We are furnishing these proxy materials in connection with the solicitation of proxies, on behalf of your Board of Directors (the “Board”), to be voted at our 2008 Annual Meeting of Stockholders (the “Annual Meeting”) and at any adjournment or postponement. Lockheed Martin Corporation (the “Corporation”) is a Maryland corporation.

You are invited to attend our Annual Meeting, which will be held on April 24, 2008, at 10:30 a.m., Central Daylight Time, at the Sheraton Arlington Hotel, 1500 Convention Center Drive, Arlington, Texas 76011. Directions to the meeting appear at the back of this Proxy Statement at Appendix F.

We began mailing the notice, Proxy Statement and proxy card for the Annual Meeting, and our Annual Report, to stockholders on or about March 14, 2008.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be Held on April 24, 2008.

The Proxy Statement and Annual Report are available at

http://www.lockheedmartin.com/investor.

Questions and Answers

Do I need a ticket to attend the Annual Meeting?

You will need an admission ticket (or proof of ownership) and a form of valid photo identification to attend the Annual Meeting. An admission ticket is attached to your proxy card. Please detach the ticket and bring it with you to the meeting. If you vote electronically by the Internet, you will be guided to an online site where you will be able to print an admission ticket. If you hold shares through an account with a bank or broker, you will need to contact your bank or broker and request a legally valid proxy from the owner of record to vote your shares. This will serve as your admission ticket.

A recent brokerage statement or letter from your broker showing that you owned Lockheed Martin stock in your account as of March 3, 2008 (the “Record Date”) also will qualify you for admission. In that case, you will not be able to vote your shares, since they only may be voted by the record holder or a valid proxy holder.

If you do not have an admission ticket (or proof of ownership) and valid photo identification, you will not be admitted to the Annual Meeting. As a safety measure, all attendees must leave any bags, briefcases or packages at the registration desk prior to entering the meeting room.

Will the Annual Meeting be webcast?

Yes. We will webcast the Annual Meeting live on April 24, 2008. You are invited to visit http://www.lockheedmartin.com/investor at 10:30 a.m., Central Daylight Time, on April 24, 2008 to access the live webcast. Registration for the webcast is required. Stockholders who wish to access the webcast should pre-register on our website. Listening to our Annual Meeting webcast will not represent attendance at the meeting, and you will not be able to cast your vote as part of the live webcast.

Who is entitled to vote at the Annual Meeting?

Holders of our common stock, $1 par value per share, at the close of business on March 3, 2008 are entitled to vote their shares at the Annual Meeting. As of the Record Date, there were 404,972,360 shares outstanding. Each share outstanding on the Record Date is entitled to one vote on each proposal presented at the Annual Meeting. This includes shares held through Direct Invest, our dividend reinvestment and stock purchase plan or through our employee benefit plans. Your proxy card shows the number of shares held in your account(s).

What is the difference between holding shares as a registered stockholder and as a beneficial owner?

If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered the “registered stockholder” of those shares. We mail the proxy materials and our 2007 Annual Report to you directly.

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial owner” of the shares that are registered in street name. In this case, the proxy materials and our 2007 Annual Report were forwarded to you by your broker, bank or other nominee who is considered the registered stockholder. As the beneficial owner, you have the right to direct your broker, bank or other nominee how to vote your shares by following the voting instructions included in the mailing.

Employees with shares allocated in an employee benefit plan account will not receive a paper mailing and should review the information on procedures for employees on page 3.

What am I voting on and what are the Board’s voting recommendations?

Our stockholders will be voting on the following items which are described in more detail beginning on page 63:

Can other matters be decided at the Annual Meeting?

At the time the Proxy Statement went to press, we were not aware of any other matters to be presented at the Annual Meeting.

If other matters are properly presented for consideration at the Annual Meeting, the proxy holders appointed by your Board (who are named in your proxy card if you are a registered stockholder) will have the discretion to vote on those matters for you in accordance with their best judgment.

How do I vote?

If your shares are registered in your name, you may vote using any of the methods described below. If your shares are held in the name of a broker, bank or other nominee, your nominee will provide you with voting instructions.

Internet or By Telephone

Our Internet and telephone voting procedures for registered stockholders are designed to authenticate

your identity, allow you to give your voting instructions and confirm that those instructions are properly recorded.

You may access the Internet voting site at http://www.investorvote.com. Please have your proxy card in hand when you go online. You will receive instructional screen prompts to guide you through the voting process. You also will have the ability to confirm your voting selections before your vote is recorded.

You can vote by calling toll free 1-800-652-8683 within the U.S., Canada and Puerto Rico or 1-781-575-2300 from outside the U.S. Please have your proxy card in hand when you call. You will receive voice prompts to guide you through the process, and an opportunity to confirm your voting selections before your vote is recorded.

Internet and telephone voting facilities for registered stockholders will be available 24 hours a day up until 11:59 p.m., Eastern Daylight Time, on April 23, 2008. If you vote on the Internet or by telephone, you do not have to return your proxy card.

The availability of Internet and telephone voting for beneficial owners will depend on the voting processes of your broker, bank or other nominee. We recommend that you follow the voting instructions in the materials that you receive from your nominee.

By Mail

Simply mark, date and sign the proxy card and return it in the postage-paid envelope provided.

If you want to vote in accordance with the Board’s recommendations, simply sign, date and return the proxy card. The named proxy holders will vote unmarked proxy cards per the Board’s recommendations.

If you are a registered stockholder, and the postage-paid envelope is missing, please mail your completed proxy card to Lockheed Martin Corporation, c/o Computershare Investor Services, P.O. Box 43116, Providence, RI 02940-5107.

In person at the Annual Meeting

All stockholders may vote in person at the Annual Meeting. Voting your proxy electronically by the Internet, telephone or mail does not limit your right to vote at the Annual Meeting. You also may be represented by another person at the Annual Meeting by executing a legally valid proxy designating that person to vote on your behalf. If you are a beneficial owner of shares, you must obtain a legally valid proxy from your broker, bank or other nominee and present it to the inspectors of election with your ballot to be able to vote at the Annual Meeting. A legally valid proxy is an authorization from your broker, bank or other nominee to vote the shares held in the nominee’s name that satisfies Maryland law and Securities and Exchange Commission (“SEC”) requirements for proxies.

Your vote is important. You can save us the expense of a second mailing by voting promptly, even if you plan to attend the Annual Meeting.

Can I change my proxy vote?

Yes. If you are a registered stockholder, you can change your proxy vote or revoke your proxy at any time before the Annual Meeting by:

If you are a beneficial owner of shares, you may submit new voting instructions by contacting your bank, broker or other nominee. You also may vote in person at the Annual Meeting if you obtain a legally valid proxy from the registered stockholder as described in the answer to the previous question.

Your personal attendance at the Annual Meeting does not revoke your proxy. Your last vote, prior to or at the Annual Meeting, is the vote that will be counted.

What if I return my proxy card but do not provide voting instructions?

Proxies that are signed and returned but do not contain voting instructions will be voted:

How do I vote if I participate in one of the Corporation’s 401(k) or Defined Contribution Plans?

As a participant in one of the Corporation’s 401(k) or defined contribution plans, you may direct the plan trustees how to vote shares allocated to your account(s) on a proxy voting direction card, by telephone, or electronically by the Internet. Most active employees who participate in the Corporation’s savings plans will receive an email notification announcing Internet availability of this Proxy Statement and how to submit proxies or voting directions. If you do not provide timely directions to the plan trustee, shares allocated to your account will be voted by the plan trustee depending on the terms of your plan or other legal requirements.

Plan participants are entitled to attend the Annual Meeting, but may not vote plan shares at the Annual Meeting. If you wish to vote, whether you plan to attend the Annual Meeting or not, you should direct the trustee of your plan(s) how you wish to vote your plan shares.

How many shares or votes must be present to hold the Annual Meeting?

In order for us to conduct our Annual Meeting, a majority of the shares outstanding and entitled to vote as of March 3, 2008 must be present in person or by proxy. This is referred to as a quorum. Your shares are counted as present at the Annual Meeting if you attend

the Annual Meeting and vote in person or if you properly return a proxy by Internet, telephone or mail. We will count abstentions and broker non-votes for purposes of determining whether a quorum exists at the meeting.

Will my shares be voted if I do not provide my proxy or instruction form?

If you are a registered stockholder, your shares will not be voted unless you provide a proxy or vote in person at the Annual Meeting. If you are a participant in one of the Corporation’s 401(k) or defined contribution plans and you do not provide timely directions to the plan trustee, shares allocated to your account will be voted by the plan trustee depending on the terms of your plan or other legal requirements. If you hold shares through an account with a bank, broker or other nominee and you do not provide voting instructions, your shares still may be voted on certain matters.

Brokerage firms have authority under New York Stock Exchange (“NYSE”) rules to vote shares on routine matters for which their customers do not provide voting instructions. The election of directors, the ratification of Ernst & Young LLP as our independent registered public accounting firm for 2008 and Management Proposal 3 are considered routine matters. Management Proposals 4, 5 and 6 and the stockholder proposals are not considered routine. If a proposal is not routine and the brokerage firm does not receive voting instructions from the beneficial owner, the brokerage firm cannot vote the shares on that proposal. Shares for which a broker is not authorized to vote are known as “broker non-votes.” Because we require the affirmative vote of a majority of the outstanding shares to approve a proposal, broker non-votes have the effect of a negative vote on each of the management and stockholder proposals.

What are the voting requirements to elect directors and approve each of the proposals?

The affirmative vote of a majority of the votes entitled to be cast at a meeting, duly called and at which a quorum is present, is required to take or authorize

action upon any matter that properly may come before the meeting, unless applicable law or our Charter provides otherwise for a particular matter. A higher voting standard is required to approve one of management’s proposals. The voting standards are as follows:

For the election of directors, a vote withheld from a nominee for director has the effect of a vote against that nominee. For the vote for each director, the ratification of the selection of Ernst & Young LLP, the management proposals and each of the stockholder proposals, an abstention has the effect of a vote against the proposal.

Who will count the votes?

Representatives of our transfer agent, Computershare Trust Company, N.A., will tabulate the votes and act as inspectors of election for the 2008 Annual Meeting.

What is “householding” and how does it affect me?

We have adopted a procedure approved by the SEC called “householding.” Under this procedure, we send only one Annual Report and Proxy Statement to eligible stockholders who share a single address, unless we have received instructions to the contrary from any stockholder at that address. This practice is designed to reduce our printing and postage costs. Stockholders who participate in householding will continue to receive separate proxy cards. We do not use householding for any other stockholder mailings, such as dividend checks, Forms 1099 or account statements.

If you are eligible for householding, but receive multiple copies of the Annual Report and Proxy Statement and prefer to receive only a single copy of each of these documents for your household, please contact our transfer agent, Computershare Trust Company, N.A., Shareholder Relations, P.O. Box 43023, Providence, RI 02940-3023 or call 1-877-498-8861. If you are a registered stockholder residing at an address with other registered stockholders and wish to receive a separate Annual Report or Proxy Statement in the future, please contact Computershare as indicated above. If you own shares through a bank, broker or other nominee, you should contact the nominee concerning householding procedures.

Can I receive a copy of the 2007 Annual Report?

Yes. We will provide a copy of our 2007 Annual Report without charge, upon written request, to any registered or beneficial owner of common stock entitled to vote at the Annual Meeting. Requests should be made in writing addressed to Investor Relations, Lockheed Martin Corporation, 6801 Rockledge Drive, Bethesda, MD 20817, by calling Lockheed Martin Shareholder Direct at 1-800-568-9758 or by accessing the Corporation’s website at http://www.lockheedmartin.com/investor. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy statements and other information regarding Lockheed Martin.

Can I view the Proxy Statement and Annual Report on the Internet?

