Officer,Electronics SectorRobert B. CorlettVice PresidentPeter DeMayoVice PresidentPhilip J. DukeVice PresidentJohn F. EganVice PresidentRonald R. FinkbinerVice PresidentJack S. GordonVice PresidentJohn HallalVice PresidentDain M. HancockVice PresidentAlfred G. HansenVice PresidentAlexander L. HorvathVice PresidentJohn R. KreickVice PresidentGary P. MannVice PresidentJohn F. ManuelVice PresidentCarol R. MarshallVice PresidentJames W. McAnallyVice PresidentRussell T. McFallVice PresidentJanet L. McGregorVice PresidentJohn S. McLellanVice PresidentFrank H. Menaker, Jr.Vice President and General CounselJohn E. MontagueVice PresidentL. David MontagueVice PresidentAlbert NarathVice President and Presidentand Chief Operating Officer,Energy & Environment SectorGerald T. OppligerVice PresidentDavid S. OsterhoutVice PresidentStephen PavloskyVice PresidentSusan M. PearceVice PresidentRobert J. PolutchkoVice PresidentJohn B. RamseyVice PresidentJoseph B. ReaganVice PresidentRobert E. RulonVice President and ControllerWalter E. SkowronskiVice President and TreasurerAlbert E. SmithVice PresidentMichael A. SmithVice PresidentWilliam R. SorensonVice PresidentKenneth R. SwimmVice PresidentPeter B. TeetsVice President and Presidentand Chief Operating Officer,Information & TechnologyServices SectorJoseph T. ThrestonVice PresidentRobert E. TokerudVice PresidentLillian M. TrippettSecretary andAssociate General CounselLeonard L. VictorinoVice PresidentWilliam T. VinsonVice President and Chief Counsel

Lockheed Martin CorporationG e n e r a l I n f o r m a t i o nAs of December 31, 1995, there were approximately 43,361 holders of record ofLockheed Martin common stock and 198,601,608 shares outstanding.Common Stock Prices (New York Stock Exchange—composite transactions)HighLowClose1995 Quarters1st* 54 3/82nd 64 7/83rd 68 1/84th 79 1/250 1/45059 3/86352 7/863 1/867 1/879*March 16, 1995-March 31, 1995, reflecting the completion of the merger March 15, 1995.Transfer Agent & RegistrarFirst Chicago Trust Company of New YorkP. 0. Box 2536, Suite 4694Jersey City, New Jersey 07303-2536Telephone: 1-800-519-3111Dividend Reinvestment PlanLockheed Martin's Dividend Reinvestment and Stock PurchasePlan offers stockholders an opportunity to purchase additional sharesthrough automatic dividend reinvestment and/or voluntary cashinvestments. For more information, contact our transfer agent,First Chicago Trust Company of New York at 1-800-519-3111.Independent AuditorsErnst & Young LLP1225 Connecticut Avenue, N. W.Washington, D.C. 20036Common StockStock symbol: LMTListed: New YorkAnnual Report on Form 10-KStockholders may obtain, without charge, a copy of Lockheed Martin's Annual Report on Form 10-K, as filed with the Securities andExchange Commission for the fiscal year ended December 31, 1995by writing to:Lockheed Martin Investor Relations6801 Rockledge DriveBethesda,MD 20817or calling Lockheed Martin Shareholder Directat 1-800-LMT-9758.Lockheed Martin recently introduced Shareholder Direct. Updateson earnings, dividends and company news are available by calling1-800-LMT-9758, 24 hours a day, seven days a week.

Lockheed Martin Code of Ethics andBusiness ConductWe are committed to the ethical treatment ofthose to whom we have an obligation.For our employees we are committed to honesty,just management, and fairness, providing a safeand healthy environment, and respecting thedignity due everyone.For our customers we are committed toproduce reliable products and services, deliveredon time, at a fair price.For the communities in which we live and workwe are committed to acting as concerned andresponsible neighbors, reflecting all aspects ofgood citizenship.For our shareholders we are committed topursuing sound growth and earnings objectivesand to exercising prudence in the use of ourassets and resources.This Annual Report contains statements which, to the extent that they are not recitationsof historical fact, constitute "forward looking statements" within the meaning of Section27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of1934. All forward looking statements involve risks and uncertainties. The forward lookingstatements in this document are intended to be subject to the safe harbor protectionprovided by Sections 27A and 21E. For a discussion identifying some important factorsthat could cause actual results to differ materially from those anticipated in the forwardlooking statements see the Corporation's Securities and Exchange Commission filings,including but not limited to, the discussion of "Competition and Risk" and the discussionof "Government Contracts and Regulations" on pages 10 through 12 and pages 13through 14, respectively, of the Corporation's Annual Report on Form 10-K for the fiscalyear ended December 31, 1995 (Form 10-K); "Management's Discussion and Analysisof Financial Condition and Results of Operations" on pages 44 through 56 of this AnnualReport and "Note 1-Summary of Significant Accounting Policies" and "Note 14 -Commitments and Contingencies" of the Notes to Consolidated Financial Statementson pages 62 through 63 and 73 through 74, respectively, of the Audited ConsolidatedFinancial Statements included in this Annual Report and incorporated by reference intothe Form 10-K.For our suppliers we are committed to faircompetition and the sense of responsibilityrequired of a good customer.Shareholders desiring additional informationabout the Corporation's ethics program may writeto the Corporation care of Carol R. Marshall,Vice President, Ethics and Business Conduct,P.O. Box 34143, Bethesda, MD 20827-0143.

Lockheed Martin Corporation6801 Rockledge DriveBethesda,MD 20817

1995 Annual Report - Lockheed Martin

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