UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 29, 2024
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from ______ to ______
Commission file number: 1-11437
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
(301 ) 897-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non–accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b–2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were 237,035,273 shares of our common stock, $1 par value per share, outstanding as of October 18, 2024.
Lockheed Martin Corporation
Form 10-Q
For the Quarterly Period Ended September 29, 2024
Table of Contents
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| ITEM 4. | |||||||||||
| ITEM 1. | |||||||||||
| ITEM 1A. | |||||||||||
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Lockheed Martin Corporation
Consolidated Statements of Earnings
(unaudited; in millions, except per share data)
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| September 29, 2024 | September 24, 2023 | September 29, 2024 | September 24, 2023 | |||||||||||||||||||||||||||||||||||
| Net sales | ||||||||||||||||||||||||||||||||||||||
| Products | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Services | ||||||||||||||||||||||||||||||||||||||
| Total net sales | ||||||||||||||||||||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||||||||||||||||||||
| Products | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Services | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Impairment and severance charges | ( | |||||||||||||||||||||||||||||||||||||
| Other unallocated, net | ||||||||||||||||||||||||||||||||||||||
| Total cost of sales | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||||||||||||||
| Other income (expense), net | ( | |||||||||||||||||||||||||||||||||||||
| Operating profit | ||||||||||||||||||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Non-service FAS pension income | ||||||||||||||||||||||||||||||||||||||
| Other non-operating income, net | ||||||||||||||||||||||||||||||||||||||
| Earnings before income taxes | ||||||||||||||||||||||||||||||||||||||
| Income tax expense | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Net earnings | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Earnings per common share | ||||||||||||||||||||||||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Cash dividends paid per common share | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
Lockheed Martin Corporation
Consolidated Statements of Comprehensive Income
(unaudited; in millions)
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 29, 2024 | September 24, 2023 | September 29, 2024 | September 24, 2023 | |||||||||||||||||||||||
| Net earnings | $ | $ | $ | $ | ||||||||||||||||||||||
| Other comprehensive income, net of tax | ||||||||||||||||||||||||||
| Postretirement benefit plans | ||||||||||||||||||||||||||
Amortization of actuarial losses and prior service credits, net of tax expense of $ | ( | ( | ||||||||||||||||||||||||
Other, net, net of tax benefits of $ | ( | ( | ||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ( | ||||||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | ||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
Lockheed Martin Corporation
Consolidated Balance Sheets
(in millions, except par value)
| September 29, 2024 | December 31, 2023 | |||||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Assets | ||||||||||||||||||||
| Current assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||||||||
| Receivables, net | ||||||||||||||||||||
| Contract assets | ||||||||||||||||||||
| Inventories | ||||||||||||||||||||
| Other current assets | ||||||||||||||||||||
| Total current assets | ||||||||||||||||||||
| Property, plant and equipment, net | ||||||||||||||||||||
| Goodwill | ||||||||||||||||||||
| Intangible assets, net | ||||||||||||||||||||
| Deferred income taxes | ||||||||||||||||||||
| Other noncurrent assets | ||||||||||||||||||||
| Total assets | $ | $ | ||||||||||||||||||
| Liabilities and equity | ||||||||||||||||||||
| Current liabilities | ||||||||||||||||||||
| Accounts payable | $ | $ | ||||||||||||||||||
| Salaries, benefits and payroll taxes | ||||||||||||||||||||
| Contract liabilities | ||||||||||||||||||||
| Current maturities of long-term debt | ||||||||||||||||||||
| Other current liabilities | ||||||||||||||||||||
| Total current liabilities | ||||||||||||||||||||
| Long-term debt, net | ||||||||||||||||||||
| Accrued pension liabilities | ||||||||||||||||||||
| Other noncurrent liabilities | ||||||||||||||||||||
| Total liabilities | ||||||||||||||||||||
| Stockholders’ equity | ||||||||||||||||||||
Common stock, $ | ||||||||||||||||||||
| Additional paid-in capital | ||||||||||||||||||||
| Retained earnings | ||||||||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||||||||
| Total stockholders’ equity | ||||||||||||||||||||
| Total liabilities and equity | $ | $ | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
Lockheed Martin Corporation
Consolidated Statements of Cash Flows
(unaudited; in millions)
| Nine Months Ended | ||||||||||||||||||||
| September 29, 2024 | September 24, 2023 | |||||||||||||||||||
| Operating activities | ||||||||||||||||||||
| Net earnings | $ | $ | ||||||||||||||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Deferred income taxes | ( | ( | ||||||||||||||||||
| Impairment and severance charges | ||||||||||||||||||||
| Changes in assets and liabilities | ||||||||||||||||||||
| Receivables, net | ( | |||||||||||||||||||
| Contract assets | ( | ( | ||||||||||||||||||
| Inventories | ( | ( | ||||||||||||||||||
| Accounts payable | ||||||||||||||||||||
| Contract liabilities | ( | ( | ||||||||||||||||||
| Income taxes | ( | |||||||||||||||||||
| Qualified defined benefit pension plans | ( | ( | ||||||||||||||||||
| Other, net | ||||||||||||||||||||
| Net cash provided by operating activities | ||||||||||||||||||||
| Investing activities | ||||||||||||||||||||
| Capital expenditures | ( | ( | ||||||||||||||||||
| Other, net | ( | |||||||||||||||||||
| Net cash used for investing activities | ( | ( | ||||||||||||||||||
| Financing activities | ||||||||||||||||||||
| Issuance of long-term debt, net of related costs | ||||||||||||||||||||
| Repayments of long-term debt | ( | ( | ||||||||||||||||||
| Repurchases of common stock | ( | ( | ||||||||||||||||||
| Dividends paid | ( | ( | ||||||||||||||||||
| Other, net | ( | ( | ||||||||||||||||||
| Net cash used for financing activities | ( | ( | ||||||||||||||||||
| Net change in cash and cash equivalents | ||||||||||||||||||||
| Cash and cash equivalents at beginning of period | ||||||||||||||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
Lockheed Martin Corporation
Consolidated Statements of Equity
For the Quarters Ended September 29, 2024 and September 24, 2023
(unaudited; in millions)
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Equity | |||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||
| Net earnings | — | — | — | ||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | ||||||||||||||||||||
| Dividends declared | — | — | — | ||||||||||||||||||||
| Repurchases of common stock | ( | ( | ( | — | ( | ||||||||||||||||||
| Stock-based awards, ESOP activity and other | — | — | |||||||||||||||||||||
| Balance at September 29, 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||
| Balance at June 25, 2023 | $ | $ | $ | $ | ( | $ | |||||||||||||||||
| Net earnings | — | — | — | ||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | ( | ( | ||||||||||||||||||
| Dividends declared | — | — | — | ||||||||||||||||||||
| Repurchases of common stock | ( | ( | ( | — | ( | ||||||||||||||||||
| Stock-based awards, ESOP activity and other | — | — | — | ||||||||||||||||||||
| Balance at September 24, 2023 | $ | $ | $ | $ | ( | $ | |||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
Lockheed Martin Corporation
Consolidated Statements of Equity
For the Nine Months Ended September 29, 2024 and September 24, 2023
(unaudited; in millions)
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Equity | |||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | $ | |||||||||||||||||
| Net earnings | — | — | — | ||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | ||||||||||||||||||||
| Dividends declared | — | — | ( | — | ( | ||||||||||||||||||
| Repurchases of common stock | ( | ( | ( | — | ( | ||||||||||||||||||
Stock-based awards, ESOP activity and other | — | — | |||||||||||||||||||||
| Balance at September 29 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||
| Net earnings | — | — | — | ||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | ( | ( | ||||||||||||||||||
| Dividends declared | — | — | ( | — | ( | ||||||||||||||||||
| Repurchases of common stock | ( | ( | ( | — | ( | ||||||||||||||||||
Stock-based awards, ESOP activity and other | — | — | |||||||||||||||||||||
| Balance at September 24, 2023 | $ | $ | $ | $ | ( | $ | |||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
8
NOTE 1 - BASIS OF PRESENTATION
We prepared these consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information, the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission (SEC) Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.
In the opinion of management, these consolidated financial statements reflect all adjustments that are of a normal recurring nature necessary for a fair presentation of our results of operations, financial condition, and cash flows for the interim periods presented. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base these estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially from these estimates. Significant estimates inherent in the preparation of our consolidated financial statements include, but are not limited to, accounting for sales and cost recognition; postretirement benefit plans; environmental liabilities and assets for the portion of environmental costs that are probable of future recovery; evaluation of goodwill, intangible assets, investments and other assets for impairment; income taxes including deferred tax assets; fair value measurements; and contingencies. The consolidated financial statements include the accounts of subsidiaries we control and variable interest entities if we are the primary beneficiary. We eliminate intercompany balances and transactions in consolidation.
We close our books and records on the last Sunday of each interim calendar quarter, which was on September 29 for the third quarter of 2024 and September 24 for the third quarter of 2023, to align our financial closing with our business processes. The consolidated financial statements and tables of financial information included herein are labeled based on that convention. This practice only affects interim periods; our fiscal year ends on December 31.
The results of operations for the interim periods presented are not necessarily indicative of results to be expected for the full year or future periods. Unless otherwise noted, we present all per share amounts cited in these consolidated financial statements on a “per diluted share” basis. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023 (2023 Form 10-K).
NOTE 2 - EARNINGS PER COMMON SHARE
The weighted average number of shares outstanding used to compute earnings per common share were as follows (in millions):
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| September 29, 2024 | September 24, 2023 | September 29, 2024 | September 24, 2023 | ||||||||||||||||||||||||||
| Weighted average common shares outstanding for basic computations | |||||||||||||||||||||||||||||
Weighted average dilutive effect of equity awards | |||||||||||||||||||||||||||||
Weighted average common shares outstanding for diluted computations | |||||||||||||||||||||||||||||
9
Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
NOTE 3 - INFORMATION ON BUSINESS SEGMENTS
Overview
We operate in four business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space. We organize our business segments based on the nature of products and services offered.
Selected Financial Data by Business Segment
Net sales and operating profit of our business segments exclude intersegment sales, cost of sales and profit as these activities are eliminated in consolidation and thus are not included in management’s evaluation of performance of each segment. Business segment operating profit includes our share of earnings or losses from equity method investees as the operating activities of the equity method investees are closely aligned with the operations of our business segments.
Summary operating results for each of our business segments were as follows (in millions):
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| September 29, 2024 | September 24, 2023 | September 29, 2024 | September 24, 2023 | ||||||||||||||||||||||||||||||||
| Net sales | |||||||||||||||||||||||||||||||||||
| Aeronautics | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Missiles and Fire Control | |||||||||||||||||||||||||||||||||||
| Rotary and Mission Systems | |||||||||||||||||||||||||||||||||||
| Space | |||||||||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Operating profit | |||||||||||||||||||||||||||||||||||
| Aeronautics | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Missiles and Fire Control | |||||||||||||||||||||||||||||||||||
| Rotary and Mission Systems | |||||||||||||||||||||||||||||||||||
| Space | |||||||||||||||||||||||||||||||||||
| Total business segment operating profit | |||||||||||||||||||||||||||||||||||
| Unallocated items | |||||||||||||||||||||||||||||||||||
| FAS/CAS pension operating adjustment | |||||||||||||||||||||||||||||||||||
Impairment and severance charges (a) | ( | ||||||||||||||||||||||||||||||||||
| Intangible asset amortization expense | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
Other, net | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Total unallocated items | |||||||||||||||||||||||||||||||||||
| Total consolidated operating profit | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Intersegment sales | |||||||||||||||||||||||||||||||||||
| Aeronautics | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Missiles and Fire Control | |||||||||||||||||||||||||||||||||||
| Rotary and Mission Systems | |||||||||||||||||||||||||||||||||||
| Space | |||||||||||||||||||||||||||||||||||
| Total intersegment sales | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
(a)Impairment and severance charges of $87 million ($69 million, or $0.29 per share, after-tax) include trademark and fixed asset impairments as well as severance costs recorded in the second quarter of 2024. See “Note 10 - Other” below for additional information.
10
Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
Unallocated Items
Business segment operating profit excludes the FAS/CAS pension operating adjustment discussed below, a portion of corporate costs not considered allowable or allocable to contracts with the U.S. Government under the applicable U.S. Government Cost Accounting Standards (CAS) or Federal Acquisition Regulations (FAR), and other items not considered part of management’s evaluation of segment operating performance such as a portion of management and administration costs, legal fees and settlements, stock-based compensation expense, changes in the fair value of assets and liabilities for deferred compensation plans, retiree benefits, significant severance charges, significant asset impairments, gains or losses from divestitures, intangible asset amortization expense, and other miscellaneous corporate activities. Excluded items are included in the reconciling item “Unallocated items” between operating profit from our business segments and our consolidated operating profit. See “Note 10 - Other” for a discussion related to certain factors that may impact the comparability of net sales and operating profit of our business segments.