Yes. The Proxy Statement and Annual Report are available on the Internet at http://www.lockheedmartin.com/investor. All stockholders will receive paper copies of the Proxy Statement, proxy card and Annual Report by mail unless the stockholder has consented to electronic delivery or is an employee with shares allocated in an employee benefit plan as noted immediately below.

Can I choose to receive the Proxy Statement and Annual Report on the Internet instead of receiving them by mail?

Yes. If you are a registered or beneficial stockholder, you can elect to receive future Annual Reports and Proxy Statements on the Internet only and not receive copies in the mail by visiting http://investor.shareholder.com/lmt/shareholder.cfm and completing the online consent form. Your request for electronic transmission will remain in effect for all future Annual Reports and Proxy Statements, unless withdrawn. Withdrawal procedures also are located at this website.

Most active employees who participate in the Corporation’s savings plans will receive an email notification announcing Internet availability of the 2007 and future editions of the Annual Report and Proxy Statement. A paper copy will not be provided unless requested by the employee.

Who pays for the cost of this proxy solicitation?

The Corporation pays for the cost of soliciting proxies on behalf of the Board for the Annual Meeting. We may solicit proxies by mail, telephone, Internet or in person. We may make arrangements with brokerage houses and other custodians, nominees, and fiduciaries to send proxy material to beneficial owners on our behalf. We reimburse them for their reasonable expenses. We have retained Morrow & Co., LLC to aid in the solicitation of proxies and to verify related records at a fee of $45,000 plus expenses. To the extent necessary to ensure sufficient representation at the Annual Meeting, we may request the return of proxies by mail, express delivery, courier, telephone, Internet or other means. Stockholders are requested to return their proxies without delay.

How do I submit a proposal for the Annual Meeting of Stockholders in 2009?

Any stockholder who wishes to submit a proposal for consideration at the 2009 Annual Meeting and for inclusion in the 2009 Proxy Statement should send their proposal to:

Lockheed Martin Corporation

Attention: Vice President and Corporate Secretary

6801 Rockledge Drive

Bethesda, MD 20817.

Proposals must be received no later than November 14, 2008 and satisfy the requirements under applicable SEC Rules (including SEC Rule 14a-8) to be included in the Proxy Statement and on the proxy card that will be used for solicitation of proxies by the Board for the 2009 Annual Meeting.

Our Bylaws also require advance notice of any proposal by a stockholder to be presented at the Annual Meeting that is not included in our Proxy Statement and on the proxy card, including any proposal for the nomination of a director for election. To be properly brought before the 2009 Annual Meeting, written nominations for directors or other business to be introduced by a stockholder must be received between the dates of November 14, 2008 and December 14, 2008, inclusive. A notice of a stockholder proposal must contain information required by our Bylaws about the matter to be brought before the meeting and about the stockholder proponent. Waiver of these requirements by us in a particular instance does not constitute a waiver applicable to any other stockholder proposal, nor does it obligate us to waive the requirements for future submissions. A list of the information which is required to be included in a stockholder proposal may be found in Section 1.11 of our Bylaws at http://www.lockheedmartin.com/investor.

How can I contact the Corporation’s non-management directors?

Stockholders may communicate confidentially with the presiding director or with the non-management directors as a group. If you wish to raise a question or concern to

the presiding director or the non-management directors as a group, you may do so by contacting:

Mr. James R. Ukropina

Chairman, Nominating and Corporate Governance Committee

or

Directors

c/o Nominating and Corporate Governance Committee

Lockheed Martin Corporation

6801 Rockledge Drive, MP 220

Bethesda, MD 20817.

Our Vice President and Corporate Secretary reviews all correspondence sent to the Board. The Board has authorized our Vice President and Corporate Secretary to respond to correspondence regarding routine stockholder matters and services (e.g., stock transfer, dividends, etc.). Correspondence from stockholders relating to accounting, internal controls or auditing matters are immediately brought to the attention of the Audit Committee. All other correspondence is forwarded to the Chairman of the Nominating and Corporate Governance Committee who determines whether distribution to the full Board for review is appropriate. Any director may at any time review a log of all correspondence addressed to the Board and request copies of such correspondence.

Can I find additional information on the Corporation’s website?

Yes. Although the information contained on our website is not part of this Proxy Statement, you will find information about the Corporation and our corporate governance practices at http://www.lockheedmartin.com/investor. Our website contains information about our Board, Board committees, our Charter and Bylaws, Code of Ethics and Business Conduct, Corporate Governance Guidelines, and information about insider transactions. Stockholders may obtain, without charge, hard copies of the above documents by writing to:

Investor Relations

Lockheed Martin Corporation

6801 Rockledge Drive

Bethesda, MD 20817.

Corporate Governance Guidelines

Lockheed Martin is committed to maintaining and practicing the highest standards of ethics and corporate governance. The Board has adopted Corporate Governance Guidelines that describe the framework within which the Board and its Committees oversee the governance of the Corporation. The current guidelines are included as Appendix A to the Proxy Statement and posted at http://www.lockheedmartin.com/investor.

The guidelines contain the Board’s views on a number of governance topics. They reflect our commitment to, and appreciation of, the importance of good governance in protecting and enhancing stockholder value. Our governance guidelines are not static. The Nominating and Corporate Governance Committee (“Governance Committee”) of the Board regularly assesses our governance practices in light of new or emerging trends and practices.

Our guidelines cover a wide range of subjects, including: the role of the Board and director responsibilities; the designation of a presiding director; director independence standards; director nomination procedures and qualifications; a comprehensive Code of Ethics and Business Conduct; procedures for annual evaluations of the Board, its committees and directors; director stock ownership; a clawback policy for executive incentive compensation; and a policy for the review, approval and ratification of related person transactions.

The Board has approved an amendment to the Corporate Governance Guidelines that will become effective if stockholders approve Proposal 3 to amend the Charter to provide for “simple” majority voting. The amendment to the Corporate Governance Guidelines is set forth as part of Appendix B. The amendment sets forth the Board’s expectation that any nominee who fails to receive a majority of the votes cast for election would submit his or her resignation to the Board and provides procedures for the Board to use in considering whether to accept or reject the resignation. If stockholders do not approve Proposal 3 to amend the Charter, the described changes to the Corporate Governance Guidelines will not be implemented.

Described below are some of the significant corporate governance practices that have been instituted by the Board.

Role of the Board of Directors

The Board plays an active role in overseeing management and representing the interests of stockholders. Directors are expected to attend all Board meetings, the meetings of committees on which they serve and the Annual Meeting of Stockholders. Directors also are frequently consulted for advice and counsel between formal meetings.

In 2007, the Board met a total of 10 times. All directors attended at least 75% of the total board and committee meetings to which they were assigned in 2007. All directors attended the 2007 Annual Meeting of Stockholders.

Presiding Director

Our Corporate Governance Guidelines provide for the Chairman of the Governance Committee to preside over all executive sessions of the independent directors. In addition to presiding over executive sessions of the non-management directors, the Presiding Director also serves as a contact person to facilitate communications among stockholders, the non-management directors, the Corporation’s management and employees, and other constituents. Mr. James R. Ukropina currently serves as our Presiding Director.

Code of Ethics and Business Conduct

At Lockheed Martin, ethics is part of our history and culture. We are committed to ethical behavior in all that we do. This is reflected in our vision statement “Powered by Innovation, Guided by Integrity, We Help Our Customers Achieve Their Most Challenging Goals,” and our value statements: “Do What’s Right;” “Respect Others;” and “Perform with Excellence.”

We have had an ethics code in place since the Corporation was formed in 1995, well before codes became fashionable or required for stock exchange listing. We and our heritage companies were among the first in the aerospace and defense industry to adopt an ethics code.

Our Code of Ethics and Business Conduct, “Setting the Standard,” applies to all directors, officers, and employees. It sets forth our policies and expectations on a number of topics, including our commitment to good citizenship and integrity, promoting a positive

and safe work environment, transparency in our public disclosures, avoiding conflicts of interest, confidentiality, preservation and use of company assets, compliance with laws (including insider trading laws), and business ethics.

We also maintain a toll-free ethics help line for employees as a means of raising concerns or seeking advice. The help line is available to all employees worldwide, 7 days a week, 24 hours a day. Employees using the help line may choose to remain anonymous. All help line inquiries are forwarded to the Corporation’s Office of Ethics and Business Conduct. Our Ethics Office is headed by our Vice President - Ethics and Business Conduct who reports directly to the Chief Executive Officer (“CEO”) and the Ethics and Corporate Responsibility Committee of the Board. Any matters reported to our Ethics Office, whether through the help line or otherwise, involving accounting, internal control or audit matters, or any fraud involving management or persons who have a significant role in the Corporation’s internal controls, also are reported directly to the Audit Committee.

Each of our directors and employees participate in annual ethics training, which consists of a live training session. We also devote significant resources to our business conduct compliance training program. In 2007, our employees completed over 500,000 on-line business conduct compliance training modules.

Our Code of Ethics and Business Conduct is posted on our website at http://www.lockheedmartin.com/investor. Printed copies of our Code may be obtained, without charge, by contacting Investor Relations, Lockheed Martin Corporation, 6801 Rockledge Drive, Bethesda, MD 20817.

In 2007, there were no waivers from any provisions of our Code or amendments applicable to any director or executive officer. It is our intent to disclose any such waivers or amendments promptly to stockholders by posting on our website.

Identifying and Evaluating Nominees for Directors

Each year, the Governance Committee recommends to the Board the slate of directors to serve as management’s nominees for election by the stockholders at the Annual Meeting. The process for

identifying and evaluating candidates to be nominated to the Board starts with an evaluation of a candidate by the Chairman of the Governance Committee followed by the entire Governance Committee and the CEO. Director candidates may also be identified by stockholders. The Corporation also has utilized outside search firms, including Korn/Ferry International and Russell Reynolds Associates, to identify potential candidates.

Stockholder Nominees

Stockholder proposals for nominations to the Board should be submitted to the Nominating and Corporate Governance Committee, care of the Vice President and Corporate Secretary, at 6801 Rockledge Drive, Bethesda, MD 20817. To be considered by the Board for nomination at the 2009 Annual Meeting, written notice of nominations by a stockholder must be received between the dates of November 14, 2008 and December 14, 2008, inclusive.

The information requirements for any stockholder proposal or nomination can be found in Section 1.11 of our Bylaws, at http://www.lockheedmartin.com/investor. A summary of the requirements can be found in the “General Information” section of this Proxy Statement on page 6. Self-nominations will not be considered. Proposed stockholder nominees are presented to the Chairman of the Governance Committee, who decides if further consideration should be given to the nomination by the Governance Committee.

Director Qualifications

The Board seeks a diverse group of candidates who at a minimum possess the background, skills, expertise and time to make a significant contribution to the Board, the Corporation, and its stockholders. The Governance Committee annually reviews and establishes the criteria for selection of director nominees. The criteria used by the Governance Committee in nominating the current slate of nominees include the following:

Nominees for Election at 2008 Annual Meeting

There are 13 nominees for election to the Board at the Annual Meeting. Their biographical information starts on page 63. Each nominee currently serves as a director, except Mr. Burritt who is a nominee for the first time. Each nominee was recommended for nomination by the Governance Committee of the Board. Two of our current directors, Marcus C. Bennett and Eugene F. Murphy, are retiring from the Board at the 2008 Annual Meeting. The Governance Committee has determined that all of the current directors and nominees, except for Mr. Stevens, are independent under the listing standards of the NYSE and our Corporate Governance Guidelines.

The Board ratified the slate of nominees and recommends that the stockholders vote for the election of all of the individuals nominated by the Board.

Director Independence

Under applicable NYSE listing standards, a majority of the Board and each member of the Audit Committee, Governance Committee, and Management Development and Compensation Committee (“Compensation Committee”) must be independent.

