INDUSTRY

Lockheed Martin Corporation today reported third quarter 2006 net earnings of $629 million ($1.46 per diluted share), compared to $427 million ($0.96 per diluted share) in 2005. Net sales were $9.6 billion, a 4% increase over third quarter 2005 sales of $9.2 billion. Cash from operations for the third quarter of 2006 was $652 million. Net sales for the nine months ended September 30, 2006 were $28.8 billion, a 7% increase over the $27.0 billion in the comparable 2005 period. Net earnings for the nine months ended September 30, 2006 were $1.8 billion ($4.12 per share), compared to $1.3 billion ($2.81 per share) in 2005. Cash from operations for the nine months ended September 30, 2006 was $3.5 billion. "Our focus on program execution has driven operational performance to higher levels in each quarter this year, supporting margin expansion, strong growth in our net earnings and a record backlog," said Bob Stevens, Chairman, President and CEO. "This is a tribute to the professionalism of our 140,000 employees who are committed to maintaining the trust and confidence of our customers by providing them with the critical capabilities they require." Summary Reported Results and Outlook The following table presents the Corporation's results for the quarter and year-to-date periods ended September 30, in accordance with generally accepted accounting principles (GAAP): REPORTED RESULTS 3rd Quarter Year-to-Date (In millions, except per 2006 2005 2006 2005 share data) Net sales $9,605 $9,201 $28,780 $26,984 Operating profit Segment operating profit $975 $856 $2,882 $2,483 Unallocated corporate, net: FAS/CAS pension adjustment (70) (155) (206) (466) Unusual items, net 15 - 185 58 Stock compensation expense (26) - (83) - Other, net 11 5 41 25 $905 $706 $2,819 $2,100 Net earnings $629 $427 $1,800 $1,257 Diluted earnings per share $1.46 $0.96 $4.12 $2.81 Cash from operations $652 $893 $3,450 $3,138 2006 OUTLOOK 2006 Projections (In millions, except per Current Update July 2006 share data and percentages) Net sales $39,000 - $39,500 $38,500 - $39,500 Operating profit: Segment operating profit $3,900 - $3,975 $3,825 - $3,925 Unallocated corporate expense, net: FAS/CAS pension adjustment (1) (275) (275) Unusual items, net (1) 185 170 Stock compensation expense (1) (110) (110) Other, net 35 - 50 15 - 40 $3,735 - $3,825 $3,625 - $3,750 Diluted earnings per share $5.45 - $5.60 $5.10 - $5.30 Cash from operations >/= $3,700 >/= $3,600 Return on invested capital (ROIC)(2) >/= 17.5% > 16.5% (1) All amounts "approximate" (2) A summary table showing the calculation of ROIC is displayed at the end of this release The $0.30 - $0.35 increase in projected 2006 diluted earnings per share is driven by operational improvements, primarily in Aeronautics, and the impact of the following third quarter items that are incremental to our July 2006 projection; * A gain on the sale of land that increased operating profit by $31 million ($20 million or $0.05 per share) and expenses associated with the debt exchange that decreased operating profit by $16 million ($11 million or $0.03 per share). Both of these items are included in "Unusual items, net." * A $62 million ($0.14 per share) reduction in income tax expense related to claims for additional export tax benefits for prior years. 2007 OUTLOOK (In millions, except per 2007 Projection share data and percentages) Net sales $41,000 - $42,000 Operating profit: Segment operating profit $4,150 - $4,275 Unallocated corporate expense, net: FAS/CAS pension adjustment (1) (130) Unusual items - Stock compensation expense (1) (150) Other (1) 70 $3,940 - $4,065 Diluted earnings per share $5.60 - $5.80 Cash from operations >/= $3,800 ROIC > 17.5% (1) All amounts "approximate" The outlook for 2007 operating profit and earnings per share assumes that the Corporation's 2007 non-cash FAS/CAS pension adjustment will be calculated using a discount rate of 6.0%, and the actual return on plan assets in 2006 will be 8.5%. The 2007 non-cash FAS/CAS pension adjustment and related assumptions will not be finalized until year-end 2006, consistent with the Corporation's pension plan measurement date. The Corporation will update its FAS/CAS pension adjustment, as necessary, when it announces 2006 year-end financial results. It is the Corporation's practice not to incorporate