FAS/CAS Pension Operating Adjustment
Our business segments’ results of operations include pension expense only as calculated under CAS, which we refer to as CAS pension cost. We recover CAS pension and other postretirement benefit plan cost through the pricing of our products and services on U.S. Government contracts and, therefore, recognize CAS pension cost in each of our business segments’ net sales and cost of sales. Our consolidated financial statements must present pension and other postretirement benefit plan income calculated in accordance with Financial Accounting Standards (FAS) requirements under U.S. GAAP. The operating portion of the total FAS/CAS pension adjustment represents the difference between the service cost component of FAS pension income (expense) and total CAS pension cost. The non-service FAS pension income components are included in non-service FAS pension income in our consolidated statements of earnings. As a result, to the extent that CAS pension cost exceeds the service cost component of FAS pension income (expense), we have a favorable FAS/CAS pension operating adjustment.
11
Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
Disaggregation of Net Sales
Net sales by products and services, contract type, customer, and geographic region were as follows (in millions):
Quarter Ended September 29, 2024 | ||||||||||||||||||||||||||||||||
| Aeronautics | MFC | RMS | Space | Total | ||||||||||||||||||||||||||||
| Net sales | ||||||||||||||||||||||||||||||||
| Products | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Services | ||||||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Net sales by contract type | ||||||||||||||||||||||||||||||||
| Fixed-price | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Cost-reimbursable | ||||||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Net sales by customer | ||||||||||||||||||||||||||||||||
| U.S. Government | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
International (a) | ||||||||||||||||||||||||||||||||
| U.S. commercial and other | ( | |||||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Net sales by geographic region | ||||||||||||||||||||||||||||||||
| United States | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Europe | ||||||||||||||||||||||||||||||||
| Asia Pacific | ||||||||||||||||||||||||||||||||
| Middle East | ||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nine Months Ended September 29, 2024 | ||||||||||||||||||||||||||||||||
| Aeronautics | MFC | RMS | Space | Total | ||||||||||||||||||||||||||||
| Net sales | ||||||||||||||||||||||||||||||||
| Products | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Services | ||||||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Net sales by contract type | ||||||||||||||||||||||||||||||||
| Fixed-price | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Cost-reimbursable | ||||||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Net sales by customer | ||||||||||||||||||||||||||||||||
| U.S. Government | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
International (a) | ||||||||||||||||||||||||||||||||
| U.S. commercial and other | ||||||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Net sales by geographic region | ||||||||||||||||||||||||||||||||
| United States | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Europe | ||||||||||||||||||||||||||||||||
| Asia Pacific | ||||||||||||||||||||||||||||||||
| Middle East | ||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
12
Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
Quarter Ended September 24, 2023 | ||||||||||||||||||||||||||||||||
| Aeronautics | MFC | RMS | Space | Total | ||||||||||||||||||||||||||||
| Net sales | ||||||||||||||||||||||||||||||||
| Products | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Services | ||||||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Net sales by contract type | ||||||||||||||||||||||||||||||||
| Fixed-price | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Cost-reimbursable | ||||||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Net sales by customer | ||||||||||||||||||||||||||||||||
| U.S. Government | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
International (a) | ||||||||||||||||||||||||||||||||
| U.S. commercial and other | ||||||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Net sales by geographic region | ||||||||||||||||||||||||||||||||
| United States | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Europe | ||||||||||||||||||||||||||||||||
| Asia Pacific | ||||||||||||||||||||||||||||||||
| Middle East | ||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nine Months Ended September 24, 2023 | ||||||||||||||||||||||||||||||||
| Aeronautics | MFC | RMS | Space | Total | ||||||||||||||||||||||||||||
| Net sales | ||||||||||||||||||||||||||||||||
| Products | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Services | ||||||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Net sales by contract type | ||||||||||||||||||||||||||||||||
| Fixed-price | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Cost-reimbursable | ||||||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Net sales by customer | ||||||||||||||||||||||||||||||||
| U.S. Government | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
International (a) | ||||||||||||||||||||||||||||||||
| U.S. commercial and other | ||||||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Net sales by geographic region | ||||||||||||||||||||||||||||||||
| United States | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Europe | ||||||||||||||||||||||||||||||||
| Asia Pacific | ||||||||||||||||||||||||||||||||
| Middle East | ||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
(a)International sales include foreign military sales (FMS) contracted through the U.S. Government and direct commercial sales to international governments and other international customers.
13
Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
Our Aeronautics business segment includes our largest program, the F-35 Lightning II, an international multi-role, multi-variant, stealth fighter aircraft. Net sales for the F-35 program represented approximately 22 % and 24 % of our total consolidated net sales for the quarter and nine months ended September 29, 2024 and 26
Assets
Total assets for each of our business segments were as follows (in millions):
| September 29, 2024 | December 31, 2023 | |||||||||||||||||||
| Assets | ||||||||||||||||||||
| Aeronautics | $ | $ | ||||||||||||||||||
| Missiles and Fire Control | ||||||||||||||||||||
| Rotary and Mission Systems | ||||||||||||||||||||
| Space | ||||||||||||||||||||
| Total business segment assets | ||||||||||||||||||||
Corporate assets (a) | ||||||||||||||||||||
| Total assets | $ | $ | ||||||||||||||||||
(a)Corporate assets primarily include cash and cash equivalents, deferred income taxes, assets for the portion of environmental costs that are probable of future recovery, property, plant and equipment used in our corporate operations, assets held in a trust for deferred compensation plans, and investments in early-stage companies.
NOTE 4 - CONTRACT ASSETS AND LIABILITIES
Contract assets include unbilled amounts typically resulting from sales under contracts when the percentage-of-completion cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. Contract liabilities include advance payments and billings in excess of revenue recognized. Contract assets and contract liabilities were as follows (in millions):
| September 29, 2024 | December 31, 2023 | |||||||||||||||||||
| Contract assets | $ | $ | ||||||||||||||||||
| Contract liabilities | ||||||||||||||||||||
Contract assets increased $1.0 billion during the nine months ended September 29, 2024, due to the recognition of revenue related to the satisfaction or partial satisfaction of performance obligations during the nine months ended September 29, 2024 for which we have not yet billed our customers. There were no
Contract liabilities decreased $139 million during the nine months ended September 29, 2024, primarily due to revenue recognized in excess of payments received on performance obligations. During the quarter and nine months ended September 29, 2024, we recognized $866 million and $4.9 billion of our contract liabilities at December 31, 2023 as revenue. During the quarter and nine months ended September 24, 2023, we recognized $916 million and $4.2 billion of our contract liabilities at December 31, 2022 as revenue.
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
NOTE 5 - INVENTORIES
Inventories consisted of the following (in millions):
| September 29, 2024 | December 31, 2023 | |||||||||||||||||||
| Materials, spares and supplies | $ | $ | ||||||||||||||||||
Work-in-process | ||||||||||||||||||||
| Finished goods | ||||||||||||||||||||
| Total inventories | $ | $ | ||||||||||||||||||
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
NOTE 6 - POSTRETIREMENT BENEFIT PLANS
FAS income
The pretax FAS income related to our qualified defined benefit pension plans and retiree medical and life insurance plans consisted of the following (in millions):
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| September 29, 2024 | September 24, 2023 | September 29, 2024 | September 24, 2023 | ||||||||||||||||||||||||||||||||
| Qualified defined benefit pension plans | |||||||||||||||||||||||||||||||||||
| Operating: | |||||||||||||||||||||||||||||||||||
| Service cost | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
| Non-operating: | |||||||||||||||||||||||||||||||||||
| Interest cost | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Expected return on plan assets | |||||||||||||||||||||||||||||||||||
| Amortization of actuarial losses | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Amortization of prior service credits | |||||||||||||||||||||||||||||||||||
| Non-service FAS pension income | |||||||||||||||||||||||||||||||||||
| Total FAS pension income | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Retiree medical and life insurance plans | |||||||||||||||||||||||||||||||||||
| Operating: | |||||||||||||||||||||||||||||||||||
| Service cost | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
| Non-operating: | |||||||||||||||||||||||||||||||||||
| Interest cost | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Expected return on plan assets | |||||||||||||||||||||||||||||||||||
| Amortization of actuarial gains | |||||||||||||||||||||||||||||||||||
| Amortization of prior service costs | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Non-service FAS retiree medical and life income | |||||||||||||||||||||||||||||||||||
| Total FAS retiree medical and life income | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
We record the service cost component of FAS income for our qualified defined benefit pension plans and retiree medical and life insurance plans in the cost of sales accounts; the non-service components of our FAS income for our qualified defined benefit pension plans in the non-service FAS pension income account; and the non-service components of our FAS income for our retiree medical and life insurance plans as part of the other non-operating income, net account on our consolidated statements of earnings.
The amortization of net actuarial losses or gains and prior service credits or costs in the table above, along with similar costs related to our other postretirement benefit plans were reclassified from accumulated other comprehensive loss (AOCL) and recorded as a component of FAS income for the periods presented. These costs totaled $25 million ($19 million, net of tax) and $73 million ($57 million, net of tax) during the quarter and nine months ended September 29, 2024, and $(47 ) million ($(37 ) million, net of tax) and $(141 ) million ($(111 ) million, net of tax) during the quarter and nine months ended September 24, 2023.
Funding Requirements
The required funding of our qualified defined benefit pension plans is determined in accordance with the Employee Retirement Income Security Act of 1974 (ERISA), as amended, along with consideration of CAS and Internal Revenue Code rules. We made no
16
Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
NOTE 7 - LEGAL PROCEEDINGS AND CONTINGENCIES
Legal Proceedings
We are a party to litigation and other proceedings that arise in the ordinary course of our business, including matters arising under provisions relating to the protection of the environment, and are subject to contingencies related to certain businesses we previously owned. These types of matters could result in fines, penalties, cost reimbursements or contributions, compensatory or treble damages or non-monetary sanctions or relief. We believe the probability is remote that the outcome of each of these matters, including the legal proceedings described below, will have a material adverse effect on the company as a whole, notwithstanding that the unfavorable resolution of any matter may have a material effect on our net earnings and cash flows in the period in which it is recognized. Among the factors that we consider in this assessment are the nature of existing legal proceedings and claims, the asserted or possible damages or loss contingency (if estimable), the progress of the case, existing law and precedent, the opinions or views of legal counsel and other advisers, our experience in similar cases and the experience of other companies, the facts available to us at the time of assessment and how we intend to respond to the proceeding or claim. Our assessment of these factors may change over time as individual proceedings or claims progress.
Although we cannot predict the outcome of legal or other proceedings with certainty, where there is at least a reasonable possibility that a loss may have been incurred, GAAP requires us to disclose an estimate of the reasonably possible loss or range of loss or make a statement that such an estimate cannot be made. We follow a thorough process in which we seek to estimate the reasonably possible loss or range of loss, and only if we are unable to make such an estimate do we conclude and disclose that an estimate cannot be made. Accordingly, unless otherwise indicated below in our discussion of legal proceedings, a reasonably possible loss or range of loss associated with any individual legal proceeding cannot be estimated.
Lockheed Martin v. Metropolitan Transportation Authority
On April 24, 2009, we filed a declaratory judgment action against the New York Metropolitan Transportation Authority and its Capital Construction Company (collectively, the MTA) asking the U.S. District Court for the Southern District of New York to find that the MTA is in material breach of our agreement based on the MTA’s failure to provide access to sites where work must be performed and the customer-furnished equipment necessary to complete the contract. The MTA filed an answer and counterclaim alleging that we breached the contract and subsequently terminated the contract for alleged default. The primary damages sought by the MTA are the costs to complete the contract and potential re-procurement costs. While we are unable to estimate the cost of another contractor to complete the contract and the costs of re-procurement, we note that our contract with the MTA had a total value of $323 million, of which $241 million was paid to us, and that the MTA is seeking damages of approximately $190 million. We dispute the MTA’s allegations and are defending against them. Additionally, following an investigation, our sureties on a performance bond related to this matter, who were represented by independent counsel, concluded that the MTA’s termination of the contract was improper. Finally, our declaratory judgment action was later amended to include claims for monetary damages against the MTA of approximately $95 million. This matter was taken under submission by the District Court in December 2014, after a five-week bench trial and the filing of post-trial pleadings by the parties. We continue to await a decision from the District Court. Although this matter relates to our former Information Systems & Global Solutions business (IS&GS), we retained responsibility for the litigation when we divested IS&GS in 2016.