Under the NYSE rules and our Corporate Governance Guidelines, a director is not independent if the director has a direct or indirect material relationship with the Corporation. The Governance Committee annually reviews the independence of all directors and reports its findings to the full Board. To assist in this review, the Board has adopted director independence guidelines that are included in our overall Corporate Governance Guidelines.

Our director independence guidelines set forth certain relationships between the Corporation and directors

and their immediate family members, or affiliated entities, that the Board, in its judgment, has deemed to be material or immaterial for purposes of assessing a director’s independence. In the event a director has a relationship with the Corporation that is not addressed in the independence guidelines, the independent members of the Board determine whether such relationship is material.

The Board has determined that the following directors are independent: E. C. “Pete” Aldridge, Jr., Nolan D. Archibald, Marcus C. Bennett, James O. Ellis, Jr., Gwendolyn S. King, James M. Loy, Douglas H. McCorkindale, Eugene F. Murphy, Joseph W. Ralston, Frank Savage, James M. Schneider, Anne Stevens, James R. Ukropina and that Douglas C. Yearley was independent during his tenure with the Board in 2007. The Board also determined that Mr. Burritt, a nominee for election at the 2008 Annual Meeting, is independent. As Chairman, President and CEO, Robert J. Stevens is an employee of the Corporation and is not independent under the NYSE listing standards or our Corporate Governance Guidelines.

In determining that each of the non-management directors or nominees is independent, the Board considered the relationships described under “Certain Relationships and Related Person Transactions of Directors, Executive Officers and 5 Percent Stockholders,” on page 10, which it determined were immaterial to the individual’s independence.

The Governance Committee and Board also considered that the Corporation in the ordinary course of business purchases products and services from, or sells products and services to, companies at which some of our directors (or nominee) are or have been directors or officers. In each case, the amount paid to or received from these companies did not exceed the greater of $1 million or 2% of the total revenue of the Corporation or the other company. These relationships included: Mr. Aldridge, a director of Alion Science and Technology Corporation and of Global Crossing, Ltd.; Mr. Bennett, a director of Martin Marietta Materials, Inc.; Mr. Burritt, a director of Factory Mutual Insurance Company (FM Global); Mr. Ellis, a director of Inmarsat plc. and Level 3 Communications, Inc.; Mrs. King, a director of Marsh & McLennan Companies, Inc.; Mr. McCorkindale, a director of Prudential Mutual funds; Mr. Ralston, a director of The Timken Company and URS Corporation; and Mr. Savage, a director of Bloomberg, L.P. In determining that these relationships

did not affect the independence of those directors, the Board considered that none of the directors (or nominee) serving as directors or officers of other companies had any direct material interest in, or received any special compensation in connection with, the Corporation’s business relationships with those companies.

The Governance Committee and Board also determined that Mr. Ukropina’s status as Of Counsel to O’Melveny & Myers LLP, a law firm used by the Corporation, does not affect his independence. Mr. Ukropina, who retired from the firm in 2000, is not a partner, member or officer of the firm, nor does he provide legal services to the Corporation. The Governance Committee and Board are further satisfied that, because Mr. Ukropina is retired and provides no active services to O’Melveny & Myers LLP, he is independent for purposes of serving on the Audit Committee.

Related Person Transaction Policy

In February 2007, the Board approved a written policy and procedures for the review, approval and ratification of transactions among the Corporation and its directors, executive officers and their related interests. A copy of the policy is available at http://www.lockheedmartin.com/investor. Under the policy, all related person transactions (as defined in the policy) are to be reviewed by the Governance Committee of the Board. The Governance Committee may approve or ratify related person transactions at its discretion if deemed fair and reasonable to the Corporation. This may include situations where the Corporation provides products or services to related persons on an arm’s length basis on terms comparable to those provided to unrelated third parties. Any director who participates in or is the subject of an existing or potential related person transaction may not participate in the decision-making process of the Governance Committee with respect to that transaction.

Under the policy, and consistent with SEC regulations, a related person transaction is any transaction in which the Corporation was, is, or will be a participant, where the amount involved exceeds $120,000 and in which a related person had, has, or will have a direct or indirect material interest. A related person includes any director or executive officer of the company, any person who is known to be the beneficial owner of more than 5% of any class of the company’s voting securities, an

immediate family member of any person described above; and any firm, corporation, or other entity controlled by any person described above.

The policy requires each director and executive officer to complete an annual questionnaire to identify their related interests and persons, and to notify the Corporation of changes in that information. Based on that information, the Corporation maintains a master list of related persons for purposes of tracking and reporting related person transactions.

The policy contemplates that the Governance Committee may ratify transactions after they commence or pre-approve categories of transactions or relationships, because it may not be possible or practical to pre-approve all related person transactions. If the Governance Committee declines to approve or ratify, the related person transaction is referred to management to make a recommendation to the Governance Committee concerning whether the transaction should be terminated or amended in a manner that is acceptable to the Governance Committee.

Certain Relationships and Related Person Transactions of Directors, Executive Officers and 5 Percent Stockholders

The following transactions or relationships are considered to be “related person” transactions under our corporate policy and applicable SEC regulations. Each of these transactions was reviewed, approved or ratified by the Governance Committee of the Board in February 2008.

One of our directors, Mr. Schneider, served as Senior Vice President of Dell, Inc. until February 2007. In 2007, we paid $54,188,000 for the purchase of computer equipment and services from Dell in the ordinary course of business, which amount represented less than 1% of Dell’s 2007 revenues.

Two of our directors, Messrs. Loy and Ralston, are employed as Senior Counselor and Vice Chairman, respectively, of The Cohen Group, a consulting business that performs services for the Corporation. In 2007, we paid The Cohen Group approximately $710,000 for consulting services and expenses.

Mr. Burritt, a director nominee, is the Chief Financial Officer of Caterpillar Inc. In 2007, the Corporation

paid approximately $1,000,000 to Caterpillar (which amount represented less than 1% of Caterpillar’s 2007 revenues) for equipment purchases, rental fees, and processing qualifying offset credits under industrial cooperation requirements in Poland. The Corporation’s relationship with Caterpillar predates Mr. Burritt’s consideration as a nominee.

We currently employ approximately 140,000 employees and have an active recruitment program for soliciting job applications from qualified candidates. We seek to hire the most qualified candidates and consequently do not preclude the hiring of family members. The employment of various family members of current directors and executive officers is described below.

These relationships (and 2007 base salary including Management Incentive Compensation Plan (“MICP”) bonus, stock options, restricted stock units (“RSUs”) or Long-Term Incentive Performance (“LTIP”) awards granted in 2007, where applicable) include Mr. Bennett’s son-in-law, Jeffrey D. MacLauchlan, Vice President, Finance and Business Operations for our Information Systems & Global Services business area ($323,231 in base salary, $265,900 in MICP, a stock option award of 6,000 shares, 3,600 RSUs, and a target LTIP award for the 2007 to 2009 performance cycle of $110,000); and Mr. Ralston’s brother-in-law, Mark E. Dougherty, Director, Business Development Analyst ($141,704). Those individuals also participate in other employee benefit plans and arrangements which are generally made available to other employees at their level (including health, welfare, vacation and retirement plans). The compensation of each family member was established in accordance with the Corporation’s employment and compensation practices applicable to employees with equivalent qualifications, experience and responsibilities. None of these individuals served as an executive officer during 2007.

In addition, from time to time, the Corporation has purchased services in the ordinary course of business from a financial institution that beneficially owns 5% or more of Lockheed Martin’s common stock. In 2007, the Corporation paid fees of $6,066,000 to State Street Bank and Trust Company for credit facility and benefit plan administration fees. The Corporation also paid

$1,859,000 to CitiStreet, an affiliate of State Street Bank and Trust Company, for benefit plan administration fees. In 2007, the Corporation paid fees of $268,000 to Barclay’s Global Investors, N.A. in credit facility and foreign exchange fees. The Corporation paid U.S. Trust Company, National Association $701,000 for benefit plan management fees. U.S. Trust and Barclay’s each have filed a Schedule 13G indicating that they beneficially own less than 5% of Lockheed Martin’s common stock.

The Board also considered comments made and issues raised by others concerning the qualifications of directors. On May 11, 2004, the Secretary of the U.S. Department of Labor and certain former outside directors of Enron Corporation, including Mr. Savage, entered into a consent decree which provides, among other things, that for the five year period following entry of the decree, none of the former Enron directors will, without the consent of the Secretary of Labor, serve an ERISA-covered plan in a fiduciary capacity in the manner set forth in the decree. It is the view of the Governance Committee that service by Mr. Savage on the Board of the Corporation or any of its committees is permitted by the decree.

Board Performance Self-Assessment

Each year the Board evaluates its performance and effectiveness. Each director completes an evaluation form developed by the Governance Committee to solicit feedback on specific aspects of the Board’s role, organization and meetings. The collective ratings and comments are compiled by the Vice President, Internal Audit, and presented to the full Board. Each Board Committee conducts an annual performance self-assessment through a similar process.

Shareholder Rights Plan

The Corporation does not have a Shareholder Rights Plan, or so called “Poison Pill.” As part of our Corporate Governance Guidelines, the Board has communicated that it has no intention of adopting one at this time. If the Board does choose to adopt a Shareholder Rights Plan, the Board has indicated that it would seek stockholder ratification within 12 months from the date of adoption.

Equity Ownership by Directors

The Board believes that directors and management should hold meaningful equity ownership positions in the Corporation. To further encourage a link between director and stockholder interests, the Board has adopted stock ownership guidelines for directors. Similar guidelines apply to our management. Directors receive half of their compensation in the form of

Lockheed Martin common stock units or stock options (with the potential to defer the remaining cash portion in stock units). In addition, directors are expected to own shares or stock units equal to two times the annual retainer within five years of joining the Board. Until a director has achieved these stock ownership guidelines, a director is expected to select common stock units as the form of any annual equity compensation award.

(1)    On October 15, 2007, Mr. Aldridge was elected to the Classified Business Review Committee following the death of Mr. Yearley on October 7, 2007.

(2)    Committee Chairman.

(3)    Retiring as a director at the 2008 Annual Meeting.

(4)    On October 15, 2007, Mr. McCorkindale was elected Audit Committee Chairman, following the death of Mr. Yearley.

Committees

The Board has six standing committees as prescribed by our Bylaws:

The Board has established a special Classified Business Review Committee.

Our Bylaws contain the charter for each of the standing committees. Our Bylaws and the charter of the Classified Business Review Committee are posted at http://www.lockheedmartin.com/investor under the heading “Corporate Governance.”

Audit Committee

The Audit Committee oversees our financial reporting process on behalf of the Board. It is directly responsible for the appointment, compensation, and oversight of the Corporation’s independent auditors. The functions of the Audit Committee are further described under the heading “Audit Committee Report” on page 16.

All the members of the Audit Committee are independent within the meaning of the NYSE listing standards, our Corporate Governance Guidelines, and applicable SEC regulations. In order to be considered independent under SEC regulations, a member of the Audit Committee cannot accept any consulting, advisory or other compensatory fee from the Corporation, or be an affiliated person of the Corporation or its subsidiaries.

The Board has determined that Mr. McCorkindale, Chairman of the Audit Committee, Mr. Schneider, and Mr. Burritt (as a nominee) are qualified audit committee financial experts within the meaning of SEC regulations, and they have the accounting and related financial management expertise within the meaning of the NYSE listing standards.

Ethics and Corporate Responsibility Committee

The Ethics and Corporate Responsibility Committee monitors compliance and recommends changes to our Code of Ethics and Business Conduct. It reviews our policies, procedures and compliance in the areas of environmental, safety and health, Equal Employment Opportunity, and diversity. It also oversees matters pertaining to community and public relations, including government relations and charitable contributions.

