<SEC-DOCUMENT>0001193125-17-145789.txt : 20170531
<SEC-HEADER>0001193125-17-145789.hdr.sgml : 20170531
<ACCEPTANCE-DATETIME>20170428095506
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0001193125-17-145789
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		2
FILED AS OF DATE:		20170428

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			LOCKHEED MARTIN CORP
		CENTRAL INDEX KEY:			0000936468
		STANDARD INDUSTRIAL CLASSIFICATION:	GUIDED MISSILES & SPACE VEHICLES & PARTS [3760]
		IRS NUMBER:				521893632
		STATE OF INCORPORATION:			MD
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		6801 ROCKLEDGE DR
		CITY:			BETHESDA
		STATE:			MD
		ZIP:			20817
		BUSINESS PHONE:		3018976000

	MAIL ADDRESS:	
		STREET 1:		6801 ROCKLEDGE DRIVE
		CITY:			BETHESDA
		STATE:			MD
		ZIP:			20817
</SEC-HEADER>
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<TYPE>CORRESP
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<TD VALIGN="bottom"> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Hogan Lovells US LLP</P> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">100 International
Drive</P> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Suite 2000</P> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Baltimore, MD 21202</P>
<P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">T +1 410 659 2700</P> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">F +1 410 659 2701</P>
<P STYLE="margin-top:0pt; margin-bottom:1pt; font-size:10pt; font-family:Times New Roman">www.hoganlovells.com</P></TD></TR>
</TABLE> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">April&nbsp;28, 2017 </P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><U>Via
Facsimile and Edgar </U></P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Mr.&nbsp;Lyn Shenk, Branch Chief </P>
<P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Office of Transportation and Leisure </P> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Division of Corporation
Finance </P> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">U.S. Securities and Exchange Commission </P> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">100 F
Street, N.E. </P> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Washington, D.C. 20549 </P> <P STYLE="font-size:12pt;margin-top:0pt;margin-bottom:0pt">&nbsp;</P>
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<TD WIDTH="5%" VALIGN="top" ALIGN="left"><B>Re:</B></TD>
<TD ALIGN="left" VALIGN="top"><B>Lockheed Martin Corporation </B></TD></TR></TABLE>
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<TD WIDTH="5%" VALIGN="top" ALIGN="left"><B>&nbsp;</B></TD>
<TD ALIGN="left" VALIGN="top"><B>Form <FONT STYLE="white-space:nowrap">10-K</FONT> for Fiscal Year Ended December&nbsp;31, 2016 </B></TD></TR></TABLE>
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<TD ALIGN="left" VALIGN="top"><B>Filed on February&nbsp;9, 2017 </B></TD></TR></TABLE>
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<TD ALIGN="left" VALIGN="top"><B>File <FONT STYLE="white-space:nowrap">No.&nbsp;001-11437</FONT> </B></TD></TR></TABLE> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Dear Mr.&nbsp;Shenk: </P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; text-indent:8%; font-size:10pt; font-family:Times New Roman">On behalf of Lockheed Martin Corporation (the &#147;Corporation&#148;), we are responding to the comments of the Staff of the Division of
Corporation Finance of the U.S. Securities and Exchange Commission regarding the Corporation&#146;s Annual Report on Form <FONT STYLE="white-space:nowrap">10-K</FONT> for the year ended December&nbsp;31, 2016 filed with the Commission on
February&nbsp;9, 2017 (the &#147;Form <FONT STYLE="white-space:nowrap">10-K&#148;),</FONT> communicated in your letter dated April&nbsp;19, 2017. For convenience of reference, we have repeated your comment in bold text followed by the response. </P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B><U>Form <FONT STYLE="white-space:nowrap">10-K</FONT> for Fiscal Year Ended December&nbsp;31, 2016 </U></B></P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B><U>Management&#146;s Report on Internal Control Over Financial Reporting, page 105 </U></B></P>
<P STYLE="font-size:12pt;margin-top:0pt;margin-bottom:0pt">&nbsp;</P>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><B>1.</B></TD>
<TD ALIGN="left" VALIGN="top"><B>Please file an amended Form <FONT STYLE="white-space:nowrap">10-K</FONT> to specifically state your assessment of internal control over financial reporting as either effective or not effective. Your current