Environmental Matters
We are involved in proceedings and potential proceedings relating to soil, sediment, surface water, and groundwater contamination, disposal of hazardous substances, and other environmental matters at several of our current or former facilities, facilities for which we may have contractual responsibility, and at third-party sites where we have been designated as a potentially responsible party (PRP). A substantial portion of environmental costs will be included in our net sales and cost of sales in future periods pursuant to U.S. Government regulations. At the time a liability is recorded for future environmental costs, we record assets for estimated future recovery considered probable through the pricing of products and services to agencies of the U.S. Government, regardless of the contract form (e.g., cost-reimbursable, fixed-price). We continually evaluate the recoverability of our assets for the portion of environmental costs that are probable of future recovery by assessing, among other factors, U.S. Government regulations, our U.S. Government business base and contract mix, and our history of receiving reimbursement of such costs. We include the portions of those
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
environmental costs expected to be allocated to our non-U.S. Government contracts, or determined not to be recoverable under U.S. Government contracts, in our cost of sales at the time the liability is established or adjusted.
At September 29, 2024 and December 31, 2023, the aggregate amount of liabilities recorded relative to environmental matters was $697 million and $680 million, most of which are recorded in on our consolidated balance sheets. We have recorded assets for the portion of environmental costs that are probable of future recovery totaling $628 million and $613 million at September 29, 2024 and December 31, 2023, most of which are recorded in other noncurrent assets on our consolidated balance sheets.
Environmental remediation activities usually span many years, which makes estimating liabilities a matter of judgment because of uncertainties with respect to assessing the extent of the contamination as well as such factors as changing remediation technologies and changing regulatory environmental standards. We are monitoring or investigating a number of former and present operating facilities for potential future remediation. We perform quarterly reviews of the status of our environmental remediation sites and the related liabilities and receivables. Additionally, in our quarterly reviews, we consider these and other factors in estimating the timing and amount of any future costs that may be required for remediation activities, and we record a liability when it is probable that a loss has occurred or will occur for a particular site and the loss can be reasonably estimated. The amount of liability recorded is based on our estimate of the costs to be incurred for remediation for that site. We do not discount the recorded liabilities, as the amount and timing of future cash payments are not fixed or cannot be reliably determined. We cannot reasonably determine the extent of our financial exposure in all cases as, although a loss may be probable or reasonably possible, in some cases it is not possible at this time to estimate the reasonably possible loss or range of loss. We project costs and recovery of costs over approximately 20 years.
We also pursue claims for recovery of costs incurred or for contribution to site remediation costs against other PRPs, including the U.S. Government, and are conducting remediation activities under various consent decrees, orders, and agreements relating to soil, groundwater, sediment, or surface water contamination at certain sites of former or current operations. Under agreements related to certain sites in California, New York, United States Virgin Islands and Washington, the U.S. Government and/or a private party reimburses us an amount equal to a percentage, specific to each site, of expenditures for certain remediation activities in their capacity as PRPs under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).
In addition to the proceedings and potential proceedings discussed above, potential new regulations concerning perchlorate and hexavalent chromium at the federal and state level could increase our cleanup costs. If substantially lower cleanup standards are adopted for perchlorate or hexavalent chromium, we expect a material increase in both our estimates for environmental liabilities and the related assets for the portion of costs that are probable of future recovery. The amount that would be allocable to our non-U.S. Government contracts or that is determined not to be recoverable under U.S. Government contracts would be expensed, which may have a material effect on our earnings in any particular interim reporting period.
We also are evaluating the potential impact of new, existing, and contemplated requirements addressing a class of chemicals known generally as per- and polyfluoroalkyl substances (PFAS). PFAS are common and appear in products such as fire-fighting foams and stain- and stick-resistant products (e.g., Teflon, stain-resistant fabrics) and have been used in manufacturing processes. Regulations requiring very low PFAS contaminant levels in drinking water could eventually lead to increased cleanup costs at a number of our environmental remediation sites.
Letters of Credit, Surety Bonds and Third-Party Guarantees
We have entered into standby letters of credit and surety bonds issued on our behalf by financial institutions, and we have directly issued guarantees to third parties primarily relating to advances received from customers and the guarantee of future performance on certain contracts. Letters of credit and surety bonds generally are available for draw down in the event we do not perform. We had total outstanding letters of credit and surety bonds aggregating $2.7 billion and $2.9 billion at September 29, 2024 and December 31, 2023.
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
Additionally, we may guarantee the contractual performance of third parties such as joint venture partners. At September 29, 2024 and December 31, 2023, third-party guarantees totaled $313 million and $1.0 billion, of which approximately 21 % and 75 % related to guarantees of contractual performance of joint ventures to which we currently are or previously were a party. These amounts represent our estimate of the maximum amounts we would expect to incur upon the contractual non-performance of the joint venture, joint venture partners or divested businesses. Generally, we also have cross-indemnities in place that may enable us to recover amounts that may be paid on behalf of a joint venture partner. Third-party guarantees do not include guarantees issued on behalf of subsidiaries and other consolidated entities.
In determining our exposures, we evaluate the reputation, performance on contractual obligations, technical capabilities and credit quality of our current and former joint venture partners and the transferee under novation agreements all of which include a guarantee as required by the FAR. At September 29, 2024 and December 31, 2023, there were no material amounts recorded in our financial statements related to third-party guarantees or novation agreements.
Other Contingencies
On April 22, 2024, the Armed Services Board of Contract Appeals (ASBCA) sustained our claim associated with a contract to modernize and install new engines in C-5 Galaxy aircraft. The ASBCA ruled that we are entitled to $132 million for impacts due to excessive “over and above” work performed under the contract plus interest on the amount since the date of our claim in October 2018. On August 27, 2024, the Department of Justice filed a notice of appeal of the ASBCA’s decision with the U.S. Court of Appeals for the Federal Circuit. On the anticipated basis of the Government’s appeal, we have recognized approximately $85 million of sales and operating profit during the quarter ended September 29, 2024, which we believe is probable of collection and subject to change based on developments during the pending appeal process in Federal Circuit Court and as interest accrues.
Independent of this matter and as a U.S. Government contractor, we are subject to various audits and investigations by the U.S. Government to determine whether our operations are being conducted in accordance with applicable regulatory requirements. U.S. Government investigations of us, whether relating to Government contracts or conducted for other reasons, could result in administrative, civil, or criminal liabilities, including repayments, fines or penalties being imposed upon us, suspension, proposed debarment, debarment from eligibility for future U.S. Government contracting, or suspension of export privileges. Suspension or debarment could have a material adverse effect on us because of our dependence on contracts with the U.S. Government. U.S. Government investigations often take years to complete and many result in no adverse action against us. We also provide products and services to customers outside of the United States, which are subject to U.S. and foreign laws and regulations and foreign procurement policies and practices. Our compliance with local regulations or applicable U.S. Government regulations also may be audited or investigated.
Additionally, in the normal course of business, we provide warranties to our customers associated with certain product sales. We record estimated warranty costs in the period in which the related products are delivered. The warranty liability is generally based on the number of months of warranty coverage remaining for the products delivered and the average historical monthly warranty payments. Warranty obligations incurred in connection with long-term production contracts are accounted for within the contract estimates at completion.
19
Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
NOTE 8 - FAIR VALUE MEASUREMENTS
Assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following (in millions):
| September 29, 2024 | December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Mutual funds | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| U.S. Government securities | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other securities | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivatives | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivatives | ||||||||||||||||||||||||||||||||||||||||||||||||||
Substantially all assets measured at fair value, other than derivatives, represent assets held in a trust to fund certain of our non-qualified deferred compensation plans and are recorded in other noncurrent assets on our consolidated balance sheets. The fair values of mutual funds and certain other securities are determined by reference to the quoted market price per unit in active markets multiplied by the number of units held without consideration of transaction costs. The fair values of U.S. Government and certain other securities are determined using pricing models that use observable inputs (e.g., interest rates and yield curves observable at commonly quoted intervals), bids provided by brokers or dealers or quoted prices of securities with similar characteristics. The fair values of derivative instruments, which consist of foreign currency forward contracts, including embedded derivatives, and interest rate swap contracts, are primarily determined based on the present value of future cash flows using model-derived valuations that use observable inputs such as interest rates, credit spreads and foreign currency exchange rates.
We also make investments in early-stage companies that we believe are advancing or developing new technologies applicable to our business. Investments that have quoted market prices in active markets (Level 1) are recorded at fair value and reflected in other securities while certain investments are categorized as Level 3 when valuations using observable inputs are unavailable. See “Note 10 - Other - Investments” for more information.
We use derivative instruments principally to reduce our exposure to market risks from changes in foreign currency exchange rates and interest rates. We transact business globally and are subject to risks associated with changing foreign currency exchange rates. We do not enter into or hold derivative instruments for speculative trading purposes. These contracts hedge forecasted foreign currency transactions in order to minimize fluctuations in our earnings and cash flows associated with changes in foreign currency exchange rates. We designate foreign currency hedges as cash flow hedges. We enter into foreign currency hedges such as forward and option contracts that change in value as foreign currency exchange rates change. Our most significant foreign currency exposures relate to the British pound sterling, the euro, the Canadian dollar, the Australian dollar, the Norwegian kroner and the Polish zloty. We also are exposed to the impact of interest rate changes primarily through our borrowing activities. For fixed rate borrowings, we may use variable interest rate swaps, effectively converting fixed rate borrowings to variable rate borrowings in order to hedge changes in the fair value of the debt. These swaps are designated as fair value hedges. For variable rate borrowings, we may use fixed interest rate swaps, effectively converting variable rate borrowings to fixed rate borrowings in order to minimize the impact of interest rate changes on earnings. These swaps are designated as cash flow hedges. We also may enter into derivative instruments that are not designated as hedges and do not qualify for hedge accounting, which are intended to minimize certain economic exposures.
The aggregate notional amount of our outstanding interest rate swaps was $1.3 6.3 billion and $6.5 billion at September 29, 2024 and December 31, 2023. The fair values of our outstanding interest rate swaps and foreign currency hedges at September 29, 2024 and December 31, 2023 were not significant. Derivative instruments did not have a material impact on net earnings and comprehensive income during the quarters and nine months ended September 29, 2024 and September 24, 2023. The impact of derivative instruments on our consolidated statements of cash flows is included in net cash provided by operating activities. Substantially all of our derivatives are designated for hedge accounting.
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
In addition to the financial instruments listed in the table above, we hold other financial instruments, including cash and cash equivalents, receivables, accounts payable and debt. The carrying amounts for cash and cash equivalents, receivables and accounts payable approximated their fair values. The estimated fair value of our outstanding debt was $20.4 billion and $18.5 billion at September 29, 2024 and December 31, 2023. The outstanding principal amount of debt, including short-term and long-term debt, was $20.6 billion and $18.7 billion at September 29, 2024 and December 31, 2023, excluding approximately $1.3
NOTE 9 - STOCKHOLDERS’ EQUITY
Repurchases of Common Stock
During the nine months ended September 29, 2024, we repurchased 5.7 million shares of our common stock in open market purchases for $2.7 billion.
The total remaining authorization for future common stock repurchases under our share repurchase program was $7.3 billion as of September 29, 2024. In October 2024, subsequent to our third quarter, our Board of Directors authorized an increase of $3.0 billion to our share repurchase program, increasing our total authorization of the current program to $10.3 billion for future purchases. As we repurchase our common shares, we reduce common stock for the $1 of par value of the shares repurchased, with the excess purchase price over par value recorded as a reduction of additional paid-in capital. If additional paid-in capital is reduced to zero, we record the remainder of the excess purchase price over par value as a reduction of retained earnings.
Dividends
We paid cash dividends of $2.3 billion ($9.45 per share) during the nine months ended September 29, 2024. In October 2024, subsequent to our third quarter, we authorized a fourth quarter 2024 dividend payment of $3.30 per share, an increase of $0.15 per share over our third quarter 2024 dividend of $3.15 per share.
The total amount of dividends declared may differ from the total amount of dividends paid during a period due to the timing of dividend-equivalents paid on RSUs and PSUs. These dividend-equivalents are accrued during the vesting period and are paid upon the vesting of the RSUs and PSUs, which primarily occurs in the first quarter each year.