Executive Committee

The Executive Committee primarily serves as a means for taking action requiring Board approval between regularly scheduled meetings of the Board. The Executive Committee is authorized to act for the full Board on matters other than those specifically reserved by Maryland law to the Board.

Management Development and Compensation Committee

The Management Development and Compensation Committee is responsible for reviewing and approving corporate goals and objectives relevant to the compensation of the CEO, evaluating the performance of the CEO and, either as a committee or together with the other independent members of the Board, determining and approving the compensation levels of the CEO and senior management. The Compensation Committee has not delegated to employees of the Corporation authority to make decisions on the amount paid as salary, bonus, long-term incentives, or equity awards to the CEO or the other named executive officers (“NEOs”) listed in the “Summary Compensation Table.”

Additional information regarding the role of the Compensation Committee and our compensation practices and procedures is provided under the captions “Compensation Committee Report” on page 24 and “Compensation Discussion and Analysis” beginning on page 25 and specifically to the discussion on Governance Considerations in Compensation Decisions beginning on page 37.

All members of the Compensation Committee are independent within the meaning of the NYSE listing standards and our Corporate Governance Guidelines.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee is responsible for developing and implementing policies and practices relating to corporate governance, including our Corporate Governance Guidelines. The Governance Committee assists the Board by selecting and recommending Board nominees, making recommendations concerning the composition of Board committees, and by overseeing the Board and committee evaluation process.

The Governance Committee reviews and recommends to the Board the compensation of directors. Our executive officers do not play a role in determining director pay, although the Chairman of the Board is consulted regarding the impact of any change in director pay on the Corporation as a whole. During 2007, Hewitt Associates, Inc. (“Hewitt”) an outside compensation consultant, assisted the Governance Committee by providing market data on director pay at other companies. Director pay remained unchanged in 2007.

The functions of the Governance Committee are further described under the caption “Corporate Governance.” All members of the Governance Committee are independent within the meaning of the NYSE listing standards and our Corporate Governance Guidelines.

Strategic Affairs and Finance Committee

The Strategic Affairs and Finance Committee reviews and recommends to the Board our long-term strategy including allocation of corporate resources.

Classified Business Review Committee

The Classified Business Review Committee assists the Board in fulfilling its oversight responsibilities relating to the Corporation’s business activities that require special security clearance levels for access to information.

We oversee Lockheed Martin’s financial reporting process on behalf of the Board.

Lockheed Martin’s management is responsible for the financial reporting process and preparation of the quarterly and annual consolidated financial statements, including maintaining a system of internal control over financial reporting. We are directly responsible for the appointment, compensation, retention, oversight and termination of the Corporation’s independent auditors, Ernst & Young LLP, an independent registered public accounting firm. The independent auditors are responsible for auditing the annual consolidated financial statements and expressing an opinion on the conformity of those financial statements with U.S. generally accepted accounting principles.

In connection with the December 31, 2007 audited consolidated financial statements, we have:

Based on the reviews and discussions above, we recommended to the Board of Directors that the audited consolidated financial statements for 2007 be included in Lockheed Martin’s Annual Report on Form 10-K for the year ended December 31, 2007 for filing with the SEC. The Board approved our recommendation.

Under the Directors Equity Plan, each non-employee director may elect to receive:

Except in certain circumstances, options and stock units vest on the first anniversary of grant. Upon a change in control or a director’s retirement, death or disability, the director’s stock units and outstanding options become fully vested, and the director would have the right to exercise their options six months following the grant date. Upon a director’s termination of service from our Board, we distribute the vested stock units, at the director’s election, in whole shares of stock or in cash, in a lump sum or in up to ten annual installments. Prior to distribution, a director has no voting, dividend or other rights with respect to the stock units held under the plan, but is credited with additional stock units representing dividend equivalents (converted to stock units based on the closing market price of our common stock on the dividend payment dates). The options have a term of ten years.

The Directors Equity Plan provides that the grants are made with respect to a particular year on January 15 or the next business day if January 15 is not a business day. The exercise price (in the case of option grants) is the closing price for our stock on the NYSE on the date of grant.

The Directors Equity Plan was approved by stockholders in 1999, and has a term of ten years. Management has proposed the adoption of a new plan (Proposal 6 on the proxy card) providing comparable compensation to replace the existing Directors Equity Plan, effective January 1, 2009. A discussion of the proposal begins on page 83.

The Lockheed Martin Corporation Directors’ Deferred Compensation Plan (“Directors’ Deferred Compensation Plan”) provides non-employee directors

the opportunity to defer up to 100% of the cash portion of their fees. Deferred amounts earn interest at a rate that tracks the performance of the prime rate, the published index for the S&P 500 Index (with dividends reinvested), or our common stock (with dividends reinvested), at the director’s election. We distribute participating directors deferred fees at the director’s election in a lump sum or in up to 15 installments commencing at a designated time following termination.

Each director may elect to be provided with a home computer and printer. We provide technical assistance for the computer equipment and Internet access.

(1)    Represents the aggregate dollar amount of 2007 fees earned or paid in cash for services as a director, including annual retainer fees and committee chairman fees.

(2)    Represents the amount recognized in accordance with Statement of Financial Accounting Standards No. 123(R), Share-Based Payments (FAS 123(R)) (other than disregarding the estimate of forfeitures resulting from a failure to vest) and the assumptions set forth in Note 11 to our financial statements for the year ended December 31, 2007 for stock units awarded to the directors under the Directors Equity Plan for 2007 and the appreciation associated with units awarded in 2007 and prior years under the Directors Equity Plan and Lockheed Martin Corporation Directors’ Deferred Stock Plan (“Directors’ Deferred Stock Plan”), including dividend equivalents credited as stock units. We recognize expense based upon the change in market value during the year for all stock units credited to the director, whether credited in 2007 or prior years. The outstanding number of stock units credited to each

director under the Directors Equity Plan as of December 31, 2007 was Mr. Aldridge 6,344; Mr. Archibald 7,879; Mr. Bennett 13,621; Mr. Ellis 4,059; Mrs. King 14,307; Mr. Loy 3,079; Mr. McCorkindale 5,234; Mr. Ralston 6,614; Mr. Savage 7,018; Mr. Schneider 1,333; Ms. Stevens 5,513; Mr. Ukropina 14,307; and Mr. Yearley 14,307. For 2007, each of Mrs. King, Ms. Stevens and Messrs. Aldridge, Archibald, Bennett, Ellis, Loy, Ralston, Savage, Ukropina, and Yearley were credited with 1,134 stock units with an aggregate grant date value of $110,000, and each of Messrs. McCorkindale and Schneider were credited with 567 units with an aggregate grant date value of $55,000. The grant date value is based on the closing price of our stock on January 16, 2007 ($97.00). The outstanding number of stock units credited to each director under the Directors’ Deferred Stock Plan as of December 31, 2007 was 1,164 for Mrs. King and Messrs. Murphy, Savage, Ukropina, and Yearley.

(3)    Represents the amount recognized in accordance with FAS 123(R) (other than disregarding the estimate of forfeitures resulting from a failure to vest) in our

financial statements for the year ended December 31, 2007 for options granted to Messrs. McCorkindale, Murphy, and Schneider in 2006 and 2007. We recognize expense ratably in monthly increments over the one-year vesting period. The assumptions used in determining the fair value of the options is set forth in Note 11 to our financial statements contained in our Annual Reports on Form 10-K for the years ended December 31, 2007 and 2006. For 2007, we awarded each of Messrs. McCorkindale and Schneider 2,291 options with an aggregate grant date value of $54,984 and Mr. Murphy 4,583 options with an aggregate grant date value of $109,992. The grant date value for options granted in 2007 ($24.00 per share) is based on the closing price of our stock on January 16, 2007 ($97.00) and for options granted in 2006 ($16.55 per share) is based on the closing price of our stock on January 17, 2006 ($65.72). The outstanding number of stock options awarded to each director as of December 31, 2007 was Mr. McCorkindale 16,631; Mr. Murphy 43,430; and Mr. Schneider 5,590, all of which vested on January 17, 2008.

(4)    Column (e) deleted because we did not have a Non-Equity Incentive Plan in 2007.

(5)    Includes a portion of the interest earned in 2007 by Messrs. Bennett and Murphy, Mrs. King, and Ms. Stevens on cash retainer fees credited to the “prime rate” investment option under the Directors’ Deferred Compensation Plan. The amount shown is the amount in excess of 120% of the Applicable Federal Rate published by the Internal Revenue Service (“IRS”).

(6)    Includes the cost to the Corporation of providing Internet access, tax gross-up payments and the

incremental cost of a director’s personal use of corporate aircraft and spousal travel while accompanying a director on business travel.

(7)    Includes contributions made by the Corporation to eligible educational institutions in an amount matching the contribution of the director to that institution. Matching contributions in 2007 were made on behalf of Mr. Archibald $10,000; Mr. Bennett $5,000; Mr. Ellis $2,500; Mr. McCorkindale $6,000; Mr. Murphy $10,000; Mr. Schneider $10,000; Mr. Ukropina $2,000; and Mr. Yearley $10,000. The matching program is the same as the program available to all employees.

(8)    Neither Mr. Loy’s nor Mr. Ralston’s compensation includes fees paid to The Cohen Group for consulting services. These fees are described in the section on “Certain Relationships and Related Person Transactions of Directors, Executive Officers and 5 Percent Stockholders” on page 10.

(9)    Variances in the amounts reported for each director in columns (b), (c), and (d) due to the inclusion of fees for service as a committee chairman and historical variations in equity grant elections and board tenure that result in differences in the amount expensed for each director in 2007. Numbers have been rounded to the nearest dollar.

(10)    Mr. Bennett participates in deferred compensation and other plans related to his service as a director of an acquired company (COMSAT Corporation) and his prior service as an officer of Martin Marietta Corporation and Lockheed Martin. None of the benefits under these plans were earned for service as a director of Lockheed Martin and they are not included in the table. The aggregate earnings with respect to his service as a director of COMSAT Corporation for 2007 were $18,867.

The following table shows the Lockheed Martin common stock beneficially owned and stock units credited to each NEO, director, nominee, and all directors, nominees and executive officers as a group as of February 1, 2008. Except as otherwise noted, the named individuals had sole voting and investment

power with respect to such securities. The total common stock and stock units owned by each director and executive officer represented less than 1% of our outstanding common stock. All amounts are rounded to the nearest whole share. No shares have been pledged.

(1)    Includes restricted stock awards (“RSAs”) for Messrs. Coutts, Heath, Kubasik, and Stevens, and Mss. Gooden and Maguire in the amount of 16,667; 10,000; 10,000; 33,334; 10,000; and 10,000, respectively.

(2)    Includes shares not currently owned but which could be acquired within 60 days following February 1, 2008 through the exercise of stock options for Messrs. Coutts, Heath, Kubasik, McCorkindale, Murphy, Schneider, Stevens, and Tanner, and Mss. Gooden and Maguire in the amount of 172,100; 121,033; 165,033; 16,631; 43,430; 5,590; 837,500; 37,966; 23,634; and 74,800 shares, respectively.

(3)    Includes shares attributable to the participant’s account in the Lockheed Martin Salaried Savings Plan

(“SSP”) for Messrs. Bennett, Coutts, Heath, Kubasik, Stevens, and Tanner, and Mss. Gooden and Maguire in the amount of 891; 23; 1,542; 1,065; 23; 1,543; 4,782; and 679, respectively. Participants have voting power and investment power over the shares.

(4)    Includes shares that have shared voting and investment power.