disclosure identifies the existence of a material weakness, and assesses internal control over financial reporting at Sikorsky as not effective, but does not offer a conclusion on the consolidated company. Refer to the guidance in Item 308(a)(3) of
Regulation <FONT STYLE="white-space:nowrap">S-K.</FONT> </B></TD></TR></TABLE> <P STYLE="margin-top:12pt; margin-bottom:0pt; text-indent:8%; font-size:10pt; font-family:Times New Roman">The Corporation acknowledges the Staff&#146;s comment and
proposes to amend its future filings to more clearly express management&#146;s conclusion that the Corporation&#146;s internal control over financial reporting was ineffective as of December&nbsp;31, 2016. In this regard, the Corporation already
revised the disclosure in Part I, Item 4 of its Quarterly Report on Form <FONT STYLE="white-space:nowrap">10-Q</FONT> for the quarter ended March&nbsp;26, 2017, which was filed with the Commission on April&nbsp;26, 2017 (the &#147;Form <FONT
STYLE="white-space:nowrap">10-Q&#148;).</FONT> </P> <P STYLE="margin-top:12pt; margin-bottom:0pt; text-indent:8%; font-size:10pt; font-family:Times New Roman">By way of background, the Corporation disclosed in the Form
<FONT STYLE="white-space:nowrap">10-K</FONT> that there was a material weakness in the Corporation&#146;s internal control over financial reporting as of December&nbsp;31, 2016 </P>
<P STYLE="font-size:24pt;margin-top:0pt;margin-bottom:0pt">&nbsp;</P>
 <p STYLE="margin-top:0pt;margin-bottom:0pt ; font-size:8pt">&nbsp;</P> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Hogan Lovells US LLP is a limited
liability partnership registered in the District of Columbia. &#147;Hogan Lovells&#148; is an international legal practice that includes Hogan Lovells US LLP and Hogan Lovells International LLP, with offices in: Abu Dhabi Alicante Amsterdam
Baltimore Beijing Berlin Brussels Caracas Colorado Springs Denver Dubai Dusseldorf Frankfurt Hamburg Hanoi Ho Chi Minh City Hong Kong Houston London Los Angeles Madrid Miami Milan Moscow Munich New York Northern Virginia Paris Philadelphia Prague
Rome San Francisco Shanghai Silicon Valley Singapore Tokyo Ulaanbaatar Warsaw Washington DC Associated offices: Budapest Jeddah Riyadh Zagreb. For more information see <U>www.hoganlovells.com</U> </P>


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 <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Lyn Shenk </P>
<P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">U.S. Securities and Exchange Commission </P> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">April 28, 2017 </P>
<P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Page 2 </P> <p STYLE="margin-top:0pt;margin-bottom:0pt ; font-size:8pt">&nbsp;</P>
 <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">caused by Sikorsky Aircraft Corporation (&#147;Sikorsky&#148;). The Corporation also disclosed in the Form <FONT
STYLE="white-space:nowrap">10-K</FONT> management&#146;s determination that Sikorsky&#146;s internal control over financial reporting was ineffective as of December&nbsp;31, 2016. The Corporation intended this statement to express that the
Corporation&#146;s management concluded that the Corporation&#146;s internal control over financial reporting was not effective as of December&nbsp;31, 2016 as a result of the disclosed material weakness related to Sikorsky. Under Item 308(a)(3) of
Regulation <FONT STYLE="white-space:nowrap">S-K,</FONT> the Corporation&#146;s management would not have been permitted to reach any other conclusion.<SUP STYLE="font-size:85%; vertical-align:top">1</SUP> </P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; text-indent:8%; font-size:10pt; font-family:Times New Roman">In light of all the disclosure contained in the Form <FONT STYLE="white-space:nowrap">10-K,</FONT> including in Item 9A and in the report of
the Corporation&#146;s independent registered public accounting firm immediately following management&#146;s report in Item 9A, the Corporation believes that the Form <FONT STYLE="white-space:nowrap">10-K</FONT> clearly and unambiguously informs the
reader of management&#146;s conclusion that the Corporation&#146;s internal control over financial reporting was ineffective as of December&nbsp;31, 2016. The Corporation believes that the Form <FONT STYLE="white-space:nowrap">10-K</FONT> as a whole
substantively included the required disclosure. </P> <P STYLE="margin-top:12pt; margin-bottom:0pt; text-indent:8%; font-size:10pt; font-family:Times New Roman">The Corporation further believes that amending the Form