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
Accumulated Other Comprehensive Loss
Changes in the balance of AOCL, net of tax, consisted of the following (in millions):
| Postretirement Benefit Plans | Other, net | AOCL | ||||||||||||||||||
| Balance at December 31, 2023 | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Other comprehensive income (loss) before reclassifications | — | |||||||||||||||||||
| Amounts reclassified from AOCL | ||||||||||||||||||||
Amortization of net actuarial losses (a) | — | |||||||||||||||||||
Amortization of net prior service credits (a) | ( | — | ( | |||||||||||||||||
| Other | — | |||||||||||||||||||
| Total reclassified from AOCL | ||||||||||||||||||||
| Total other comprehensive income (loss) | ||||||||||||||||||||
| Balance at September 29, 2024 | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Balance at December 31, 2022 | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Other comprehensive income (loss) before reclassifications | — | ( | ( | |||||||||||||||||
| Amounts reclassified from AOCL | ||||||||||||||||||||
Amortization of net actuarial losses (a) | — | |||||||||||||||||||
Amortization of net prior service credits (a) | ( | — | ( | |||||||||||||||||
| Other | — | |||||||||||||||||||
| Total reclassified from AOCL | ( | ( | ||||||||||||||||||
| Total other comprehensive income (loss) | ( | ( | ( | |||||||||||||||||
| Balance at September 24, 2023 | $ | ( | $ | ( | $ | ( | ||||||||||||||
NOTE 10 - OTHER
Contract Estimates
Significant estimates and assumptions are made in estimating contract sales, costs, and profit. We estimate profit as the difference between estimated revenues and total estimated costs to complete the contract. At the outset of a long-term contract, we identify and monitor risks to the achievement of the technical, schedule and cost aspects of the contract, as well as our ability to earn variable consideration, and assess the effects of those risks on our estimates of sales and total costs to complete the contract. The estimates consider the technical requirements (e.g., a newly developed product versus a mature product), the schedule and associated tasks (e.g., the number and type of milestone events) and costs (e.g., material, labor, subcontractor, overhead, general and administrative and the estimated costs to fulfill our industrial cooperation agreements, sometimes referred to as offset or localization agreements, required under certain contracts with international customers). The initial profit booking rate of each contract considers risks surrounding the ability to achieve the technical requirements, schedule and costs in the initial estimated total costs to complete the contract. Profit booking rates may increase during the performance of the contract if we successfully retire risks related to technical, schedule and cost aspects of the contract, which decreases the estimated total costs to complete the contract or may increase the variable consideration we expect to receive on the contract. Conversely, our profit booking rates may decrease if the estimated total costs to complete the contract increase or our estimates of variable consideration we expect to receive decrease. All of the estimates are subject to change during the performance of the contract and may affect the profit booking rate. When estimates of total costs to be incurred on a contract exceed total estimates of the transaction price, a
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
provision for the entire loss is determined at the contract level and is recorded in the period in which the loss is evident, which we refer to as a reach-forward loss.
Comparability of our segment sales, operating profit and operating margin may be impacted favorably or unfavorably by changes in profit booking rates on our contracts. Increases in the profit booking rates, typically referred to as favorable profit booking rate adjustments, usually relate to revisions in the estimated total costs to fulfill the performance obligations that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate, resulting in an increase in the estimated total costs to fulfill the performance obligations and a reduction in the profit booking rate and are typically referred to as unfavorable profit booking rate adjustments. Increases or decreases in profit booking rates are recognized in the current period they are determined and reflect the inception-to-date effect of such changes. Segment operating profit and margin can be impacted favorably or unfavorably by, for example, certain items listed below, which may or may not impact sales. Favorable items include the positive resolution of contractual matters, cost recoveries on severance and restructuring, insurance recoveries and gains on sales of assets. Unfavorable items include the adverse resolution of contractual matters; supply chain disruptions; restructuring charges (except for significant severance actions, which are excluded from segment operating results); reserves for disputes; certain asset impairments; and losses on sales of certain assets.
Our consolidated net profit booking rate adjustments increased sales by $358 million and $1.0 billion during the quarter and nine months ended September 29, 2024 and $231 million and $1.0 billion during the quarter and nine months ended September 24, 2023. These adjustments increased segment operating profit by approximately $375 million ($296 million, or $1.24 per share, after tax) and $990 million ($782 million, or $3.26 per share, after tax) during the quarter and nine months ended September 29, 2024, and $335 million ($265 million, or $1.06 per share, after tax) and $1.1 billion ($881 million, or $3.48 per share, after tax) during the quarter and nine months ended September 24, 2023. During the quarter ended September 29, 2024, we recognized losses of $80 million on a classified program at our Aeronautics business segment described below, resulting in total losses of $145 million on this classified program for the nine months ended September 29, 2024. Additionally, consolidated net profit booking rate adjustments during the nine months ended September 29, 2024 include a reach-forward loss of $100 million recognized in the first quarter of 2024 on a classified program at our MFC business segment described below. During the nine months ended September 24, 2023, we recognized a favorable profit adjustment of $65 million on an international surveillance and control program due to the positive resolution of a contractual matter, and a reach-forward loss of $100 million on the Canadian Maritime Helicopter Program (CMHP) as a result of increased costs and lower than planned revenues described below.
We have various development programs for new and upgraded products, services, and related technologies which have complex design and technical challenges. This development work is inherently uncertain and subject to significant variability in estimates of the cost and time required to complete the work by us and our suppliers. Many of these programs have cost-type contracting arrangements (e.g. cost-reimbursable or cost-plus-fee). In such cases, the associated financial risks are primarily in reduced fees, lower profit rates, or program cancellation if cost, schedule, or technical performance issues arise.
However, some of our existing development programs are contracted on a fixed-price basis or include cost-type contracting for the development phase with fixed-price production options and our customers still continue to implement procurement strategies such as these that shift risk to contractors. Competitively bid programs with fixed-price development work or fixed-price production options increase the risk of a reach-forward loss upon contract award and during the period of contract performance. Due to the complex and often experimental nature of development programs, we may experience (and have experienced in the past) technical and quality issues during the development of new products or technologies for a variety of reasons. Our development programs are ongoing, and while we believe the cost and fee estimates incorporated in the financial statements are appropriate, the technical complexity of these programs and fixed-price contract structure creates financial risk as estimated completion costs may exceed the current contract value, which could trigger earnings charges, termination provisions, or other financially significant exposures. These programs have risk for reach-forward losses if our estimated costs exceed our estimated contract revenues, and such losses could be significant to our financial results, cash flows, or financial condition in any period that they are recognized. Any such losses are recorded in the period in which the loss is evident.
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
We have experienced performance issues on a classified fixed-price incentive fee contract at our Aeronautics business segment. Phases within the contract involve highly complex design and systems integration and we have periodically recognized reach-forward losses. During the third quarter of 2024, we recognized losses of $80 million due to higher than anticipated costs to achieve program objectives, bringing total losses for the nine months ended September 29, 2024, to $145 million. With the additional $80 million of losses in the third quarter, cumulative losses increased to approximately $415 million. We will continue to monitor the technical requirements and our performance, the remaining work and any future changes in scope or schedule, and estimated costs to complete the program, and we may have to record additional losses in future periods if we experience further performance issues, increases in scope, or cost growth, which could be material to our financial results. Additionally, we will continue to assess the likelihood of losses for future phases. We will be required to recognize additional losses for such phases if they are probable and such loss becomes evident. Last, we and our industry team will continue to incur advanced procurement costs (also referred to as pre-contract costs) to enhance our ability to achieve the schedule and certain milestones. We will monitor the recoverability of pre-contract costs, which could be impacted by the customer’s decision regarding future phases of the program.
We have contracted with the Canadian government for the CMHP at our RMS business segment that provides for design, development, and production of CH-148 aircraft (the Original Equipment contract), which is a military variant of the S-92 helicopter, and for logistical support to the fleet (the In Service Support contract) over an extended time period. The last of the 28 CH-148 aircraft is scheduled to be delivered in 2025. The program has experienced performance issues, including delays in the final aircraft deliveries from the original contract requirement, and the Royal Canadian Air Force’s flight hours have been significantly less than originally anticipated, which has impacted program revenues and the recovery of our costs under this program. We have incurred significant costs and recognized the related sales, of which about $970 million are currently included in contract assets on the balance sheet which could become at risk for future recovery. Such assets are recovered based on future flight hours, which are not entirely within our control and are dependent upon aircraft availability and performance and the availability of Canadian government resources. During the third quarter of 2024, we entered into a modification to the In Service Support contract to better align contract scope with the Canadian government’s needs. This modification mitigates, but does not eliminate the risk related to future sales and recovery of our costs. We continue to engage in discussions with the Canadian government to potentially restructure certain contractual terms and conditions that may be beneficial to both parties. However, any restructuring discussions may be prolonged or unsuccessful and are dependent upon Canadian government resources and priorities and other factors outside of our control. Under the contract terms as modified, future sales and recovery of costs are dependent upon the Royal Canadian Air Force’s flight hours and program costs and performance. As of September 29, 2024, cumulative losses remained at approximately $100 million. Future performance issues or changes in our estimates may affect our ability to recover our costs, including recovery of the contract assets recognized on the balance sheet and our assessment of the reach-forward loss, which could be material to our operating results.
We also have a number of contracts with Türkish industry for the Türkish Utility Helicopter Program (TUHP), which anticipates co-production with Türkish industry for production of T70 helicopters for use in Türkiye, as well as the related provision of Türkish goods and services under buy-back or offset obligations, to include the future sales of helicopters built in Türkiye for sale globally. In 2020, the U.S. Government imposed certain sanctions on Türkish entities and persons that have affected our ability to perform under the TUHP contracts. We have provided force majeure notices under the affected contracts, and have partially stopped work on TUHP effective October 5, 2024. We are currently in discussions regarding the path forward for the program in light of the continued impact of the sanctions on our ability to perform under the TUHP contracts and our decision to partially stop work. As of September 29, 2024, cumulative losses related to development work for the program remained insignificant and the program remains in a contract liability position on the balance sheet. The TUHP contracts may be negotiated to be restructured or terminated, either in whole or in part and as a result, we could be at risk of recording significant reach-forward losses in future periods. Additionally, we could elect to pursue other relief or remedies, which could result in a further reduction in sales, the imposition of penalties or assessment of damages, and increased unrecoverable costs, which could be material to our financial results.
Our MFC business segment was previously awarded a competitively bid classified contract, which includes a cost-reimbursable base contract for the initial phase of the program and multiple fixed price options for additional phases. The options for additional phases may be exercised over the next several years and if performed we expect they would each be at a loss. During the first quarter of 2024, we concluded it was probable that an option would be exercised based on progress made on the program and discussions with the customer. Accordingly, in the first quarter of 2024 we recognized a reach forward loss of approximately $100 million, bringing the cumulative losses recognized on the program to approximately $150 million, including charges for precontract costs recognized in prior periods. During the second and
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
third quarters of 2024, there were no significant changes to the previously recognized losses. We will continue to assess the likelihood that additional options will be exercised, utilizing factors such as our performance, future requirements of the program, discussions with the customer and suppliers, customer funding, and experience with other customer programs, among other factors. We will be required to recognize additional losses for the remaining options if they become probable of being exercised. The potential total loss across the additional options is up to approximately $1.3 billion. The ultimate amount of additional loss recognized, if any, will depend on how many of the additional options are exercised or become probable of being exercised and performance on those options.
Backlog
Backlog (i.e., unfulfilled or remaining performance obligations) represents the sales we expect to recognize for our products and services for which control has not yet transferred to the customer. It is converted into sales in future periods as work is performed or deliveries are made. For our cost-reimbursable and fixed-priced-incentive contracts, the estimated consideration we expect to receive pursuant to the terms of the contract may exceed the contractual award amount. The estimated consideration is determined at the outset of the contract and is continuously reviewed throughout the contract period. In determining the estimated consideration, we consider the risks related to the technical, schedule and cost impacts to complete the contract and an estimate of any variable consideration. Periodically, we review these risks and may increase or decrease backlog accordingly. As the risks on such contracts are successfully retired, the estimated consideration from customers may be reduced, resulting in a reduction of backlog without a corresponding recognition of sales. As of September 29, 2024, our ending backlog was $165.7 billion. We expect to recognize approximately 35 % of our backlog over the next 12 months and approximately 59 % over the next 24 months as revenue with the remainder recognized thereafter.
Income Taxes
Our effective income tax rates were 15.4 % and 15.6 % for the quarter and nine months ended September 29, 2024 and 13.8 % and 15.1 % for the quarter and nine months ended September 24, 2023. The rate for the third quarter 2024 was higher than the rate for the third quarter 2023 primarily due to additional research and development tax credits that were claimed for years prior to 2023 reflected in the 2023 rate. The rates for all periods benefited from research and development tax credits, tax deductions for foreign derived intangible income and dividends paid to our defined contribution plans with an employee stock ownership plan feature.
Investments
We make investments in companies that we believe are advancing or developing new technologies applicable to our business. These investments are primarily in early-stage companies and may be in the form of common or preferred stock, warrants, convertible debt securities, investments in funds or equity method investments. Most of these investments are in equity securities without readily determinable fair values (privately held securities), which are measured initially at cost and are then adjusted to fair value only if there is an observable price change or reduced for impairment, if applicable. The carrying amounts of the investments were $603 million and $581 million at September 29, 2024 and December 31, 2023. Due to changes in fair value and/or sales of investments, we recorded net losses of $19 million ($14 million, or $0.06 per share, after-tax) and $5 million ($4 million, or $0.02 per share, after-tax) during the quarter and nine months ended September 29, 2024 and net losses of $13 million ($10 million, or $0.04 per share, after-tax) and $24 million ($18 million, or $0.07 per share, after-tax) during the quarter and nine months ended September 24, 2023. These gains or losses are reflected in the other non-operating income, net account on our consolidated statements of earnings.