adjustments to its outlook and projections for proposed acquisitions, divestitures, joint ventures, or other unusual activities until such transactions have been consummated. Cash Flow and Leverage Cash from operations for the quarter and nine months ended September 30, 2006 was $652 million and $3.5 billion. The Corporation continued to execute its balanced cash deployment strategy as follows: * Invested $609 million in the third quarter and $1.1 billion year-to-date for acquisition activities; * Paid $353 million to complete the debt exchange in the third quarter and repaid $200 million of long-term debt year-to-date; * Repurchased 3.8 million shares at a cost of $317 million in the quarter and 25.3 million shares at a cost of $1.9 billion year-to-date; * Made capital expenditures of $190 million in the quarter and $453 million year-to-date; and * Paid cash dividends of $128 million in the quarter and $389 million year-to-date. The Corporation's ratio of total debt-to-capitalization was 36% at the end of the third quarter, 3% lower than the December 31, 2005 level. At September 30, 2006, the Corporation had $2.7 billion in cash and short-term investments. Segment Results The Corporation operates in five principal business segments: Electronic Systems, Information & Technology Services (I&TS), Integrated Systems & Solutions (IS&S), Aeronautics, and Space Systems. The results of Electronic Systems, I&TS and IS&S have been aggregated and reported as the Systems & IT Group due to the common focus on information technology, systems integration and engineering solutions across these segments. Consistent with the manner in which the Corporation's business segment operating performance is evaluated, unusual items are excluded from segment results and included in "Unallocated corporate (expense) income, net." See our 2005 Form 10-K for a description of "Unallocated corporate (expense) income, net," including the FAS / CAS pension adjustment. The following table presents the operating results of the Systems & IT Group, Aeronautics and Space Systems and reconciles these amounts to the Corporation's consolidated financial results. (In millions) 3rd Quarter Year-to-Date 2006 2005 2006 2005 Net sales Systems & IT Group Electronic Systems $2,758 $2,493 $8,274 $7,490 Information & Technology Services 1,147 989 3,142 2,832 Integrated Systems & Solutions 1,067 1,051 3,172 3,061 Systems & IT Group 4,972 4,533 14,588 13,383 Aeronautics 2,778 2,987 8,267 8,632 Space Systems 1,855 1,681 5,925 4,969 Total net sales $9,605 $9,201 $28,780 $26,984 Operating profit Systems & IT Group Electronic Systems $281 $264 $937 $791 Information & Technology Services 111 93 286 250 Integrated Systems & Solutions 99 92 292 269 Systems & IT Group 491 449 1,515 1,310 Aeronautics 308 253 809 720 Space Systems 176 154 558 453 Segment operating profit 975 856 2,882 2,483 Unallocated corporate expense, net (70) (150) (63) (383) Total operating profit $905 $706 $2,819 $2,100 The following discussion compares the operating results for the quarter and nine months ended September 30, 2006 to the same periods in 2005. Systems & IT Group ($ millions) 3rd Quarter Year-to-Date 2006 2005 2006 2005 Net sales $4,972 $4,533 $14,588 $13,383 Operating profit $491 $449 $1,515 $1,310 Net sales for the Systems & IT Group increased by 10% for the quarter and 9% for the nine months ended September 30, 2006 from the 2005 periods. Each of the business segments in the group reported sales growth during the quarter and the nine-month periods. Electronic Systems' sales increased due to higher volume in platform integration activities at Platform, Training & Transportation Solutions (PT&TS) and surface system programs at Maritime Systems & Sensors (MS2) for both the quarter and nine-month periods. Sales at Missiles & Fire Control (M&FC) increased during the quarter due to tactical missile programs and increased for the nine-month period due to air defense programs. In I&TS, the quarterly sales increase was primarily due to higher volume in Information Technology and Defense Services programs. For the year-to-date period, the increase in sales was attributable to higher volume in both Information Technology and Defense Services, which was partially offset by reduced volume in NASA programs. In IS&S, for both the quarter and year-to-date periods, the