(5)    Includes stock units under the Directors Equity Plan. Mrs. King, Ms. Stevens, and Messrs. Aldridge,

Archibald, Bennett, Ellis, Loy, McCorkindale, Ralston, Savage, Schneider, and Ukropina have been credited with 15,336; 6,543; 7,374; 8,909; 13,965; 5,089; 4,108; 5,749; 7,644; 8,047; 1,848; and 15,336 units, respectively. Units are distributed in the form of cash or stock as elected by the director. There are no voting rights associated with stock units.

(6)    Includes stock units attributable to the participant’s account under the Lockheed Martin Corporation Supplemental Savings Plan (“NQSSP”) for Messrs. Coutts, Heath, Kubasik, Stevens, and Tanner, and Ms. Maguire in the amount of 66; 1,907; 1,807; 447; 868; and 584, respectively. Amounts credited to a participant’s account in the NQSSP are distributed in cash following termination of employment. There are no voting rights associated with stock units.

(7)    Includes stock units attributable to the participant’s account under the Lockheed Martin Corporation Deferred Management Incentive Compensation Plan (“DMICP”) (including units credited under the LTIP program awards under the Lockheed Martin 1995 Omnibus Performance Award Plan (“Award Plan”) and the Lockheed Martin Corporation Amended and Restated 2003 Incentive Performance Award Plan (“IPA Plan”)) for Messrs. Coutts, Heath, Kubasik, Stevens, and Tanner, and Mss. Gooden and Maguire in the amount of 25,580; 15,574; 34,045; 59,554; 4,443; 7,180; and 16,341, respectively. Although most of the units will be distributed following termination or retirement in shares of stock, none of the units are convertible into shares of stock within 60 days of February 1, 2008. There are no voting rights associated with stock units.

(8)    Includes RSUs for Messrs. Coutts, Heath, Kubasik, Stevens, and Tanner, and Mss. Gooden and Maguire in the amount of 10,850; 12,550; 27,200; 192,500; 5,650; 10,200; and 9,800, respectively. The RSUs represent a contingent right to receive one share of common stock. There are no voting rights associated with RSUs.

(9)    Includes stock units under the Directors’ Deferred Stock Plan for Mrs. King and Messrs. Murphy, Savage, and Ukropina each in the amount of 1,164. There are no voting rights associated with stock units.

(10)    Includes stock units under the Directors’ Deferred Compensation Plan representing deferred cash compensation for Messrs. McCorkindale, Savage, and Ukropina in the amount of 9,778; 16,276; and 3,211, respectively. The stock units (including dividend equivalents credited as stock units) are distributed in the form of cash. There are no voting rights associated with stock units.

(11)    Includes shares held in trust under the former Deferred Compensation Plan for Directors of Lockheed Corporation. Deferred amounts are distributable after a participant ceases to be a director. In the event a participant’s status as a director is involuntarily terminated other than by death, common stock in the director’s trust account will be distributed within 15 days of termination. Messrs. Savage and Ukropina have been credited with 2,502 and 494 shares, respectively, pursuant to the plan. The directors do not have or share voting or investment power for their respective shares held in the trust except in the event of a tender offer.

Section 16(a) of the Securities Exchange Act of 1934 requires that our executive officers and directors (and persons who own more than 10% of our equity securities) file reports of ownership and changes in ownership with the

SEC, the NYSE and with us. Based solely on our review of copies of forms and written representations from reporting persons, we believe that all ownership filing requirements were timely met during 2007.

The following table shows information regarding each person known to be a “beneficial owner” of more than 5% of our common stock. For purposes of this table, beneficial ownership of securities generally means the power to vote or dispose of securities, regardless of any

economic interest in the securities. All information shown is based on information reported by the filer on a Schedule 13G filed with the SEC on the dates indicated in the footnotes to this table.

(1)    As reported on a Schedule 13G filed on February 13, 2008 by State Street Bank and Trust Company (“State Street”), State Street had beneficial ownership of and shared dispositive power with respect to 76,269,829 shares of common stock, of which 64,318,045 shares of common stock were held by it as trustee for certain Lockheed Martin employee benefit plans. State Street also reported that it had sole voting power with respect to 14,188,940 shares, of which 2,237,156 shares of common stock it had sole voting power as trustee for certain Lockheed Martin employee benefit plans. State Street has expressly disclaimed beneficial ownership of the shares reported on its Schedule 13G.

(2)    As reported on a Schedule 13G/A filed on February 22, 2008 by FMR LLC (“FMR”), FMR had beneficial ownership of and sole dispositive power with respect to 24,548,079 shares of common stock. FMR has sole power to vote 2,854,026 shares and

shared voting or dispositive power for none of the shares. FMR’s Schedule 13G includes shares beneficially owned by Edward C. Johnson 3^rd (21,411,673 shares), Fidelity Management & Research Company (21,411,673 shares), Pyramis Global Advisors, LLC (559,200 shares), Pyramis Global Advisors Trust Company (1,121,208 shares), Strategic Advisers, Inc. (9,053 shares), and Fidelity International Limited (1,446,945 shares). FMR and Fidelity International Limited are of the view that they are not acting as a “group” for purposes of Section 13(d) and that they are not otherwise required to attribute to each other the beneficial ownership of securities beneficially owned by the other corporation.

(3)    As reported on a Schedule 13G filed on February 13, 2008 by Marsico Capital Management, LLC (“Marsico”), Marsico had beneficial ownership of and sole dispositive power over 23,858,337 shares and sole voting power over 19,745,394 shares.

The Management Development and Compensation Committee makes recommendations to the Board of Directors concerning the compensation of the Corporation’s executives. We have reviewed and discussed with management the Compensation Discussion and Analysis included in the Corporation’s Schedule 14A Proxy Statement, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934,

as amended (the “Proxy”). Based on that review and discussion, we recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Proxy and incorporated by reference in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007. The Board has approved that recommendation.

The goal of our compensation program is to attract talented people to work for us, motivate our key people, and keep them working for us. To do that, we look carefully at what our competitors and other large companies pay to see what our NEOs might be offered to go work for somebody else. We also consider the individual characteristics of our key people that may make them more or less vulnerable to recruitment by others or difficult to replace, such as level of experience, time in position, unique knowledge or skills, and leadership qualities. Relationships with customers and performance on particular programs may also play a role because they make somebody harder to replace.

We pay NEOs a base salary and we also put a significant portion of the executive’s compensation at risk by tying pay to specified levels of performance each year, and over longer periods of time. Tying pay to performance motivates people to perform and rewards those who respond by doing a great job. Our compensation program contains incentive opportunities that measure performance against key financial numbers and other metrics; it also contains qualitative standards that allow for the subjective judgments we believe are essential to evaluating individuals.

It is our intent to award superior pay for superior performance. Our compensation plans also authorize payment in some circumstances when objectives are not being achieved in order to provide a continuing incentive for strong performance.

We consider individual performance in base salary decisions and both individual and business performance in our annual bonus program. In contrast, the amounts paid out under our long-term incentive program are

based solely on the Corporation’s performance. We think that mix makes sense because it focuses on individual achievement, while also strongly encouraging those individuals to care how well the entire team does.

In 2007, our financial results exceeded our projections across the board and the price of our stock increased 14%. Since 2005, our stock price has increased 65% and since 2003, it has increased 105%. For the three-year period 2005-2007, our market capitalization increased by $19 billion. Those results came from outstanding individual work and team work. As a result, our key people have been highly compensated under both our short-term and long-term incentive plans. As we have designed our incentive plans, if our NEOs keep producing superior results, they will continue to be highly paid. If their achievements do not meet or exceed our goals, their pay will reflect that fact.

We provide more detail on our process, the information shared with the Committee, and 2007 pay decisions below. We have limited the discussion in this Compensation Discussion and Analysis (“CD&A”) to a description of how decisions were made for 2007. A discussion of the components of our executive compensation program precedes the compensation tables, beginning on page 40. References to “the Committee” in this CD&A mean the Management Development and Compensation Committee of our Board.

Discussion and Analysis

The following table lists the elements of our executive compensation program, the reason we use the element, and what the element rewards:

The NEOs participate in the pension, savings, health care and other welfare benefit plans available to other employees and restoration pension and savings plans that maintain benefit levels for employees whose benefits otherwise would be reduced because of IRS limitations on benefits payable from tax-qualified plans. The NEOs also participate in a deferral plan (the DMICP) that permits the deferral of MICP bonuses and LTIP payments. We provide very limited perquisites and post-employment benefits to our NEOs.

Role of the Committee

All our NEOs are at-will employees and serve at the pleasure of our Board. The Committee is responsible for the compensation of the Corporation’s NEOs. It reviews and approves corporate goals and objectives

for the CEO and recommends the compensation for the CEO to the independent members of the Board which reviews and approves the compensation of the CEO and each of the other NEOs. The Committee reviews the recommendations of the CEO for the compensation of the other NEOs and approves the compensation of those officers.

Use of Data from Other Companies in 2007

In order to determine what other companies pay NEOs with comparable responsibilities, we asked Hewitt to collect compensation data from a group of publicly held companies (referred to as our “Comparator Group”) in the aerospace and defense industry and other companies of a size, complexity, and quality similar to ours. The following companies made up the

Comparator Group we used in 2007 for making compensation decisions:

To compare our compensation with compensation paid in other companies within the Comparator Group, Hewitt collected data for the compensation paid by the companies in 2006 and then made several adjustments. Among other things, Hewitt adjusted Comparator Group data to take into account that the companies in the Comparator Group were not the same size. For example, the 2005 sales of companies in our 2006 Comparator Group ranged from $11.6 billion to $91.1 billion. Our sales in 2005 were $37.2 billion. To create data that would provide a reference point for us, CEO and Chief Financial Officer (“CFO”) compensation was adjusted based on revenues, and business area Executive Vice President data were adjusted based on the revenues of their business areas. Hewitt also applied an aging factor to the Comparator Group data to establish a market value as of September 1, 2007. The purpose of these adjustments is to derive amounts that a corporation the same size as ours would pay its executives in comparable positions.

After these adjustments, Hewitt determined the 50^th percentile for each position for base pay, annual

incentive bonus opportunities, and aggregate long-term incentive compensation opportunities or targets. Hewitt derived the economic value for long-term incentive compensation from standard statistical measures, such as the Black-Scholes model for option pricing. We allocated the aggregate long-term incentive compensation economic value among individual components of long-term incentive compensation, such as stock options, RSUs, or long-term cash performance awards based on our desired mix of those elements. Information on total compensation came from combining Comparator Group data on individual elements of compensation.

For the short-term and long-term incentive pay components, we looked at targets and ranges of possible compensation but did not compare actual payments under our incentive programs to market data because it is not useful for benchmarking. Incentive compensation payouts are contingent upon a number of factors, including such things as market performance, vesting periods, deferrals, and how long the person held the stock or the options.

In 2007, consistent with historical practice, we did not designate a specific percentile as a target for the individual components or for total compensation. Information on market percentiles was provided as a reference point and as an item of information rather than as a target. Market data and performance metrics are important tools for analyzing compensation, but are not the only factors. Compensation decisions necessarily involve judgments about the best mix and balance of compensation elements needed to attract qualified employees, retain employees, and reward or recognize performance.

In making individual compensation decisions, management considered a number of factors together with the market data and made recommendations to the Committee with respect to each element of compensation after considering individual performance and other factors including a sustained high level of performance, demonstrated success in meeting or exceeding key financial and other business objectives, proven ability to create stockholder value, highly developed skills and abilities critical to the success of the business, and experience and time in position. Individual compensation decisions are, in the end, based on review and assessment by the Committee and Mr. Stevens (with respect to the NEOs other than

himself) of these and other subjective factors. As a result, total compensation (or any particular part of it) was based on a combination of factors and may differ materially from the derived 50^th percentile of the Comparator Group.

Role of Compensation Consultants

Hewitt was retained by the Corporation in 2007 to serve as its compensation consultant to gather, among other things, Comparator Group data. In 2007, Hewitt also prepared reports using Comparator Group data on employment agreements and the mix of elements in long-term incentive compensation.