<FONT STYLE="white-space:nowrap">10-K</FONT> is not necessary to inform the Corporation&#146;s shareholders of management&#146;s conclusion regarding the Corporation&#146;s internal control over financial reporting. The amendment could lead an
investor to believe that there had been a change in the Corporation&#146;s conclusion about the effectiveness of its internal control over financial reporting since the filing of the Form <FONT STYLE="white-space:nowrap">10-K.</FONT> As described
above, the Corporation already has included management&#146;s conclusion in Part I, Item 4 on page<B> </B>39<B> </B>of the Form <FONT STYLE="white-space:nowrap">10-Q,</FONT> which is clearly and prominently presented. We have included the revised
disclosure in <U>Appendix A</U> hereto with updates identified by underlined text. The Corporation believes that it has fully informed its shareholders of management&#146;s conclusion that the Corporation&#146;s internal control over financial
reporting was ineffective as of December&nbsp;31, 2016. </P> <P STYLE="margin-top:12pt; margin-bottom:0pt; text-indent:8%; font-size:10pt; font-family:Times New Roman">In addition, the Corporation understands that in similar circumstances, the Staff
has previously not required an amendment be made to a Form <FONT STYLE="white-space:nowrap">10-K</FONT> as long as the registrant provides in its response letter Management&#146;s Report on Internal Control over Financial Reporting for the
applicable fiscal year (See, e.g., Response Letter of ETFS Asian Gold Trust, dated January&nbsp;9, 2015 and Response Letter of Professional Diversity Network, Inc., dated June&nbsp;26, 2015). Accordingly, the Corporation has included as <U>Appendix
B</U> hereto a revised version of Management&#146;s Report on Internal Control over Financial Reporting that expressly states management&#146;s conclusion that the Corporation&#146;s internal control over financial reporting was ineffective as of
December&nbsp;31, 2016 with updates identified by underlined text. </P> <P STYLE="margin-top:12pt; margin-bottom:0pt; text-indent:8%; font-size:10pt; font-family:Times New Roman">In light of the arguments set forth above, the Corporation
respectfully submits that an amendment to the <FONT STYLE="white-space:nowrap">10-K</FONT> is not required to address the Staff&#146;s comment. If you have any questions concerning this letter or if you would like any additional information please
do not hesitate to call me at (410) <FONT STYLE="white-space:nowrap">659-2774,</FONT> Glenn C. Campbell at <FONT STYLE="white-space:nowrap">(410)&nbsp;659-2709</FONT> or Cara Shepley at (410) <FONT STYLE="white-space:nowrap">659-5052.</FONT> </P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; margin-left:52%; font-size:10pt; font-family:Times New Roman">Very truly yours, </P> <P STYLE="margin-top:12pt; margin-bottom:0pt; margin-left:52%; font-size:10pt; font-family:Times New Roman">/s/ Amy
Bowerman Freed </P> <P STYLE="font-size:12pt;margin-top:0pt;margin-bottom:0pt">&nbsp;</P> <P STYLE="margin-top:0pt; margin-bottom:0pt; margin-left:52%; font-size:10pt; font-family:Times New Roman">Amy Bowerman Freed </P>
<P STYLE="margin-top:0pt; margin-bottom:0pt; margin-left:52%; font-size:10pt; font-family:Times New Roman">Partner </P> <P STYLE="margin-top:0pt; margin-bottom:0pt; margin-left:52%; font-size:10pt; font-family:Times New Roman">&nbsp;&nbsp;</P>
<P STYLE="line-height:8.0pt;margin-top:0pt;margin-bottom:2pt;border-bottom:1px solid #000000;width:10%">&nbsp;</P>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><SUP STYLE="font-size:85%; vertical-align:top">1</SUP>&nbsp;</TD>
<TD ALIGN="left" VALIGN="top">Item 308(a)(3) provides that &#147;Management is not permitted to conclude that the registrant&#146;s internal control over financial reporting is effective if there are one or more material&nbsp;weaknesses in the
registrant&#146;s internal control over financial reporting.&#148; </TD></TR></TABLE>

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 <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Lyn Shenk </P>
<P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">U.S. Securities and Exchange Commission </P> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">April 28, 2017 </P>
<P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Page 3 </P> <p STYLE="margin-top:0pt;margin-bottom:0pt ; font-size:8pt">&nbsp;</P>

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<TD WIDTH="4%" VALIGN="top" ALIGN="left">cc:</TD>