increases in sales were primarily attributable to higher volume and performance related to intelligence, defense and information assurance activities. Operating profit for the Systems & IT Group increased by 9% for the quarter and 16% for the nine months ended September 30, 2006 compared to the 2005 periods. Each of the business segments in the group reported growth in operating profit during the three and nine-month periods. In Electronic Systems, the increase in operating profit during the third quarter was attributable to improved performance in distribution technology activities at PT&TS, and volume and improved performance on surface systems programs at MS2. For the nine-month period, Electronic Systems' operating profit increased due to higher volume and improved performance on simulation and training activities at PT&TS and improved performance on radar programs at MS2 and fire control programs at M&FC. For both the quarter and year-to-date periods, the increases in I&TS were primarily due to higher volume in Information Technology and Defense Services. In IS&S, for both the quarter and nine months, the increases were primarily attributable to higher volume and performance related to intelligence, defense and information assurance activities. Aeronautics ($ millions) 3rd Quarter Year-to-Date 2006 2005 2006 2005 Net sales $2,778 $2,987 $8,267 $8,632 Operating profit $308 $253 $809 $720 Net sales for Aeronautics decreased as previously projected by 7% for the quarter and by 4% for the nine months ended September 30, 2006 from the 2005 periods. During the quarter, sales declined in both Air Mobility and Combat Aircraft. The decline in Air Mobility was mainly due to lower volume on the C-130 and C-5 programs. The decrease in Combat Aircraft was due to lower volume on F-16 programs, which was partially offset by increases in F-35 and F-22 volume. For the nine-month period, a decline in Air Mobility sales was partially offset by a slight increase in Combat Aircraft sales. The decline in Air Mobility was attributable to fewer C-130J deliveries and lower volume on the C-5 program. The increase in Combat Aircraft sales was mainly due to higher F-35 volume, partially offset by reduced volume on F-16 programs. Segment operating profit increased by 22% for the quarter and by 12% for the nine months ended September 30, 2006 from the 2005 periods. During the quarter, operating profit increased in both Combat Aircraft and Air Mobility. In Combat Aircraft, operating profit increased due to improved performance on the F-22 and F-16 programs and higher F-35 volume. The increase in Air Mobility was mainly due to improved performance on C-130J sustainment activities in 2006. For the nine-month period, operating profit increased in both Combat Aircraft and Air Mobility. The increase in Combat Aircraft was due to higher operating profit on the F-35 program, which was partially offset by lower operating profit on the F-22 program. These fluctuations were attributable to the fact that in 2005, operating profit included a reduction in earnings on the F-35 program and increased volume and improved performance on the F-22 program. In Air Mobility, the increase was due to improved performance on C-130J sustainment activities. Space Systems ($ millions) 3rd Quarter Year-to-Date 2006 2005 2006 2005 Net sales $1,855 $1,681 $5,925 $4,969 Operating profit $176 $154 $558 $453 Net sales for Space Systems increased by 10% for the quarter and 19% for the nine months ended September 30, 2006 from the 2005 periods. For both the quarter and nine-month periods, the sales growth was mainly due to higher volume on both commercial and government satellite programs. There was one commercial satellite delivery in the third quarter of 2006 and four in the nine months of 2006, compared to no deliveries during the comparable 2005 periods. In Launch Services, sales remained relatively unchanged for the quarter and nine months ended September 30, 2006. Sales growth in Strategic & Defensive Missile Systems (S&DMS) due to higher volume in both fleet ballistic missile and missile defense programs also contributed to the sales increase for the nine-month period. Segment operating profit increased by 14% for the quarter and 23% for the nine months ended September 30, 2006, compared to the 2005 periods. For the