In addition to Hewitt, the Committee separately engaged its own compensation consultant, Watson Wyatt Worldwide, Inc. (“Watson Wyatt”), with whom it reviews selected matters, using the same Comparator Group. In 2007, Watson Wyatt provided information to the Committee on employment agreements, reported on 2007 proxy Comparator Group data, and prepared a total accumulated wealth analysis comparing the NEOs to the Comparator Group; the purpose of the total accumulated wealth analysis was to provide the Committee with a broad perspective on compensation.

Role of Management in Compensation Decisions

Our Chairman, President and CEO, with input from our Senior Vice President, Human Resources and data from Hewitt, provided the Committee with information on recommended base salary, annual bonuses, and long-term incentive grants for our NEOs (other than the CEO), along with the 50^th percentile of the Comparator Group data and historical data for each NEO. The Senior Vice President, Human Resources also calculated for the NEOs (other than the CEO) the resulting percentage above or below the market for varying levels of compensation and interpolated the potential market percentile for levels of compensation. For the CEO, the Senior Vice President, Human Resources did not recommend a specific amount of compensation. He presented a schedule with a range of possible payments to the CEO for each element of compensation in relationship to the 50^th and 75^th percentiles; for the CEO, the schedule also showed ranges of total cash compensation using the sum of base salary and MICP awards. The purpose of this schedule was to estimate what percentile of pay would result from different levels of payments.

The Executive Vice President and CFO developed internal financial goals within stockholder-approved metrics for our long-term incentive program and assessed organizational performance under those metrics and under the financial, operational and strategic goals set by the Committee for our short-term incentive program. The role of the officers in decisions relating to the specific elements of our program is described in more detail in the discussion of individual elements below.

Role of Industry Considerations in Compensation Decisions

The nature of our business requires that we adopt a business strategy that anticipates customers’ needs, understands their expectations, and measures our success by our customers’ success. To execute this strategy, especially over the long life of many of our programs and products, requires retention of key leaders. The pool of executive talent with knowledge of customer requirements, expertise in government cost accounting standards, high-level security clearances and experience in managing long-term, technically advanced contracts is limited. To that end, our compensation package contains many elements designed to enhance retention.

As a government contractor, we are subject to the Federal Acquisition Regulation, which limits the reimbursement of costs by our government customers for senior executive compensation to a benchmark compensation cap established each year. The benchmark cap applies to the CEO and our four most highly compensated NEOs at our headquarters, plus the five most highly compensated employees in management positions. When comparing senior executive compensation to the benchmark cap, all wages, salary, bonuses, and deferred compensation for the year, whether paid, earned or otherwise accrued, must be included. For 2007, the benchmark compensation cap published in the Federal Register was $597,912. Any amounts over the cap were considered unallowable and therefore not recoverable under our government contracts.

We also have contracts that require that we provide a summary of contract performance to the Board or person having responsibility for setting the compensation of senior management annually so that performance can be considered in setting the

compensation of the contractor’s senior executives — defined as the five most highly compensated employees at the corporate level, to include the CEO.

Compensation Decisions in 2007

Timing of Compensation Decisions

The Committee made compensation decisions with respect to 2007 as follows:

Base Salary Determinations in 2007

CEO Merit Increase

At its January 2007 meeting, the Committee met separately with the Senior Vice President, Human Resources to prepare its recommendation for the Board as to all the elements of Mr. Stevens’ compensation, including a merit increase. At that time, the Committee reviewed compensation paid to Mr. Stevens in 2006 comprised of the 2005 MICP bonus paid in January 2006, his 2006 base salary, and economic values for long-term incentive compensation awarded to him in January 2006 consisting of stock options, RSUs and LTIP awards (exclusive of the additional RSU award made to him for retention purposes). The value of each element was assessed against data provided by Hewitt for the 50^th and 75^th percentile of the Comparator Group companies. The data showed that the economic value of the compensation Mr. Stevens received in 2006 (MICP bonus, base salary, options, LTIP and

RSUs, other than the retention grant) exceeded the 50^th percentile but was less than the 75^th percentile of our Comparator Group. For 2007, the Committee designated a merit increase that would place Mr. Stevens, using the data presented at the meeting, at the 75^th percentile for base salary. This decision was based on the Corporation’s record-breaking performance in 2006 in which the Corporation exceeded all of its publicly disclosed goals, as well as Mr. Stevens’ consistently high performance and acknowledged leadership in the industry and among corporate CEOs generally.

Merit Increases For Other NEOs

In addition to Comparator Group data on the other NEO positions, the Senior Vice President, Human Resources provided information to the Committee on our guidelines on merit increases generally, which links the size of a salary merit increase to whether the officer’s current salary fell above or below the 50^th percentile of the Comparator Group. For example, under the guidelines, smaller raises (as a percentage) are recommended for contributors whose salary already exceeds the 50^th percentile, while larger raises (as a percentage) were recommended for contributors whose salary falls below the 50^th percentile.

Our NEOs are high performers and receive raises reflecting that performance. Prior to the merit increase, the salaries of Mr. Heath and Mss. Gooden and Maguire were below the 50^th percentile derived from Comparator Group data for their positions. For Messrs. Kubasik and Coutts, salaries prior to the increase exceeded the 50^th percentile. For Mr. Kubasik, the Committee concluded that his exceptional performance in the prior year and public recognition as an outstanding chief financial officer made him an attractive candidate for recruitment by other companies, thereby warranting a larger merit increase. Mr. Coutts’ merit increase was based on Electronic Systems multi-year success in generating cash and winning key programs. Mr. Tanner received a raise in January 2007 when he was the Vice President of Finance and Business Operations in the Aeronautics Business Area and so was evaluated by management at the time by reference to his job within the business area. When he was promoted to Executive Vice President and CFO, his salary was raised to $500,000, which placed him well below the 50^th percentile for chief financial officers within the Comparator Group.

At that time, the Committee considered that he would receive another merit increase in February 2008 to bring him closer to the 50^th percentile.

The following chart shows the salary of each NEO after the merit increase as a percentage of the 50^th percentile of our Comparator Group:

MICP Decisions For 2007 Performance

MICP is our annual bonus program. Each NEO is assigned a target percentage of base salary determined by the level of contribution and responsibility of the NEO’s position, and in a range comparable to annual incentive targets for similar positions in the Comparator Group. The target amounts are reported in the “Grants of Plan-Based Awards” table and range from 75% to 125% of salary. We calculate MICP bonuses as follows:

The following chart shows the target percentages for each NEO:

* Mr. Tanner’s MICP bonus was based on his rate of pay in the first week of December 2007 but was prorated for four months at the 75% applicable to the CFO position and eight months at a target of 45%, the target applicable to him prior to promotion as Executive Vice President and CFO.

The amount ultimately paid to a NEO may range from 0% to 195% of the target percentage and is based on the Committee’s evaluation of business and individual performance during the year.

MICP award targets are reviewed periodically and were last updated in 2005. Recent survey information revealed that our NEO target awards lag the market. An assessment will be made in 2008 with respect to updating MICP award targets.

Corporate performance factors range from 0 to 1.5; individual performance factors range from 0 to 1.3, the target is a percentage of base salary as of the first pay period of December. The following table shows the performance level associated with each factor:

The higher numbers associated with corporate performance reflect the importance we place on team performance. Ratings for both corporate and individual performance may be assigned at intervals between the levels noted in the tables above.

MICP in 2007—Performance Objectives

In the first quarter of 2007, based on input from the Senior Vice President, Human Resources and Mr. Kubasik who was the Executive Vice President and CFO at that time, the Committee established quantitative and qualitative corporate objectives, which served as the corporate objectives for the NEOs and the individual objectives for the CEO. The objectives for financial performance included sales, cash, ROIC ¹, and operating margin in ranges consistent with our outlook for 2007 as publicly disclosed in connection with our release of earnings for the year ended December 31, 2006. The Corporation believes that setting objectives consistent with the ranges contained in our public forecast ties compensation to our effectiveness in meeting our public commitments to our stockholders.

The Committee also established operating, strategic and other qualitative objectives for a wide range of corporate initiatives, such as achieving mission success on ongoing programs, earning a high rate of available award fees, performance recovery on troubled programs, continuing efforts on our diversity initiative, developing new lines of business, deploying cash to increase value, increasing productivity, developing leaders under our “Full Spectrum Leadership” program, differentiating our Corporation from competitors, progress in staffing for strategic talent and reducing rate of escalation of employee health care costs through health and wellness programs.

Each of the NEOs (other than the CEO) established individual objectives in the first quarter of 2007. The individual objectives of the business area Executive

¹ We define ROIC in our 2007 Annual Report on Form 10-K as net earnings plus after-tax interest expense divided by average invested capital (stockholders’ equity plus debt), after adjusting stockholders’ equity by adding back amounts related to post-retirement benefit plans. See “Selected Financial Data,” Note (g), included in our 2007 Annual Report on Form 10-K, for further definition and calculation methodology.

Vice Presidents largely reflected the organizational goals for the business area for which the NEO is responsible. For functional area NEOs, individual objectives represent achievements important for that year for that functional area.

Organizational objectives are both quantitative and qualitative and provide a framework for reviewing performance. Meeting, exceeding, or falling short of an identified objective does not mandate a particular organizational rating, but is considered as one factor among many for evaluating the year’s performance. The weight given to each objective, and the overall organizational rating, are subject to the discretion of the Committee, which also has the discretion to consider other factors.

In January of 2008, the Executive Vice President and CFO in conjunction with the Senior Vice President, Human Resources prepared an assessment of our operational, strategic, and financial results and an initial recommendation for the annual MICP corporate rating. The recommendation was reviewed by the CEO. The CEO, with assistance from the Senior Vice President, Human Resources, assessed the performance of the individual NEOs (other than himself) and recommended individual ratings for the other NEOs to the Committee. The Committee assessed the performance of the CEO and determined the corporate rating and individual rating for the CEO.

The Committee assessed 2007 corporate performance at its January 2008 meeting as far exceeding organizational objectives, for a rating of 1.45. In making its determination, the Committee reviewed 2007 financial, operational and strategic performance.

2007 Financial performance:

The Committee considered financial performance against our 2007 performance objectives which were consistent with our forecast as disclosed publicly in January 2007, as well as our long range plan.

Performance exceeded the established objectives and was at record levels.

2007 Operational performance:

For operational performance, the Committee took into account:

2007 Strategic performance:

As to strategic results, the Committee noted:

² Segment Operating Profit represents the total earnings from our business segments before interest, taxes and unallocated corporate expense net. See “Note 15 – Information on Business Segments” to our financial statements included as part of our 2007 Annual Report on Form 10-K for a reconciliation of Segment Operating Profit to Consolidated Operating Profit.

Among disappointments noted by the Committee were issues in some of our development contracts.

CEO MICP Bonus for 2007

In determining Mr. Stevens’ MICP bonus, the Committee considered our overall high level of corporate performance as well as Mr. Stevens’ total cash compensation in 2007 and his projected cash compensation for 2008. For his 2007 total cash compensation, the Committee reviewed the 2006 MICP bonus paid in January 2007, his 2007 base salary, and target amounts for long-term incentive compensation awarded to him in January 2007, consisting of stock options, RSUs and LTIP awards. Taking these items into account, Mr. Stevens’ total cash compensation for 2007 was estimated as placing him above the 50^th percentile of the Comparator Group but below the 75^th percentile. For 2008 total cash compensation, the Committee considered the various items to be awarded at the January 2008 meeting, including his 2008 base salary as adjusted for a merit increase, the MICP bonus for 2007 and the long-term incentive awards to be made at the January 2008 meeting. In light of our performance in 2007, the consistent and sustained track record of Mr. Stevens in the prior years and the 98.6% increase in our TSR for the 2005-2007 period, the Committee designated MICP and other elements of compensation equal to the 75^th percentile of the Comparator Group. This resulted in a MICP bonus for 2007 in the amount of $3,900,000, approximately equivalent to an individual factor of 1.3, the highest possible.