Revolving Credit Facility
At September 29, 2024, we had a $3.0 billion Revolving Credit Facility with various banks, with the option to increase the commitments under the Revolving Credit Facility by an additional amount of up to $500 million (for an aggregate amount of up to $3.5 billion). Effective August 23, 2024, we amended the agreement for the Revolving Credit Facility (the “Revolving Credit Agreement”) to extend the expiration date of the Revolving Credit Agreement from August 24, 2028 to August 24, 2029 and removed the existing financial maintenance covenant. The Revolving Credit Agreement is available for any of our lawful corporate purposes, including supporting commercial paper borrowings. Borrowings under the Revolving Credit Agreement are unsecured and bear interest at rates set forth in the Revolving Credit Agreement. There were no borrowings under the Revolving Credit Agreement at September 29, 2024.
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
Debt Issuance
On January 29, 2024, we issued a total of $2.0 billion of senior unsecured notes, consisting of $650 million aggregate principal amount of 4.50 % Notes due 2029 (the 2029 Notes), $600 million aggregate principal amount of 4.80 % Notes due 2034 (the 2034 Notes) and $750 million aggregate principal amount of 5.20 % Notes due 2064 (the 2064 Notes and, together with the 2029 Notes and 2034 Notes, the Notes). Net proceeds of $1.98 billion were received from the offering after deducting pricing discounts and debt issuance costs, which are being amortized and recorded as interest expense over the term of the Notes. We may, at our option, redeem the Notes of any series in whole or in part at any time and from time to time at a redemption price equal to the greater of 100 % of the principal amount of the Notes to be redeemed or an applicable make-whole amount, plus accrued and unpaid interest to the date of redemption. The Notes rank equally in right of payment with all of our existing unsecured and unsubordinated indebtedness.
Impairment and Severance Charges
During the second quarter of 2024, we recorded charges totaling $87 million ($69 million, or $0.29 per share, after-tax) for trademark and fixed asset impairments as well as severance costs resulting from the strategic review of our Sikorsky business during the second quarter of 2024 due, in part, to the impacts of the U.S. Army announcement to cancel the Future Attack Reconnaissance Aircraft (FARA) program at the conclusion of fiscal year 2024, for which our Sikorsky business was competing.
Sale of Commercial Engine Solutions
On September 9, 2024, we completed the sale of our Commercial Engine Solutions (CES) business, which was part of our Aeronautics business segment. We received $170 million in cash from the sale. Gains recognized from the sale in the quarter ended September 29, 2024 were not significant. The final gain is subject to certain post-closing adjustments, including final working capital, indemnification, and tax adjustments, which we expect to complete in 2025. This sale did not represent a strategic shift and the impacts to our consolidated results of operation, financial position, and cash were not significant. Accordingly, the operating results and cash flows for the CES business up to the divestiture date have not been reclassified to discontinued operations.
NOTE 11 - RECENT ACCOUNTING PRONOUNCEMENTS
In March 2024, the SEC issued a final rule under SEC Release Nos. 33-11275 and 34-99678, The Enhancement and Standardization of Climate-Related Disclosures for Investors, that will require us to provide climate-related disclosures in our annual reports and registration statements beginning with our annual report for the year ending December 31, 2025. The rule requires disclosure of material climate-related risks, our governance and risk management of climate-related risks and any material climate-related targets or goals, greenhouse gas emissions as well as disclosure of the financial statement effects, such as costs and losses resulting from severe weather events and other natural conditions. In April 2024, the SEC released an order staying this final rule pending judicial review of all the petitions challenging the rule. We are in the process of analyzing the impact of the rules on our disclosures.
In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Additionally, it requires a public entity to disclose the title and position of the Chief Operating Decision Maker (CODM). The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. A public entity should apply the amendments in this ASU retrospectively to all prior periods presented in the financial statements. We expect this ASU to impact only our disclosures with no impacts to our results of operations, cash flows and financial condition.
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which focuses on the rate reconciliation and income taxes paid. ASU No. 2023-09 requires a public business entity (PBE) to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. For PBEs, the new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. An entity may apply the amendments in this ASU prospectively by providing the revised disclosures for the period ending December 31, 2025 and continuing to provide the pre-ASU disclosures for the prior periods, or may apply the amendments retrospectively by providing the revised disclosures for all periods presented. We expect this ASU to impact only our disclosures with no impacts to our results of operations, cash flows, and financial condition.
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Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Lockheed Martin Corporation
Results of Review of Interim Financial Statements
We have reviewed the accompanying consolidated balance sheet of Lockheed Martin Corporation (the Company) as of September 29, 2024, the related consolidated statements of earnings, comprehensive income and equity for the quarters and nine months ended September 29, 2024 and September 24, 2023, and consolidated statements of cash flows for the nine months ended September 29, 2024 and September 24, 2023, and the related notes (collectively referred to as the “consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2023, the related consolidated statements of earnings, comprehensive income, cash flows and equity for the year then ended, and the related notes (not presented herein); and in our report dated January 23, 2024, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2023, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Ernst & Young LLP
Tysons, Virginia
October 22, 2024
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand our results of operations and financial condition. The MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and notes to consolidated financial statements and with our Annual Report on Form 10-K for the year ended December 31, 2023 (2023 Form 10-K).
BUSINESS OVERVIEW
We are a global defense technology company driving innovation and advancing scientific discovery. Our all-domain mission solutions and 21st Century Security vision accelerate the delivery of transformative technologies to our customers. We are principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. We also provide a broad range of management, engineering, technical, scientific, logistics, system integration and cybersecurity services. Our main areas of focus are in defense, space, intelligence, homeland security and information technology, including cybersecurity. We serve both U.S. and international customers with products and services that have defense, civil and commercial applications, with our principal customers being agencies of the U.S. Government. During the nine months ended September 29, 2024, 74% of our $52.4 billion in net sales were from the U.S. Government, either as a prime contractor or as a subcontractor (including 65% from the Department of Defense (DoD)), 25% were from international customers (including foreign military sales (FMS) contracted through the U.S. Government) and 1% were from U.S. commercial and other customers.
U.S. Budget Environment
With approximately three quarters of our sales from the U.S. Government, U.S. Government spending levels, particularly defense spending, and timely funding thereof can affect our financial performance over the short and long term.
On March 22, 2024, the President signed the second Fiscal Year (FY) 2024 Consolidated Appropriations package into law, which includes the DoD funding. This legislation reflects the Fiscal Responsibility Act of 2023 (FRA) spending limit of $886 billion for National Defense, of which $842 billion was for the DoD base budget.
The President’s FY 2025 budget request was submitted to Congress on March 11, 2024, initiating the FY 2025 defense authorization and appropriations legislative process. The request included $895 billion for National Defense, of which $850 billion is for the DoD base budget, in keeping with the limit established by the FRA. While compression on overall requirements driven by the FRA limit is evident, the Office of the Secretary of Defense has stated the FY 2025 budget proposal meets their objectives of keeping National Defense Strategy priorities on track.
On April 24, 2024, the President signed a bill providing a total of $95 billion in additional supplemental funding for Ukraine, Israel and Taiwan, including funding for the restock of U.S. munitions capacity. Supplemental funding legislation is not subject to the FRA limits.
The House and Senate continue the legislative process on the FY 2025 budget. The House Armed Services and Appropriations Committees marked the FY25 Defense budget consistent with the FY25 President’s Budget Request (PBR) and Congressionally mandated budget caps established by the FRA with a topline of $849.8 billion. The Senate Armed Services and Appropriations Committees did not adhere to the FRA spending caps and marked budgets above the PBR, with the committees providing between a $21 billion and $25 billion increase over the PBR level. Regardless of toplines, all four bills support additional funding for several of our programs, spread across our four business areas.
In the coming months, Congress will need to approve or revise the President’s FY 2025 budget proposal through enactment of appropriations bills and other policy legislation, which would then require final approval from the President in order for the FY 2025 budget process to conclude. A Continuing Resolution (CR) passed the House and Senate on September 25, 2024 and was signed by the President on September 26, 2024. The bill funds U.S. Government operations through December 20, 2024. After the November 2024 election, Congress will return to the task of funding the U.S. Government for the balance of the FY 2025. Significant differences that must be resolved include the different allocations as noted above and policy matters that arose during consideration of the CR and the underlying bills.
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We anticipate the federal budget will continue to be subject to debate and compromise shaped by, among other things, heightened political tensions and the 2024 elections, the global security environment, inflationary pressures, and macroeconomic conditions. The result may be shifting funding priorities, which could have material impacts on defense spending broadly and our programs.
See also the discussion of U.S. Government funding risks within “Item 1A, Risk Factors” included in our 2023 Form 10-K.
Geopolitical and Economic Environment
We operate in a complex and evolving global security environment and our business is affected by geopolitical and security issues. Russia’s invasion of Ukraine, conflicts in the Middle East and heightened tension in the Pacific region have elevated global security concerns resulting in increased interest for our products and services as countries seek to improve their security posture. In this context, the U.S. Government, our largest customer, continues to align its budget with the defense priorities set forth in the 2022 National Defense Strategy. In addition, security assistance provided by the U.S. Government and its allies to Ukraine has increased U.S. Government and allied demand to replenish U.S. stockpiles, resulting in additional and potential future orders, including for the ramp-up in production capacity for certain products. We continue to expect additional orders over the next several years attributable to the global threat environment. We operate primarily in a long-cycle business and the U.S. Government has been focused on increasing industry capacity to meet demand. We continue to work with the U.S. Government and our supply chain to evaluate increases in capacity at our operations to anticipate potential demand and enable us to deliver critical capabilities.
Our business and financial performance is also affected by general economic conditions. We continue to experience supply chain challenges, including supplier shortages and performance issues. These issues have delayed certain customer deliveries, have been a limiting factor on our ability to ramp up production in response to customer demand for certain products and have caused out-of-sequence manufacturing, which increases costs and decreases operational efficiency. In addition, elevated levels of inflation and macroeconomic conditions present risks for us, our suppliers and the stability of the broader defense industrial base. Certain costs, including rising labor rates and supplier costs, have increased as a result of inflation, and have adversely affected our margins on certain programs. In addition, some suppliers are reducing the duration of pricing validity of their proposals to us or seeking to reopen pricing on existing agreements, which is operationally challenging and increases the risk of cost volatility. We continue to work to mitigate challenges caused by the supply chain or current macroeconomic environment on our business, including by supporting small business and at-risk suppliers, deploying resources to work with our supply chain, securing materials and support by executing long-term contracts, enforcing existing contract terms, identifying alternative sources, collaborating with our customers to address industry-wide challenges, and optimizing our supply chain organization through digital transformation and workforce development. If we experience significant supply chain issues or high rates of inflation, and are unable to successfully mitigate the impact, our future profits, margins and cash flows, particularly for existing fixed-price contracts, may be adversely affected. Inflation and higher interest rates can also constrain the overall purchasing power of our customers for our products and services potentially impacting future orders, especially in a budget constrained environment. We remain committed to our ongoing efforts to increase the efficiency of our operations and improve the cost competitiveness and affordability of our products and services, which may, in part, offset cost increases from inflation.
For additional risks to the company related to the geopolitical and economic environment, see “Item 1A, Risk Factors” of our 2023 Form 10-K.
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CONSOLIDATED RESULTS OF OPERATIONS
Our operating cycle is primarily long-term and involves many types of contracts for the design, development and manufacture of products and related activities with varying delivery schedules. Additionally, we close our books and records on the last Sunday of each month, except for the month of December, as our fiscal year ends on December 31, to align our financial closing with our business processes. Because of this, the number of weeks in a reporting quarter may vary slightly during the year and for comparable prior year periods. Consequently, the results of operations of a particular year, or year-to-year comparisons of sales and profits, may not be indicative of future operating results. The following discussions of comparative results should be reviewed in this context. All per share amounts cited in these discussions are presented on a “per diluted share” basis, unless otherwise noted.
Our consolidated results of operations were as follows (in millions, except per share data):
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| September 29, 2024 | September 24, 2023 | September 29, 2024 | September 24, 2023 | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 17,104 | $ | 16,878 | $ | 52,421 | $ | 48,697 | ||||||||||||||||||||||||||||||
| Cost of sales | (14,987) | (14,830) | (46,181) | (42,513) | ||||||||||||||||||||||||||||||||||
| Gross profit | 2,117 | 2,048 | 6,240 | 6,184 | ||||||||||||||||||||||||||||||||||
| Other income (expense), net | 23 | (6) | 77 | 30 | ||||||||||||||||||||||||||||||||||
| Operating profit | 2,140 | 2,042 | 6,317 | 6,214 | ||||||||||||||||||||||||||||||||||
| Interest expense | (256) | (237) | (772) | (662) | ||||||||||||||||||||||||||||||||||
| Non-service FAS pension income | 16 | 111 | 47 | 332 | ||||||||||||||||||||||||||||||||||
| Other non-operating income, net | 18 | 37 | 109 | 69 | ||||||||||||||||||||||||||||||||||
| Earnings before income taxes | 1,918 | 1,953 | 5,701 | 5,953 | ||||||||||||||||||||||||||||||||||
| Income tax expense | (295) | (269) | (892) | (899) | ||||||||||||||||||||||||||||||||||
| Net earnings | $ | 1,623 | $ | 1,684 | $ | 4,809 | $ | 5,054 | ||||||||||||||||||||||||||||||
| Diluted earnings per common share | $ | 6.80 | $ | 6.73 | $ | 20.05 | $ | 19.97 | ||||||||||||||||||||||||||||||
Certain amounts reported in other income (expense), net, including our share of earnings or losses from equity method investees, are included in the operating profit of our business segments. Accordingly, such amounts are included in the discussion of our business segment results of operations.