quarter, operating profit increases in Launch Services were partially offset by a slight decline in Satellites. In Launch Services, the increase was mainly due to the Atlas program, including activities associated with the EELV Launch Capability (ELC) contract. For the nine months, operating profit increased in all three of the segment's lines of business. In Launch Services, the increase was driven by improved performance on the Atlas Program resulting from risk reduction activities, including the first quarter definitization of the ELC contract. In S&DMS, the increase was due to higher volume and improved performance on the programs discussed above, while the growth in Satellites was primarily driven by the increase in commercial satellite deliveries. Unallocated Corporate (Expense) Income, Net ($ millions) 3rd Quarter Year-to-Date 2006 2005 2006 2005 FAS/CAS pension adjustment $(70) $(155) $(206) $(466) Unusual items, net 15 - 185 58 Stock compensation expense (26) - (83) - Other, net 11 5 41 25 Unallocated corporate (expense) income, net $(70) $(150) $(63) $(383) The FAS/CAS pension adjustment (calculated as the difference between FAS 87 expense and the CAS cost amounts) decreased in 2006 compared to 2005. This decrease is consistent with the Corporation's previously disclosed assumptions used in computing these amounts. Certain items are excluded from segment results as part of senior management's evaluation of segment operating performance. Therefore, for purposes of segment reporting, the following unusual items were included in "Unallocated Corporate (expense) income, net" for the quarters and nine months ended September 30, 2006 and 2005: 2006 -- * A third quarter gain, net of state income taxes, of $31 million related to the sale of land; * A third quarter charge, net of state income taxes, of $16 million related to the debt exchange; * A second quarter gain, net of state income taxes, of $20 million related to the sale of land; * A first quarter gain, net of state income taxes, of $127 million related to the sale of 21 million of our shares of Inmarsat; and * A first quarter gain, net of state income taxes, of $23 million, related to the sale of the assets of Space Imaging, LLC. These items increased our net earnings by $9 million ($0.02 per share) and $120 million ($0.27 per share) during the quarter and nine months ended September 30, 2006. 2005 -- * A second quarter recognition of a deferred gain, net of state income taxes, of $41 million related to the June 2005 initial public offering of shares of Inmarsat; * A first quarter gain, net of state income taxes, of $47 million related to the sale of our 25% interest in Intelsat, Ltd.; and * A first quarter charge, net of state income tax benefits, of $30 million related to impairment in the value of a single telecommunications satellite operated by one of our wholly-owned subsidiaries. On a net basis, these items increased our net earnings by $39 million ($0.09 per share) during the nine months ended September 30, 2005. The Corporation adopted FAS 123(R) "Share-Based Payments" prospectively on January 1, 2006 and recognized stock compensation expense on stock options and grants of other stock-based incentive awards during the third quarter of $26 million ($17 million after-tax or $0.04 per share) and $83 million ($52 million after-tax or $0.12 per share) for year-to-date 2006. Income Taxes The Corporation's effective tax rate for the third quarter of 2006 was 23% and reflects a $62 million ($0.14 per share) reduction in income tax expense related to claims filed with the Internal Revenue Service for additional export tax benefits for sales in previous years. This item reduced the effective tax rates for the quarter and nine months ended September 30, 2006 by 7.6% and 2.4%, respectively. A similar benefit was not recognized in our prior year results. Headquartered in Bethesda, Md., Lockheed Martin employs approximately 140,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. The Corporation reported 2005 sales of $37.2 billion. Web site: its Web site Conference call: Lockheed Martin will webcast the earnings conference call (listen-only mode) at 11 a.m. E.T. on October 24, 2006. A live audio broadcast, including relevant charts, will be available on the Investor Relations page of the company's web site at: its Web site.