MICP for the Other NEOs in 2007

The Committee reviewed each of the other NEOs in the context of the strong overall performance of the Corporation and concluded that each performed in a manner vastly superior to expectations and peers within the organization, a conclusion meriting an

individual factor of 1.20 – 1.30 under the terms of our MICP plan. For each of the Business Area Executive Vice Presidents, the Committee noted the following achievements:

Due to her superior performance in the Space business area, Ms. Maguire was assessed at a 1.25 individual factor. The Committee concluded that Ms. Gooden warranted the highest possible individual factor of 1.3 based on the integration of two business areas into IS&GS in her first year as an Executive Vice President. The Committee also concluded that Aeronautics’ 21% increase in operating profit as well as its overall financial and operational performance should be acknowledged by awarding Messrs. Heath and Tanner, who served as Vice President of Finance and Business Operations of that business area, 1.3 individual factors. The Committee also considered Mr. Tanner’s transition to the position of corporate CFO in the last three months of 2007. The Committee assessed Mr. Kubasik at a 1.3 based on his significant role in achieving the Corporation’s overall financial objectives for 2007 and his transition to the role of Executive Vice President of a business area. Finally, the Committee assessed Mr. Coutts at 1.2, consistent with his Retirement Transition Agreement which required a minimum 1.2 rating.

As part of its review, the Committee considered the limitations in the MICP plan based on cash flow (0.3% of cash flow for the CEO and 0.2% for each of the other officers subject to the limitation). The Committee certified that none of the awards exceeded the percentage limits. These limitations were approved at our April 2006 Annual Meeting of Stockholders, and are intended to qualify MICP payments as “performance-based compensation,” exempt from the $1 million limit on deductibility under Internal Revenue Code Section 162(m).

For purposes of the MICP awards for 2007, “cash flow” means net cash flow from operations adjusted for:

Long-Term Incentive Program

In 2007, long-term incentive compensation awards consisted of stock options, RSUs, and a cash-based long-term incentive performance award. For the long-term incentive compensation program, the Senior Vice President, Human Resources advised the Committee of the economic value of long-term incentive compensation opportunities at the 50^th percentile of the Comparator Group and the recommended economic value for each NEO. Based on factors identified by the Senior Vice President, Human Resources as time in position, skill levels, and history of performance, the Committee approved adjustments to the economic value derived from the Comparator Group 50^th percentile to come up with a desired economic value for each NEO. For example, the desired economic value for long-term incentive compensation for a NEO new to his or her position generally falls below the 50^th percentile, while the desired economic value for more senior NEOs may, depending upon performance history and other factors, exceed the 50^th percentile. The following chart shows the relationship between the economic value of long-term incentive awards in 2007 for each NEO and economic value at the 50^th percentile

for that position within our Comparator Group and the percentage of compensation that is at risk (MICP and long-term incentive compensation) for each NEO. In this chart, total compensation includes rate of base pay approved in January 2007, MICP target and the economic value of long-term incentive compensation.

We allocate that economic value according to our mix of long-term incentive compensation elements as shown below:

The Senior Vice President, Human Resources recommended this mix to the Committee based on its view that it reflects current long-term incentive compensation in the market. In 2007, the mix was reviewed by Hewitt. Based on the review, we concluded our mix of elements did not deviate significantly from the Comparator Group. For long-term incentive awards made to the CEO in January 2007, the Committee increased the weight given to RSUs so that the allocation to Mr. Stevens was 46%, in stock options, 27% LTIP and 27% in RSUs.

Option Grants in 2007

Grant sizes are calculated by multiplying the approximate 50% (46% for the CEO) weight we have given to stock options in our executive compensation

program by the desired economic value for long-term incentives for the NEO and dividing that result by the value of a single option as determined under the Black-Scholes methodology and based on assumptions used for recognizing expense in accordance with FAS 123(R). These assumptions are set out in Note 11 to our financial statements for the year ended December 31, 2007. Option grants made in January 2007 are included in the “Grants of Plan-Based Awards” table. The terms are more fully described in the “Narrative Description of Benefits and Compensation” beginning on page 40.

LTIP in 2007

Our LTIP is a cash-based long-term incentive program that measures corporate performance over a three-year cycle using performance criteria established by the Committee at the beginning of the performance period. The LTIP program is intended to qualify as “performance-based” compensation exempt from the $1 million limit on deductibility of compensation under Internal Revenue Code Section 162(m). LTIP represents approximately 30% of the economic value we intend to deliver through long-term incentives. For each cycle, we establish a dollar target for each NEO, reported for the 2007-2009 cycle in the “Grants of Plan-Based Awards” table. We discount the LTIP economic value to 75% of the target to account for performance risk and potential forfeiture. In other words, the economic value of the LTIP will be 75% of the target assigned to the NEO.

The LTIP is a performance-metric derived plan. Neither the Committee nor management has any authority to adjust LTIP payouts. Since its inception in 1999, payments under the LTIP have been as follows:

Cycles prior to the 2006-2008 cycle measured performance on the basis of the relative ranking of our TSR (change in stock price plus reinvestment of dividends) through the performance cycle to the other companies that make up the S&P 500 Index. Beginning with the 2006-2008 cycle, we used the TSR of the S&P Industrials Index as an external metric for 50% of the LTIP and measured the change in ROIC from 2005 and cash from operations against our long range plan as internal metrics for the other 50%. We changed the metrics because the narrower scope of the S&P Industrials Index tests our performance more closely against companies like ours and internal metrics test our ability to predict our performance and provide transparent disclosure. We chose TSR, ROIC and cash because these metrics are standard measures of performance important to stockholders and provide insight into the quality of earnings.

LTIP Awards for the 2007-2009 Cycle

Our 2007-2009 LTIP measures corporate performance over a three-year cycle from January 1, 2007 through December 31, 2009. It rewards performance during this period against pre-established internal and external metrics and continued tenure.

The amount earned at the end of the 2007-2009 performance cycle will be assessed against an external performance metric and an internal performance metric.

The chart below shows the percentage assigned to the External Performance Factor for the 2007-2009 cycle.

³ ROIC is defined in the award agreement as A divided by B, where:

A = Average annual (i) net income plus (ii) interest expense times one minus the highest marginal federal corporate tax rate; and

B = Average year end (beginning with the year end immediately preceding the beginning of the performance period) (i) debt (including current maturities of long-term debt) plus (ii) stockholders’ equity plus the post-retirement plan amounts determined at year end as included in our Statement of Stockholder Equity.

⁴ Cash Flow during the performance period is defined as net cash flow from operations but not taking into account:

Payment of LTIP Awards for the 2005-2007 Cycle

Each of the NEOs (other than Mr. Tanner) received LTIP target awards in 2005 for the 2005-2007 performance cycle. The Committee reviewed and certified performance for the 2005-2007 cycle at its January 2008 meeting; the amounts paid under the 2005-2007 LTIP are shown in column (g) of the “Summary Compensation Table.”

The 2005-2007 LTIP cycle measured performance by comparing our percentile ranking of TSR in the three-year performance period to the TSR of the other companies in the S&P 500 Index at the beginning of the cycle.

During the 2005-2007 periods, the Corporation performed at the 88.5^th percentile, earning a payout under the LTIP of 200% of target. The 2005-2007 performance cycle did not contain an internal performance metric.

RSUs in 2007

We determined RSU grant sizes by multiplying the approximate 20% weight given RSUs (27% for the CEO) times the desired economic value for long-term incentives derived from Comparator Group data and dividing that amount by the estimated grant date value of one restricted share.

The RSUs granted in 2007 may be forfeited if the NEO does not continue to work for us for the entire three-year vesting period or if the value of the RSU grant for a NEO exceeded a specified percentage of cash flow in 2007. For the RSUs granted in 2007, a forfeiture would occur if the value of the RSUs on the date of grant exceeded 0.2% (for Mr. Stevens) and 0.04% (for each of the other NEOs) of 2007 corporate cash flow as defined in the RSU award agreement. If this were to occur, the NEO would forfeit a number of RSUs equal in value to the shortfall. Based on 2007 cash flow, no NEO

forfeited RSUs granted in January 2007 for performance reasons. This performance feature is intended to qualify the RSUs as “performance-based compensation” exempt from the $1 million limit on the deductibility of compensation under Internal Revenue Code Section 162(m). The 2007 RSU award agreement defines cash flow in the same manner as cash flow for the MICP awards as described on page 33.

Perquisites, Personal Benefits, and Other Executive Compensation

Perquisites and other personal benefits provided to the NEOs in 2007 are disclosed in the “Summary Compensation Table.” In order to ensure the security of our executives in uncertain times, the Committee has also adopted a resolution directing that Messrs. Stevens and Kubasik (and others on an as-advisable basis depending upon the circumstances) use corporate aircraft for business and personal travel.

Post-Employment, Change in Control, and Severance Benefits

Upon certain terminations of employment, including death, disability, retirement, layoff, divestiture or a change in control, the NEOs may become eligible for immediate payment of benefits previously earned or accelerated vesting of long-term incentives in full or on a pro-rata basis. The purpose of these provisions is to protect previously earned or granted benefits by making them available following the event. We view the vesting (or continued vesting) to be an important retention feature for senior level employees. Our plans do not provide for additional benefits or tax gross-ups. Because termination benefits consist of previously granted or earned benefits, we do not consider termination benefits as a separate item in compensation decisions.

In the event of a change in control, our plans provide for the acceleration of the payment of earned pension benefits and nonqualified deferred compensation and the vesting of previously granted long-term incentive awards. In the case of stock options and LTIP, vesting following a change in control is “single-trigger” and occurs upon the change in control. In the case of RSUs and RSAs, the vesting is double trigger and requires both a change in control and termination of employment.

RSAs and RSUs generally have been used to address retention issues. In that context, the double trigger

encourages continued employment and retention. In contrast, stock options are made to a larger group of employees and are used for more traditional compensatory reasons; that is, they are intended to reward common stock appreciation and enable recipients to share in both the risk and rewards of stock ownership through stock depreciation or appreciation. Given the predominantly compensatory nature of the awards tied to stock appreciation, immediate vesting upon a change in control permits participants to participate in any price appreciation associated with a change in control or control premium, on a basis similar to that available to stockholders as a whole.

In 2007, we entered into a Retirement Transition Agreement with Mr. Coutts in order to accommodate his retirement while ensuring his availability to assist in an orderly transfer of management responsibilities.

The section of this Proxy Statement entitled “Potential Payments Upon Termination or Change In Control” provides further information on post-employment payments, including Mr. Coutts’ agreement.

Compensation Design Changes in 2007

Post-Retirement Death Benefit

In 2007, we terminated the Lockheed Martin Corporation Post-Retirement Death Benefit Plan for Elected Officers (“PRDB Plan”). The Committee had amended this plan previously to limit participation to employees who became elected officers prior to January 1, 2007. We terminated the PRDB Plan for several reasons, including our desire to eliminate a balance sheet liability and the two-tier benefit structure among elected officers. The actuarial present value of the benefit that would have been paid upon the death of an officer following retirement will be payable to each of the NEOs (other than Mr. Tanner) in March 2008. The amounts to be paid are in column (i) of the “Summary Compensation Table.”

Executive Severance Plan

Our NEOs do not have employment agreements. In 2007, the Committee reviewed whether employment agreements would serve a corporate purpose. Following the review, the Committee concluded they would not, but decided to review the possibility of adopting an executive severance plan. In January 2008, the Board approved the Lockheed Martin Corporation

Severance Benefit Plan For Certain Management Employees (“Executive Severance Plan”). Benefits are payable under this plan in the event of a company-initiated termination of employment other than for cause. All of the NEOs could become eligible for the new plan.