Net Sales
We generate sales from the delivery of products and services to our customers. Our consolidated net sales were as follows (in millions):
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 29, 2024 | September 24, 2023 | September 29, 2024 | September 24, 2023 | |||||||||||||||||||||||
| Products | $ | 14,472 | $ | 14,014 | $ | 43,777 | $ | 40,298 | ||||||||||||||||||
| % of total net sales | 84.6 | % | 83.0 | % | 83.5 | % | 82.8 | % | ||||||||||||||||||
| Services | 2,632 | 2,864 | 8,644 | 8,399 | ||||||||||||||||||||||
| % of total net sales | 15.4 | % | 17.0 | % | 16.5 | % | 17.2 | % | ||||||||||||||||||
| Total net sales | $ | 17,104 | $ | 16,878 | $ | 52,421 | $ | 48,697 | ||||||||||||||||||
Substantially all of our contracts are accounted for using the percentage-of-completion cost-to-cost method. Under the percentage-of-completion cost-to-cost method, we record net sales on contracts over time based upon our progress towards completion on a particular contract, as well as our estimate of the profit to be earned at completion. The following discussion of material changes in our consolidated net sales should be read in tandem with the subsequent discussion of changes in our consolidated cost of sales and our business segment results of operations because changes in our sales are typically accompanied by a corresponding change in our cost of sales due to the nature of the percentage-of-completion cost-to-cost method.
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Product Sales
Product sales increased $458 million, or 3%, during the quarter ended September 29, 2024, compared to the same period in 2023. The increase was primarily attributable to higher product sales of $305 million at RMS and $200 million at MFC. Higher product sales at RMS were due to higher volume across the integrated warfare systems and sensors (IWSS) portfolio. Higher product sales at MFC were due to production ramp up on Guided Multiple Launch Rocket Systems (GMLRS) and Long Range Anti-Ship Missile (LRASM) programs.
Product sales increased $3.5 billion, or 9%, during the nine months ended September 29, 2024, compared to the same period in 2023. The increase was primarily attributable to higher product sales of $1.4 billion at RMS, $1.1 billion at MFC and $775 million at Aeronautics. Higher product sales at RMS were primarily within the IWSS portfolio due to higher volume on radar programs and new program ramp up within the laser systems portfolio. Higher product sales at MFC were due to production ramp up on GMLRS, High Mobility Artillery Rocket System (HIMARS), Joint Air-to-Surface Standoff Missile (JASSM) and LRASM programs. Higher product sales at Aeronautics were due to higher volume on F-35 and F-16 production contracts along with growth on classified programs.
Service Sales
Service sales decreased $232 million, or 8%, during the quarter ended September 29, 2024, compared to the same period in 2023. The decrease was primarily attributable to lower service sales of approximately $240 million at Aeronautics due to lower volume on F-35 sustainment contracts.
Service sales increased $245 million, or 3%, during the nine months ended September 29, 2024, compared to the same period in 2023. The increase was primarily attributable to higher service sales of approximately $135 million at Space and $55 million at RMS. Higher service sales at Space were due to higher volume on national security space services, while higher service sales at RMS were due to higher volume across the portfolio.
Cost of Sales
Cost of sales, for both products and services, consist of materials, labor, subcontracting costs and an allocation of indirect costs (overhead and general and administrative), as well as the costs to fulfill our industrial cooperation agreements, sometimes referred to as offset agreements, required under certain contracts with international customers. For each of our contracts, we monitor the nature and amount of costs at the contract level, which form the basis for estimating our total costs to complete the contract.
Our consolidated cost of sales were as follows (in millions):
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| September 29, 2024 | September 24, 2023 | September 29, 2024 | September 24, 2023 | |||||||||||||||||||||||||||||||||||
| Cost of sales – products | $ | (12,964) | $ | (12,571) | $ | (39,368) | $ | (35,960) | ||||||||||||||||||||||||||||||
| % of product sales | 89.6 | % | 89.7 | % | 89.9 | % | 89.2 | % | ||||||||||||||||||||||||||||||
| Cost of sales – services | (2,272) | (2,510) | (7,457) | (7,436) | ||||||||||||||||||||||||||||||||||
| % of service sales | 86.3 | % | 87.6 | % | 86.3 | % | 88.5 | % | ||||||||||||||||||||||||||||||
| Impairment and severance charges | — | — | (87) | — | ||||||||||||||||||||||||||||||||||
| Other unallocated, net | 249 | 251 | 731 | 883 | ||||||||||||||||||||||||||||||||||
| Total cost of sales | $ | (14,987) | $ | (14,830) | $ | (46,181) | $ | (42,513) | ||||||||||||||||||||||||||||||
The following discussion of material changes in our consolidated cost of sales for products and services should be read in tandem with the preceding discussion of changes in our consolidated net sales and our business segment results of operations. Except for potential impacts to our programs resulting from supply chain disruptions and inflation, we have not identified any additional developing trends in cost of sales for products and services that would have a material impact on our future operations.
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Product Costs
Product costs increased $393 million, or 3%, during the quarter ended September 29, 2024, compared to the same period in 2023. The increase was primarily attributable to higher product costs of approximately $290 million at RMS and $145 million at MFC due to higher volume and production ramp up as described above in “Product Sales”.
Product costs increased $3.4 billion, or 9%, during the nine months ended September 29, 2024, compared to the same period in 2023. The increase was primarily attributable to higher product costs of approximately $1.4 billion at RMS, $1.1 billion at MFC and $795 million at Aeronautics. Higher product costs at RMS and MFC were due to production ramp up and higher volume as described above in “Product Sales”. Higher product costs at Aeronautics was due to higher volume as described above in “Product Sales” and unfavorable profit rate adjustments on a classified program because of higher than anticipated costs to achieve program objectives.
Service Costs
Service costs decreased $238 million, or 9%, during the quarter ended September 29, 2024, compared to the same period in 2023. The decrease was primarily attributable to lower service costs $240 million at Aeronautics. Lower service costs at Aeronautics were due to lower volume as described above in “Service Sales”.
Service costs during the nine months ended September 29, 2024 were comparable to the same period in 2023. Service costs at RMS in 2023 included an unfavorable profit adjustment on the Canadian Maritime Helicopter Program (CMHP) that did not recur in 2024, which was offset by higher volume at Space as described above in “Service Sales”.
Impairment and Severance Charges
During the second quarter of 2024, we recorded charges totaling $87 million ($69 million, or $0.29 per share, after-tax). See “Note 10 - Other” included in our Notes to Consolidated Financial Statements for additional information.
Other Unallocated, Net
Other unallocated, net primarily includes the FAS/CAS pension operating adjustment (which represents the difference between total CAS pension cost recorded in our business segments’ results of operations and the service cost component of Financial Accounting Standards (FAS) pension income (expense)), stock-based compensation expense, changes in the fair value of assets and liabilities for deferred compensation plans, intangible asset amortization expense and other corporate costs. These items are not allocated to the business segments and, therefore, are not allocated to cost of sales for products or services. Other unallocated, net reduced cost of sales by $249 million and $731 million during the quarter and nine months ended September 29, 2024, compared to $251 million and $883 million during the quarter and nine months ended September 24, 2023. The decrease in other unallocated, net was primarily due to lower gains from the changes in the fair value of assets and liabilities related to deferred compensation plans during the nine months ended September 29, 2024 compared to the same periods in 2023 and fluctuations in costs associated with various corporate items, none of which were individually significant.
Other Income (Expense), Net
Other income, net was $23 million and $77 million during the quarter and nine months ended September 29, 2024, compared to other expense, net of $6 million and other income, net of $30 million during the quarter and nine months ended September 24, 2023. Other income (expense), net, primarily includes earnings generated by equity method investees, as well as gains or losses for acquisitions, divestitures, and other items, none of which are individually significant.
Interest Expense
Interest expense was $256 million and $772 million and $237 million and $662 million during the quarters and nine months ended September 29, 2024 and September 24, 2023. The increase in interest expense in 2024 resulted primarily from the issuance of senior unsecured notes in January 2024 and May 2023.
Non-service FAS pension income
Non-service FAS pension income was $16 million and $47 million and $111 million and $332 million during the quarters and nine months ended September 29, 2024 and September 24, 2023. The decrease was primarily due to a
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lower prior service credit amortization and a reduced asset base as detailed in “Note 6 - Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements.
Other non-operating income, net
Other non-operating income, net primarily includes gains or losses related to changes in the fair value of early-stage company investments or gains or losses upon sale of these investments. Other non-operating income, net was $18 million and $109 million and $37 million and $69 million during the quarters and nine months ended September 29, 2024 and September 24, 2023. See “Note 10 - Other” included in our Notes to Consolidated Financial Statements for additional information.
Income Tax Expense
Our effective income tax rates were 15.4% and 15.6% for the quarter and nine months ended September 29, 2024 and 13.8% and 15.1% for the quarter and nine months ended September 24, 2023. The rate for the third quarter 2024 was higher than the rate for the third quarter 2023 primarily due to additional research and development tax credits that were claimed for years prior to 2023 reflected in the 2023 rate. The rates for all periods benefited from research and development tax credits, tax deductions for foreign derived intangible income and dividends paid to our defined contribution plans with an employee stock ownership plan feature.
Changes in U.S. (federal or state) or foreign tax laws and regulations, or their interpretation and application (including those with retroactive effect), such as the amortization for research and development expenditures, could significantly impact our provision for income taxes, the amount of taxes payable, our deferred tax asset and liability balances, and stockholders’ equity. In addition to future changes in tax laws, the amount of net deferred tax assets will change periodically based on several factors, including the measurement of our postretirement benefit plan obligations, actual cash contributions to our postretirement benefit plans and the change in the amount or reevaluation of uncertain tax positions.
Beginning in 2022, The Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years for tax purposes. This provision is expected to increase our 2024 cash tax liability by approximately $350 million and our net deferred tax assets will increase by a similar amount. The actual impact on 2024 cash tax liability will depend on the amount of research and development expenses paid or incurred in 2024 among other factors. The cash tax impact will continue over the five-year amortization period but will decrease over the period and be immaterial by 2027.
We are regularly under audit or examination by tax authorities, including foreign tax authorities (Australia, Canada, India, Italy, Japan, Poland, the United Kingdom, and other countries). The final determination of tax audits and any related litigation could similarly result in unanticipated increases in our tax expense and affect profitability and cash flows.
The Organisation for Economic Co-operation and Development (OECD) has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as Pillar 2), with certain aspects of Pillar 2 effective January 1, 2024 and other aspects effective January 1, 2025. While it is uncertain whether the United States will enact legislation to adopt Pillar 2, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar 2. We do not expect Pillar 2 to have a material impact on our effective tax rate or our consolidated results of operation, financial position, and cash flows.
Net Earnings
We reported net earnings of $1.6 billion ($6.80 per share) and $4.8 billion ($20.05 per share) during the quarter and nine months ended September 29, 2024, compared to $1.7 billion ($6.73 per share) and $5.1 billion ($19.97 per share) during the quarter and nine months ended September 24, 2023. Net earnings and earnings per share for the quarter and nine months ended September 29, 2024 were affected by the factors mentioned above. Earnings per share also benefited from a net decrease of approximately 11.6 million and 13.2 million weighted average common shares outstanding during the quarter and nine months ended September 29, 2024, compared to the same periods in 2023. The reduction in weighted average common shares was a result of share repurchases, partially offset by share issuance under our stock-based awards and certain defined contribution plans.
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BUSINESS SEGMENT RESULTS OF OPERATIONS
We operate in four business segments: Aeronautics, MFC, RMS and Space. We organize our business segments based on the nature of products and services offered.
Net sales and operating profit of our business segments exclude intersegment sales, cost of sales and profit as these activities are eliminated in consolidation and thus are not included in management’s evaluation of performance of each segment. Business segment operating profit includes our share of earnings or losses from equity method investees as the operating activities of the equity method investees are closely aligned with the operations of our business segments.