<TD ALIGN="left" VALIGN="top">Bruce L. Tanner, Lockheed Martin Corporation </TD></TR></TABLE> <P STYLE="margin-top:0pt; margin-bottom:0pt; margin-left:4%; font-size:10pt; font-family:Times New Roman">Stephen M. Piper, Lockheed Martin Corporation
</P> <P STYLE="margin-top:0pt; margin-bottom:0pt; margin-left:4%; font-size:10pt; font-family:Times New Roman">Glenn C. Campbell, Hogan Lovells US LLP </P>
<P STYLE="margin-top:0pt; margin-bottom:0pt; margin-left:4%; font-size:10pt; font-family:Times New Roman">Cara Shepley, Hogan Lovells US LLP </P>

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 <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman" ALIGN="center"><B>APPENDIX A </B></P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman" ALIGN="center"><B><U>Excerpt from Form <FONT STYLE="white-space:nowrap">10-Q</FONT> for the Quarter Ended March&nbsp;26, 2017 Filed on April&nbsp;26, 2017
</U></B></P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">ITEM 4. Controls and Procedures. </P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B>Evaluation of
Disclosure Controls and Procedures </B></P> <P STYLE="margin-top:6pt; margin-bottom:0pt; text-indent:8%; font-size:10pt; font-family:Times New Roman">We performed an evaluation of the effectiveness of our disclosure controls and procedures as of
March&nbsp;26, 2017. The evaluation was performed with the participation of senior management of each business segment and key Corporate functions, under the supervision of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Based
on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were not effective due to the existence of a previously reported material weakness in internal control over financial reporting at Sikorsky Aircraft
Corporation which we acquired on November&nbsp;6, 2015 and which operates as a business unit of our Rotary and Mission Systems business segment. The material weakness was identified and discussed in &#147;Part II &#150; Item 9A &#150; Controls and
Procedures&#148; of our Annual Report on Form <FONT STYLE="white-space:nowrap">10-K</FONT> for the year ended December&nbsp;31, 2016. </P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; text-indent:8%; font-size:10pt; font-family:Times New Roman">Notwithstanding the identified material weakness, management, including our CEO (principal executive officer) and CFO (principal financial
officer), believes the consolidated financial statements included in this Form <FONT STYLE="white-space:nowrap">10-Q</FONT> fairly represent in all material respects our financial condition, results of operations and cash flows at and for the
periods presented in accordance with U.S. GAAP. </P> <P STYLE="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B>Description of Material Weakness </B></P>
<P STYLE="margin-top:6pt; margin-bottom:0pt; text-indent:8%; font-size:10pt; font-family:Times New Roman">Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system
is designed to provide reasonable assurance to our management and Board of Directors regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes. </P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; text-indent:8%; font-size:10pt; font-family:Times New Roman">Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of December&nbsp;31, 2016.
This assessment was based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control&#151;Integrated Framework (2013 framework). <U>Based on this assessment, because of the effect of the
material weakness at Sikorsky Aircraft Corporation, as described in the following paragraph, management concluded that a material weakness existed in Lockheed Martin&#146;s internal control over financial reporting and as a result, management
determined that Lockheed Martin&#146;s internal control over financial reporting was not effective as of December</U><U></U><U>&nbsp;31, 2016.</U> A material weakness is a deficiency, or combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements could occur but will not be prevented or detected on a timely basis. </P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; text-indent:8%; font-size:10pt; font-family:Times New Roman">Sikorsky was acquired on November&nbsp;6, 2015 and generated about 10% of our total net sales for the year ended December&nbsp;31, 2016. Prior
to 2016, Sikorsky was not included in assessments of the effectiveness of our internal control over financial reporting as the Securities and Exchange Commission (SEC) rules provide companies one year to assess controls at an acquired entity.