The Board adopted the plan in order to standardize the process by which company-initiated terminations are handled and to facilitate orderly succession planning. The benefit payable in the plan is one times the NEO’s base salary and the equivalent of one year’s target MICP bonus. For the CEO, the multiplier is 2.99 instead of 1. The Committee viewed a higher multiplier for the CEO to be competitive with prevailing market practices.

In addition, NEOs participating in the plan will receive a lump-sum payment to cover the cost of medical benefits for one year and outplacement and relocation services. In order to receive the full severance benefit, the NEO must execute a release of claims and an agreement containing post-employment non-compete and non-solicitation covenants comparable to those included in our 2008 stock option, RSU and LTIP award agreements.

Governance Considerations in Compensation Decisions

Independence of Compensation Consultant to Committee

The Committee has adopted a policy directing that its consultant be independent. The Committee intends to perform an annual independence assessment of the consultant, reviewing the nature and level of work performed for the Committee during the year, the nature of other services performed for the Corporation, and the amount of fees paid to the firm in relation to the firm’s total revenues. The consultant also provides an annual independence letter to the Committee.

Based on its review and standards, the Committee concluded Watson Wyatt was independent in 2007. As part of its review, the Committee pre-approved up to $2 million worth of work that Watson Wyatt could perform for the Corporation in 2007; the Committee further determined that the provision of other pre-approved services would not impair Watson Wyatt’s independence, so long as the total of such services does not exceed 2% of Watson Wyatt’s annual

revenues. The Committee further authorized the Committee Chairman or any member of the Committee to pre-approve the performance of up to $500,000 in additional services by Watson Wyatt for the Committee, so long as that work was consistent with the work already approved.

Policy Regarding Timing of Option and Other Equity Grants

The Corporation has also adopted a corporate policy statement concerning the grant of equity awards which provides:

The closing price for our stock on the NYSE on the date specified as the date of grant is the exercise price for an option award.

In January 2008, the Committee adopted a resolution containing a formula that would adjust the grants approved by the Committee if changes in the market result in the value of the long-term incentive plan awards increasing or decreasing by more than 10% between the time the recommendations are prepared and the date of the grant (approximately 11 business days). In that circumstance, the grants would be re-adjusted pursuant to the formula so that the grants provided the desired economic value. No adjustment was necessary for 2008 awards.

Clawback and Other Protective Provisions

In January 2008, the Board amended its Corporate Governance Guidelines to include what is commonly referred to as a clawback policy. Under the policy, if the Board determines that

that in either case adversely impacted the Corporation’s financial position or reputation, the Board shall take such action as it deems in the best interests of the Corporation and necessary to remedy the misconduct and prevent its recurrence. The policy notes that, among other things, the Board may seek to recover or require reimbursement of any amount awarded to the officer after January 1, 2008 in the form of an MICP bonus or long-term incentive award.

In order to implement the policy on clawbacks, to ensure that proprietary information is protected and to facilitate retention of key employees, the Committee amended the MICP and included provisions in the award agreements for the RSUs, stock options, and LTIP awarded in January 2008, setting forth our right to recapture amounts covered by the policy. The award agreements also contain post-employment restrictive covenants. These covenants include, in the case of the NEOs, an agreement:

No award will be effective unless the NEO agrees to the restrictive covenants and the provision implementing the clawback policy.

Stock Ownership Guidelines

We expect the NEOs to maintain an ownership interest in the Corporation and have established Stock Ownership Guidelines for Key Employees, as follows:

Guidelines may be satisfied with ownership of common stock in the following categories:

The NEOs are asked to report on progress toward attainment of our stock ownership goals during the annual DMICP deferral election period, in increments of 25% of goal, and asked to indicate when they will achieve the next higher level toward their goal.

The “Summary Compensation Table” and accompanying tables below provide information concerning compensation paid to the CEO (Mr. Stevens), each employee serving as the CFO during 2007 (Messrs. Kubasik and Tanner), and the three most highly compensated executive officers (other than the CEO and the CFO) (Mr. Heath and Mss. Gooden and Maguire). The tables also include Mr. Coutts, a former executive officer, who would have been included in the three most highly compensated executives had he been a NEO at the end of the year.

In the narrative below and footnotes that accompany each table, we have provided information on the terms of the elements of our compensation program as follows:

Short Term Incentive and Annual Bonus Plan

Our NEOs are eligible for bonuses under the MICP. Each NEO is assigned a target percentage of base salary determined by the level of contribution and responsibility of the NEO’s position, and in a range comparable to annual incentive targets for similar positions in the Comparator Group. The targets are listed in the “Grants of Plan-Based Awards” table.

Although the MICP considers performance against quantitative and qualitative goals, we disclosed MICP payments in 2007 as a bonus in column (d) of the “Summary Compensation Table” because of the discretionary features of the plan.

LTIP Awards

At the end of a three-year performance period, 50% of the combined amount earned under the LTIP performance measures is payable in cash. Payment of the remaining portion of the award is deferred for two years, subject to continued employment, and treated during that period as if it were invested in our common stock. Amounts deferred become payable in cash on the second anniversary date of the end of the performance period.

Awards are subject to forfeiture upon termination of employment prior to the end of the performance period (or second anniversary of the end of the performance period in the case of the deferred portion). In the case of retirement, death, disability, divestiture or change in control occurring prior to the end of the performance cycle, awards are prorated, or if the event occurs during the two-year mandatory deferral period, awards are paid out immediately. Termination payments are discussed in more detail in the “Potential Payments Upon Termination or Change in Control” section.

Column (g) of the “Summary Compensation Table” shows LTIP amounts paid in January 2008 for the 2005-2007 cycle. The “Grants of Plan-Based Awards” table shows the targets established by the Committee in January 2007 for LTIP based on performance in 2007-2009.

Equity Awards

In 2007, NEOs received equity grants under the IPA Plan in the form of RSUs and stock options. The 2007 RSUs were subject to a three-year service-based vesting schedule. In order to have a nonforfeitable right to the RSUs, an award recipient must remain an employee for three years following the grant date, except in the case of death, disability, divestiture or change in control. If the employee retires or is laid off after January 29, 2008 but prior to the third anniversary of the grant, a pro rata portion of the RSUs becomes nonforfeitable. The RSUs were also forfeitable to the extent the value of the RSUs on January 29, 2007 was greater than .2% of 2007 cash flow in the case of Mr. Stevens or .04% of 2007 cash flow for the other executives. For 2007, no forfeiture was required.

Some of the NEOs received RSAs in 2003 and 2004, a portion of which vested in 2007 and 2006. All remaining RSAs will vest in 2008.

Under the 2007 option grant award agreements, options have a ten-year term and vest and become exercisable in three equal installments on the first, second and third anniversary dates following the grant. Options will expire 30 days following termination of employment, except in the case of death, disability, divestiture, layoff or retirement. In the event of death or disability, all outstanding options will vest immediately and expire ten years after the date of grant (i.e., the normal expiration date of the award). In cases of layoff, the term of any outstanding options will remain ten years and the options become exercisable on the date the options would have otherwise vested had the NEO remained our employee. In cases of divestiture, the options will become exercisable on the date the options would have otherwise vested and any outstanding options terminate five years from the effective date of the divestiture or on the option’s normal expiration date, whichever occurs first. In cases of retirement on or after the first vesting date, the term of any outstanding options will not change and the options will become exercisable on the date the options would have otherwise vested. Retirement before the first vesting date will result in forfeiture of the award. Upon a change in control, all options vest immediately.

Nonqualified Deferred Compensation Account Plans

Participants in our tax-qualified 401(k) plan may contribute up to 25% of base salary. Pre-tax contributions in excess of the Internal Revenue Code limitations are contributed to the NQSSP. In addition, we make a matching contribution equal to 50% of up to the first 8% of compensation contributed by the participant. Employee and company matching contributions to the 401(k) plan and the NQSSP are nonforfeitable at all times. NQSSP contributions are credited with earnings that match the performance of publicly available investment funds or our stock performance, as elected by the NEO. Each of the NQSSP investment options is available under our tax-qualified 401(k) plan for salaried employees. The NQSSP provides for payment following termination of employment in a lump sum or up to 20 annual installments at the NEO’s election. All amounts accumulated and unpaid under the NQSSP must be paid in a lump sum within 15 calendar days following a change in control.

The DMICP provides the opportunity to defer, until termination of employment or beyond, the receipt of all or a portion of bonuses earned under the MICP, LTIP awards and amounts paid in respect of the termination of the PRDB Plan. The DMICP provides that a NEO may choose between two alternatives for crediting earnings. Under the Stock Investment Option, earnings on deferred amounts will accrue at a rate that tracks the performance of our common stock (including reinvestment of dividends). Under the Interest Investment Option, earnings on deferred amounts will accrue at a rate equivalent to the then published rate for computing the present value of future benefits under Cost Accounting Standard No. 415, Deferred Compensation. Amounts attributable to the Stock Investment Option will be paid in shares of our common stock. Fifty percent of any LTIP award is mandatorily deferred for two years to the Stock Investment Option and remains subject to the continued employment requirements of the award. All amounts accumulated under the DMICP must be paid in a lump sum within 15 days following a change in control.

Retirement Plans

During 2007, the NEOs participated in the Lockheed Martin Corporation Salaried Employee Retirement Program (“LMRP”), which is a combination of the following prior plans for salaried employees with some protected benefits: Lockheed Martin Corporation Retirement Income Plan which covered former Martin Marietta employees; Lockheed Martin Corporation Retirement Income Plan III which covered former Loral Corporation employees; and Lockheed Martin Corporation Retirement Plan for Certain Salaried Employees which covered former Lockheed employees (collectively, the “Prior Plan”).

The calculation of retirement benefits under the LMRP is determined by a formula which takes into account the participant’s years of credited service and average compensation for the highest three years of the last ten years of employment. Average compensation includes the employee’s normal rate of pay (without overtime), bonuses earned under the MICP and lump sum payments in lieu of a salary increase. Normal retirement age is 65; however, benefits are payable as early as age 55 at a reduced amount or without reduction at age 60. A NEO who retires between ages 60 and 62 is eligible for payments ending at age 62 when eligibility for social security commences. Benefits are payable as a monthly annuity for the lifetime of the employee, as a joint and survivor annuity, as a life annuity with a five or ten year guarantee, or as a level income annuity.

The calculation of retirement benefits under the Prior Plan is based on a number of formulas, some of which take into account the participant’s years of credited service and pay over the career of the employee. Certain other formulas in the Prior Plan are based upon the final average compensation and credited service of the employee. Pay under certain formulas in the Prior Plan currently includes salary, commissions, overtime, shift differential, lump sum pay in lieu of a salary increase, MICP bonuses awarded that year, and 401(k) and pre-tax contributions. The Prior Plan also contains a Personal Retirement Provision which is an account balance based on past allocations. This account balance is available as a lump sum at termination or can be converted to an annuity. A portion of Mr. Stevens’ pension was earned under the Prior Plan.

The NEOs also participate in nonqualified supplemental retirement plans. These supplemental plans pay benefits in excess of Internal Revenue Code limits on qualified plan benefits or in some instances in accordance with a grandfathered or special pension formula. The nonqualified benefits are payable in the same form as benefits are paid under the LMRP, although lump-sum payments are available under some supplemental plans.

Messrs. Stevens, Coutts, and Heath qualify for early retirement under the LMRP, based upon having attained age 55 with at least five years of service. Messrs. Kubasik and Tanner, and Mss. Gooden and Maguire did not qualify for early retirement in 2007.