Business segment operating profit excludes the FAS/CAS pension operating adjustment described below, a portion of corporate costs not considered allowable or allocable to contracts with the U.S. Government under the applicable U.S. Government Cost Accounting Standards (CAS) or federal acquisition regulations (FAR), and other items not considered part of management’s evaluation of segment operating performance. See “Note 3 - Information on Business Segments – unallocated items”.
Sales and operating profit for each of our business segments were as follows (in millions):
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| September 29, 2024 | September 24, 2023 | September 29, 2024 | September 24, 2023 | |||||||||||||||||||||||||||||||||||
| Net sales | ||||||||||||||||||||||||||||||||||||||
| Aeronautics | $ | 6,487 | $ | 6,717 | $ | 20,609 | $ | 19,861 | ||||||||||||||||||||||||||||||
| Missiles and Fire Control | 3,175 | 2,939 | 9,270 | 8,082 | ||||||||||||||||||||||||||||||||||
| Rotary and Mission Systems | 4,367 | 4,121 | 13,003 | 11,528 | ||||||||||||||||||||||||||||||||||
| Space | 3,075 | 3,101 | 9,539 | 9,226 | ||||||||||||||||||||||||||||||||||
| Total net sales | $ | 17,104 | $ | 16,878 | $ | 52,421 | $ | 48,697 | ||||||||||||||||||||||||||||||
| Operating profit | ||||||||||||||||||||||||||||||||||||||
| Aeronautics | $ | 659 | $ | 671 | $ | 2,089 | $ | 2,064 | ||||||||||||||||||||||||||||||
| Missiles and Fire Control | 456 | 398 | 1,217 | 1,146 | ||||||||||||||||||||||||||||||||||
| Rotary and Mission Systems | 483 | 482 | 1,408 | 1,286 | ||||||||||||||||||||||||||||||||||
| Space | 272 | 259 | 943 | 851 | ||||||||||||||||||||||||||||||||||
| Total business segment operating profit | 1,870 | 1,810 | 5,657 | 5,347 | ||||||||||||||||||||||||||||||||||
| Unallocated items | ||||||||||||||||||||||||||||||||||||||
| FAS/CAS pension operating adjustment | 406 | 414 | 1,218 | 1,245 | ||||||||||||||||||||||||||||||||||
Impairment and severance charges (a) | — | — | (87) | — | ||||||||||||||||||||||||||||||||||
| Intangible asset amortization expense | (61) | (61) | (183) | (185) | ||||||||||||||||||||||||||||||||||
| Other, net | (75) | (121) | (288) | (193) | ||||||||||||||||||||||||||||||||||
| Total unallocated items | 270 | 232 | 660 | 867 | ||||||||||||||||||||||||||||||||||
| Total consolidated operating profit | $ | 2,140 | $ | 2,042 | $ | 6,317 | $ | 6,214 | ||||||||||||||||||||||||||||||
(a) See “Note 10 - Other” included in our Notes to Consolidated Financial Statements for additional information.
Our business segments’ results of operations include pension expense only as calculated under CAS, which we refer to as CAS pension cost. We recover CAS pension and other postretirement benefit plan cost through the pricing of our products and services on U.S. Government contracts and, therefore, recognize CAS pension cost in each of our business segments’ net sales and cost of sales. Our consolidated financial statements must present pension and other postretirement benefit plan income calculated in accordance with Financial Accounting Standards (FAS) requirements under U.S. GAAP. The operating portion of the total FAS/CAS pension adjustment represents the difference between the service cost component of FAS pension income (expense) and total CAS pension cost. The non-service FAS pension income components are included in non-service FAS pension income in our consolidated statements of earnings. As a result, to the extent that CAS pension cost exceeds the service cost component of FAS pension income (expense), we have a favorable FAS/CAS pension operating adjustment.
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The total FAS/CAS pension adjustments, including the service and non-service cost components of FAS pension income for our qualified defined benefit pension plans, were as follows (in millions):
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| September 29, 2024 | September 24, 2023 | September 29, 2024 | September 24, 2023 | |||||||||||||||||||||||||||||||||||
| Total FAS income and CAS cost | ||||||||||||||||||||||||||||||||||||||
| FAS pension income | $ | 1 | $ | 94 | $ | 2 | $ | 283 | ||||||||||||||||||||||||||||||
| Less: CAS pension cost | 421 | 431 | 1,263 | 1,294 | ||||||||||||||||||||||||||||||||||
| Total FAS/CAS pension adjustment | $ | 422 | $ | 525 | $ | 1,265 | $ | 1,577 | ||||||||||||||||||||||||||||||
| Service and non-service cost reconciliation | ||||||||||||||||||||||||||||||||||||||
| FAS pension service cost | $ | (15) | $ | (17) | $ | (45) | $ | (49) | ||||||||||||||||||||||||||||||
| Less: CAS pension cost | 421 | 431 | 1,263 | 1,294 | ||||||||||||||||||||||||||||||||||
| Total FAS/CAS pension operating adjustment | 406 | 414 | 1,218 | 1,245 | ||||||||||||||||||||||||||||||||||
| Non-service FAS pension income | 16 | 111 | 47 | 332 | ||||||||||||||||||||||||||||||||||
| Total FAS/CAS pension adjustment | $ | 422 | $ | 525 | $ | 1,265 | $ | 1,577 | ||||||||||||||||||||||||||||||
Management evaluates performance on our contracts by focusing on net sales and operating profit and not by type or amount of operating expense. Consequently, our discussion of business segment performance focuses on net sales and operating profit, consistent with our approach for managing the business. This approach is consistent throughout the life cycle of our contracts, as management assesses the bidding of each contract by focusing on net sales and operating profit and monitors performance on our contracts in a similar manner through their completion.
We regularly provide customers with reports of our costs as the contract progresses. The cost information in the reports is accumulated in a manner specified by the requirements of each contract. For example, cost data provided to a customer for a product would typically align to the subcomponents of that product (such as a wing-box on an aircraft) and for services would align to the type of work being performed (such as aircraft sustainment). Our contracts generally allow for the recovery of costs in the pricing of our products and services. Most of our contracts are bid and negotiated with our customers under circumstances in which we are required to disclose our estimated total costs to provide the product or service. This approach for negotiating contracts with our U.S. Government customers generally allows for recovery of our actual costs plus a reasonable profit margin. We also may enter into long-term supply contracts for certain materials or components to coincide with the production schedule of certain products and to ensure their availability at known unit prices.
We have a number of programs that are designated as classified by the U.S. Government, which cannot be specifically described. The operating results of these classified programs are included in our consolidated and business segment results and are subjected to the same oversight and internal controls as our other programs.
Our net sales are primarily derived from long-term contracts for products and services provided to the U.S. Government as well as FMS contracted through the U.S. Government. We recognize revenue as performance obligations are satisfied and the customer obtains control of the products and services. For performance obligations to deliver products with continuous transfer of control to the customer, revenue is recognized based on the extent of progress towards completion of the performance obligation, generally using the percentage-of-completion cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer as we incur costs on our contracts. For performance obligations in which control does not continuously transfer to the customer, we recognize revenue at the point in time in which each performance obligation is fully satisfied.
Many of our contracts span several years and include highly complex technical requirements. At the outset of a contract accounted for under the percentage-of-completion cost-to-cost method, we identify and monitor risks to the achievement of the technical, schedule and cost aspects of the contract and assess the effects of those risks on our estimates of sales and total costs to complete the contract, as well as our ability to earn variable consideration. The estimates consider the technical requirements (e.g., a newly developed product versus a mature product), the schedule and associated tasks (e.g., the number and type of milestone events) and costs (e.g., material, labor, subcontractor, overhead and the estimated costs to fulfill our industrial cooperation agreements, sometimes referred to as offset or localization agreements, required under certain contracts with international customers). The initial profit booking rate of each contract considers risks surrounding the ability to achieve the technical requirements, schedule and costs in the initial estimated total costs to complete the contract and variable considerations. Profit booking rates may increase during
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the performance of the contract if we successfully retire risks related to the technical, schedule and cost aspects of the contract, which decreases the estimated total costs to complete the contract or may increase the variable consideration we expect to receive on the contract. Conversely, our profit booking rates may decrease if the estimated total costs to complete the contract increase or our estimates of variable consideration we expect to receive decrease. The profit booking rate may also be adjusted if the total estimated value of the contract changes or there is a contract modification. All of the estimates are subject to change during the performance of the contract and may affect the profit booking rate. For further discussion on fixed-price contracts, see “Note 10 - Other” included in our Notes to Consolidated Financial Statements.
Changes in net sales and operating profit generally are expressed in terms of volume, contract mix, and/or performance (referred to as profit booking rate adjustments). Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts. Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract. Contract mix refers to changes in the ratio of contract type or life cycle (e.g., cost-type, fixed-price, development, production and/or sustainment).
Comparability of our segment sales, operating profit and operating margin may be impacted favorably or unfavorably by changes in profit booking rates on our contracts. Increases in the profit booking rates, typically referred to as favorable profit booking rate adjustments, usually relate to revisions in the estimated total costs to fulfill the performance obligations that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate, resulting in an increase in the estimated total costs to fulfill the performance obligations and a reduction in the profit booking rate and are typically referred to as unfavorable profit booking rate adjustments. Increases or decreases in profit booking rates are recognized in the current period they are determined and reflect the inception-to-date effect of such changes. Segment operating profit and margin can be impacted favorably or unfavorably by, for example, certain items listed below, which may or may not impact sales. Favorable items include the positive resolution of contractual matters, cost recoveries on severance and restructuring, insurance recoveries and gains on sales of assets. Unfavorable items include the adverse resolution of contractual matters; supply chain disruptions; restructuring charges (except for significant severance actions, which are excluded from segment operating results); reserves for disputes; certain asset impairments; and losses on sales of certain assets.
Our consolidated net profit booking rate adjustments increased segment operating profit by approximately $375 million and $990 million during the quarter and nine months ended September 29, 2024 and $335 million and $1.1 billion during the quarter and nine months ended September 24, 2023. The impact to the quarter ended September 29, 2024 segment operating profit includes losses of $80 million on a classified program at our Aeronautics business segment resulting in total losses of $145 million on this classified program for the nine months ended September 29, 2024. The impact to the nine months ended September 29, 2024 segment operating profit also includes a reach-forward loss of $100 million recognized in the first quarter of 2024 on a classified program at our MFC business segment. The impact to the nine months ended September 24, 2023 included an unfavorable profit adjustment of $100 million on CMHP and a $65 million favorable profit adjustment as a result of a positive resolution of a contractual matter on an international surveillance and control program at our RMS business segment. See the discussions under “Contract Estimates” in “Note 10 - Other” included in our Notes to Consolidated Financial Statements (pages 24-25).
We periodically experience performance issues and record losses for certain programs. For further discussion on programs, see “Note 10 - Other” included in our Notes to Consolidated Financial Statements.
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Aeronautics
Summary operating results for our Aeronautics business segment were as follows (in millions):
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| September 29, 2024 | September 24, 2023 | September 29, 2024 | September 24, 2023 | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 6,487 | $ | 6,717 | $ | 20,609 | $ | 19,861 | ||||||||||||||||||||||||||||||
| Operating profit | 659 | 671 | 2,089 | 2,064 | ||||||||||||||||||||||||||||||||||
| Operating margin | 10.2 | % | 10.0 | % | 10.1 | % | 10.4 | % | ||||||||||||||||||||||||||||||
Aeronautics’ net sales during the quarter ended September 29, 2024 decreased $230 million, or 3%, compared to the same period in 2023. The decrease was primarily attributable to lower net sales of $480 million on the F-35 program due to lower volume on production contracts as a result of delays in receiving additional contractual authorization and funding under the Lots 18-19 contract. This decrease was partially offset by higher net sales of $120 million on the C-130 program primarily due to higher volume on production and sustainment contracts; and $85 million on the F-16 program due to the ramp up on production.
Aeronautics’ operating profit during the quarter ended September 29, 2024 decreased $12 million, or 2%, compared to the same period in 2023. The decrease in operating profit was attributable to $25 million from lower volume described above and $20 million from unfavorable contract mix, partially offset by $30 million of higher profit booking rate adjustments. The increase in profit booking rate adjustments included an $85 million favorable profit rate adjustment for a claim associated with a contract to modernize and install new engines in C-5 Galaxy aircraft, partially offset by $80 million of unfavorable profit rate adjustments on a classified program due to higher than anticipated costs to achieve program objectives.
Aeronautics’ net sales during the nine months ended September 29, 2024 increased $748 million, or 4%, compared to the same period in 2023. The increase was primarily attributable to higher net sales of $250 million on the F-16 program due to the ramp up on production; $185 million on classified programs driven by higher volume; and $160 million on the F-35 program due to higher volume on development and sustainment contracts. These increases were partially offset by lower volume on production contracts as a result of delays in receiving additional contractual authorization and funding under the Lots 18-19 contract.