Accordingly, during fiscal 2016, we performed our first comprehensive assessment of the design and effectiveness of internal controls at Sikorsky and determined that Sikorsky&#146;s internal control over financial reporting was ineffective as of
December&nbsp;31, 2016. Specifically, Sikorsky did not adequately identify, design and implement appropriate process-level controls for its processes, including Sikorsky&#146;s contract accounting / sales recognition processes, inventory accounting
process and payroll process and appropriate information technology controls for its information technology </P>

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 <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">systems. There were no material errors in the financial results or balances identified as a result of the control
deficiencies, and there was no restatement of prior period financial statements and no change in previously released financial results were required as the result of these control deficiencies. </P>
<P STYLE="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B>Remediation Efforts to Address Material Weakness </B></P>
<P STYLE="margin-top:6pt; margin-bottom:0pt; text-indent:8%; font-size:10pt; font-family:Times New Roman">Management has and will continue to enhance the risk assessment process and design of internal control over financial reporting at Sikorsky.
This includes initiation of compensating controls and enhanced and revised design of existing financial reporting controls, information technology applications and procedures at Sikorsky. We have developed our remediation plan and started
implementing these changes. We expect to begin testing those enhanced controls and procedures already implemented in the second quarter of 2017, and anticipate that the entire remediation plan will be implemented by the third quarter of 2017. The
material weakness will not be considered remediated until the process-level controls and information technology controls effectively operate for a sufficient period of time and management has concluded, through testing, that these controls are
operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of fiscal year 2017. </P> <P STYLE="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B>Changes in
Internal Control Over Financial Reporting </B></P> <P STYLE="margin-top:6pt; margin-bottom:0pt; text-indent:8%; font-size:10pt; font-family:Times New Roman">Other than the steps taken to work towards the remediation of the material weakness
identified above, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules <FONT STYLE="white-space:nowrap">13a-15(d)</FONT> and
<FONT STYLE="white-space:nowrap">15d-15(d)</FONT> of the Exchange Act that occurred during the quarter ended March&nbsp;26, 2017 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
</P>

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 <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman" ALIGN="center"><B>APPENDIX B </B></P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman" ALIGN="center"><B><U>Revised Management&#146;s Report on Internal Control over Financial Reporting </U></B></P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system
is designed to provide reasonable assurance to our management and Board of Directors regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes. </P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of December&nbsp;31, 2016.
This assessment was based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control&#151;Integrated Framework (2013 framework). <U>Based on this assessment, because of the effect of the
material weakness at Sikorsky Aircraft Corporation, as described in the following paragraph, management concluded that a material weakness existed in Lockheed Martin&#146;s internal control over financial reporting and as a result, management
determined that Lockheed Martin&#146;s internal control over financial reporting was not effective as of December</U><U></U><U>&nbsp;31, 2016.</U> A material weakness is a deficiency, or combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements could occur but will not be prevented or detected on a timely basis. </P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">Sikorsky was acquired on November&nbsp;6, 2015 and generated about 10% of our total net sales for the year ended December&nbsp;31, 2016. Prior
to 2016, Sikorsky was not included in assessments of the effectiveness of our internal control over financial reporting as the Securities and Exchange Commission (SEC) rules provide companies one year to assess controls at an acquired entity.
Accordingly, within this period, we performed our first comprehensive assessment of the design and effectiveness of internal controls at Sikorsky and determined that Sikorsky&#146;s internal control over financial reporting was ineffective as of
December&nbsp;31, 2016. Specifically, Sikorsky did not adequately identify, design and implement appropriate process-level controls for its processes and appropriate information technology controls for its information technology systems, including
Sikorsky&#146;s contract accounting / sales recognition processes, inventory accounting process and payroll process. There were no material errors in the financial results or balances identified as a result of the control deficiencies, and there was
no restatement of prior period financial statements and no change in previously released financial results were required as the result of these control deficiencies. </P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">Our independent registered public accounting firm has issued a report expressing an adverse opinion on the effectiveness of our internal
control over financial reporting, which is below. </P> <P STYLE="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B>Remediation Efforts to Address Material Weakness </B></P>
<P STYLE="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">Management has and will continue to enhance the risk assessment process and design of internal control over financial reporting at Sikorsky.
This includes initiation of compensating controls and enhanced and revised design of existing financial reporting controls, information technology applications and procedures at Sikorsky. The material weakness will not be considered remediated until
the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior
to the end of fiscal year 2017. </P>
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