Aeronautics’ operating profit during the nine months ended September 29, 2024 increased $25 million, or 1%, compared to the same period in 2023. The increase in operating profit was attributable to $70 million from higher volume and program ramp up described above, partially offset by $35 million of lower profit booking rate adjustments. The decrease in profit booking rate adjustments was due to $145 million of unfavorable profit rate adjustments on a classified program because of higher than anticipated costs to achieve program objectives, partially offset by an $85 million favorable profit rate adjustment for a claim associated with a C-5 Galaxy contract as described above.
Missiles and Fire Control
Summary operating results for our MFC business segment were as follows (in millions):
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| September 29, 2024 | September 24, 2023 | September 29, 2024 | September 24, 2023 | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 3,175 | $ | 2,939 | $ | 9,270 | $ | 8,082 | ||||||||||||||||||||||||||||||
| Operating profit | 456 | 398 | 1,217 | 1,146 | ||||||||||||||||||||||||||||||||||
| Operating margin | 14.4 | % | 13.5 | % | 13.1 | % | 14.2 | % | ||||||||||||||||||||||||||||||
MFC’s net sales during the quarter ended September 29, 2024 increased $236 million, or 8%, compared to the same period in 2023. The increase was primarily attributable to higher net sales of $285 million for tactical and strike missile programs due to production ramp up on Guided Multiple Launch Rocket Systems (GMLRS) and Long Range Anti-Ship Missile (LRASM) programs. This increase was partially offset by lower net sales of $90 million for integrated air and missile defense programs due to lower volume on Patriot Advanced Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD).
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MFC’s operating profit during the quarter ended September 29, 2024 increased $58 million, or 15%, compared to the same period in 2023. The increase in operating profit was attributable to $35 million of higher profit booking rate adjustments and $20 million from volume described above. The increase in profit booking rate adjustments was primarily due to higher favorable profit rate adjustments on PAC-3 as a result of better than anticipated cost performance.
MFC’s net sales during the nine months ended September 29, 2024 increased $1.2 billion, or 15%, compared to the same period in 2023. The increase was primarily attributable to higher net sales of $1.1 billion for tactical and strike missile programs due to production ramp up on GMLRS, LRASM and Javelin programs.
MFC’s operating profit during the nine months ended September 29, 2024 increased $71 million, or 6%, compared to the same period in 2023. The increase in operating profit was attributable to $130 million from the production ramp up described above, partially offset by $55 million related to unfavorable contract mix. Profit booking rate adjustments were comparable as a $100 million reach-forward loss recognized in the first quarter of 2024 for an option on a classified program was offset by higher favorable profit rate adjustments, primarily on PAC-3 and multiple sensors and global sustainment programs due to better than anticipated cost performance.
Rotary and Mission Systems
Summary operating results for our RMS business segment were as follows (in millions):
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| September 29, 2024 | September 24, 2023 | September 29, 2024 | September 24, 2023 | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 4,367 | $ | 4,121 | $ | 13,003 | $ | 11,528 | ||||||||||||||||||||||||||||||
| Operating profit | 483 | 482 | 1,408 | 1,286 | ||||||||||||||||||||||||||||||||||
| Operating margin | 11.1 | % | 11.7 | % | 10.8 | % | 11.2 | % | ||||||||||||||||||||||||||||||
RMS’ net sales during the quarter ended September 29, 2024 increased $246 million, or 6%, compared to the same period in 2023. The increase was primarily attributable to higher net sales of $185 million on integrated warfare systems and sensors (IWSS) programs due to higher volume on radar programs and the Canadian Surface Combatant (CSC) program; and $50 million for Sikorsky helicopter programs due to higher production volume on CH-53K, Seahawk and Black Hawk programs.
RMS’ operating profit during the quarter ended September 29, 2024 was comparable to the same period in 2023 as a $25 million increase due to the higher volume described above was offset by $25 million of lower profit booking rate adjustments. The decrease in profit booking rate adjustments was primarily due to a reach-forward loss recognized on a radar program as a result of additional quantity ordering risk identified on fixed-price options.
RMS’ net sales during the nine months ended September 29, 2024 increased $1.5 billion, or 13%, compared to the same period in 2023. The increase was primarily attributable to higher net sales of $900 million on IWSS programs due to higher volume on radar programs and the CSC program, and new program ramp up within the laser systems portfolio; $310 million for Sikorsky helicopter programs due to higher production volume on CH-53K, Black Hawk and Seahawk programs; and $250 million for various C6ISR programs due to higher volume.
RMS’ operating profit during the nine months ended September 29, 2024 increased $122 million, or 9%, compared to the same period in 2023. The increase in operating profit was attributable to $145 million from higher volume and program ramp up described above and $10 million from favorable contract mix, partially offset by $75 million of lower profit booking rate adjustments. The decrease in profit booking rate adjustments was due to unfavorable profit rate adjustments on Seahawk and Black Hawk production programs, partially offset by the net impact in 2023 of both a $100 million unfavorable profit rate adjustment on CMHP and a $65 million favorable profit rate adjustment on an international surveillance and control program that did not recur in 2024.
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Space
Summary operating results for our Space business segment were as follows (in millions):
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| September 29, 2024 | September 24, 2023 | September 29, 2024 | September 24, 2023 | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 3,075 | $ | 3,101 | $ | 9,539 | $ | 9,226 | ||||||||||||||||||||||||||||||
| Operating profit | 272 | 259 | 943 | 851 | ||||||||||||||||||||||||||||||||||
| Operating margin | 8.8 | % | 8.4 | % | 9.9 | % | 9.2 | % | ||||||||||||||||||||||||||||||
Space’s net sales during the quarter ended September 29, 2024 decreased $26 million, or 1%, compared to the same period in 2023. The decrease was primarily attributable to lower net sales of $50 million for commercial civil space due to lower volume on the Orion program, partially offset by higher volume on other space exploration programs. This decrease was partially offset by higher net sales of $25 million for strategic and missile defense programs due to higher volume on reentry programs.
Space’s operating profit during the quarter ended September 29, 2024 increased $13 million, or 5%, compared to the same period in 2023. The increase in operating profit was attributable to $25 million related to favorable contract mix across the portfolio, partially offset by $10 million of lower equity earnings driven by lower launch volume from our investment in United Launch Alliance (ULA). Profit booking rate adjustments were comparable.
Space’s net sales during the nine months ended September 29, 2024 increased $313 million, or 3%, compared to the same period in 2023. The increase was primarily attributable to higher net sales of $270 million for strategic and missile defense programs due to higher volume on the hypersonics and FBM programs; and higher net sales of $35 million for national security space programs due to higher volume on Transport Layer programs and ramp up on the Tracking Layer program, partially offset by lower volume on classified programs. These increases were partially offset by lower net sales of $70 million for commercial civil space due to lower volume and the impact of lower favorable profit adjustments on the Orion program, partially offset by higher volume on other space exploration programs.
Space’s operating profit during the nine months ended September 29, 2024 increased $92 million, or 11%, compared to the same period in 2023. The increase was primarily attributable to $70 million related to favorable contract mix across the portfolio and $25 million from higher volume and program ramp up described above. Additionally, profit booking rate adjustments were $10 million lower due to lower net favorable profit adjustments on the Orion program.
Total equity earnings (ULA) represented approximately $5 million, or 2%, and $30 million, or 3%, of Space's operating profit during the quarter and nine months ended September 29, 2024, compared to approximately $15 million, or 6%, and $20 million, or 2% for the same periods in 2023.
FINANCIAL CONDITION
Liquidity and Capital Resources
At September 29, 2024, we had cash and cash equivalents of $3.2 billion that was generally available to fund ordinary business operations without significant legal, regulatory or other restrictions. Our principal source of liquidity is our cash from operations. However, we also have access to credit markets, if needed, for liquidity or general corporate purposes. This access includes our $3.0 billion revolving credit facility or the ability to issue commercial paper (see “Note 10 - Other” included in our Notes to Consolidated Financial Statements for additional information). There were no borrowings outstanding under the revolving credit facility and commercial paper at both September 29, 2024 and December 31, 2023.
Cash received from customers is our primary source of cash from operations. However, from time to time, we fund customer programs ourselves pending government appropriations. If we incur costs in excess of funds obligated on the contract or in advance of a contract award, this negatively affects our cash flows and we may be at risk for reimbursement of the excess costs.
Billing timetables and payment terms on our contracts vary based on a number of factors, including the contract type. We generally bill and collect cash more frequently under cost-reimbursable contracts, which represented approximately
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41% of the sales we recorded during the nine months ended September 29, 2024, as we are authorized to bill as the costs are incurred. A number of our fixed-price contracts may provide for performance-based payments, which allow us to bill and collect cash as we perform on the contract. The amount of performance-based payments and the related milestones are encompassed in the negotiation of each contract. The timing of such payments may differ from the timing of the costs incurred related to our contract performance, thereby affecting our cash flows.
We have a disciplined and dynamic cash deployment strategy to invest in our business and key technologies to provide our customers with enhanced capabilities, enhance stockholder value, and position ourselves to take advantage of new business opportunities when they arise. Consistent with that strategy, we have continued to invest in our business and technologies through capital expenditures, independent research and development, and selective business acquisitions and investments.
We continue to return cash to stockholders through dividends and share repurchases. In October 2024, the Board of Directors authorized a fourth quarter dividend payment of $3.30 per share, representing an increase of $0.15 per share over the prior quarterly dividend payment. The Board of Directors also authorized an increase of $3.0 billion to our share repurchase program in addition to the $7.3 billion remaining authorization under our program as of September 29, 2024. The stock repurchase program does not have an expiration date and may be amended or terminated by the Board of Directors at any time. The amount of shares ultimately purchased and the timing of purchases are at the discretion of management and subject to compliance with applicable law and regulation.
We continue to actively manage our debt levels, including maturities and interest rates. We actively seek to finance our business in a manner that preserves financial flexibility while minimizing borrowing costs to the extent practicable. We review changes in financial market and economic conditions to manage the types, amounts and maturities of our indebtedness. We may at times refinance existing indebtedness, vary our mix of variable-rate and fixed-rate debt or seek alternative financing sources for our cash and operational needs.
We also actively manage our pension obligations and expect to continue to opportunistically manage our pension liabilities through the purchase of group annuity contracts or other actions for portions of our outstanding defined benefit pension obligations using assets from the pension trust. Future pension risk transfer transactions could be significant and result in us making additional contributions to the pension trust. The required funding of our qualified defined benefit pension plans is determined in accordance with the Employee Retirement Income Security Act of 1974 (ERISA), as amended, and CAS. We could be required to make pension contributions earlier and/or in excess than planned if our return on pension assets is less than our assumptions, which would reduce our free cash flow. We may also make additional contributions at our discretion.
There were no material changes during the quarter or nine months ended September 29, 2024 to our contractual commitments as presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2023 Form 10-K that were outside the ordinary course of our business, except for, the $2.0 billion of senior unsecured notes issued on January 29, 2024. See “Note 10 - Other” included in our Notes to Consolidated Financial Statements for additional information.
We believe our cash and cash equivalents, our expected cash flow generated from operations and our access to credit markets will be sufficient to meet our cash requirements and cash deployment plans over the next twelve months and beyond based on our current business plans.
On August 15, 2024, we entered into an agreement to acquire all of the outstanding shares of Terran Orbital Corporation (Terran). Under the terms of the agreement, we expect to pay approximately $300 million, net of cash acquired, to close the transaction. The transaction is expected to close in the fourth quarter of 2024 and is subject to the satisfaction of customary closing conditions, including regulatory and Terran stockholder approvals.
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The following table provides a summary of our cash flow information followed by a discussion of the key elements (in millions):
| Nine Months Ended | ||||||||||||||||||||
| September 29, 2024 | September 24, 2023 | |||||||||||||||||||
| Cash and cash equivalents at beginning of year | $ | 1,442 | $ | 2,547 | ||||||||||||||||
| Operating activities | ||||||||||||||||||||
| Net earnings | 4,809 | 5,054 | ||||||||||||||||||
| Noncash adjustments | 1,242 | 835 | ||||||||||||||||||
| Changes in working capital | (321) | (232) | ||||||||||||||||||
| Other, net | 219 | (102) | ||||||||||||||||||
| Net cash provided by operating activities | 5,949 | 5,555 | ||||||||||||||||||
| Net cash used for investing activities | (954) | (991) | ||||||||||||||||||
| Net cash used for financing activities | (3,286) | (3,560) | ||||||||||||||||||
| Net change in cash and cash equivalents | 1,709 | 1,004 | ||||||||||||||||||
| Cash and cash equivalents at end of period | $ | 3,151 | $ | 3,551 | ||||||||||||||||
Operating Activities
Net cash provided by operating activities during the nine months ended September 29, 2024 increased $394 million compared to the same period in 2023. The increase was primarily due to lower federal tax payments, partially offset by a decrease in working capital (defined as receivables, contract assets, and inventories less accounts payable and contract liabilities), which includes the cash impacts for the lack of additional contractual authorization and funding from the U.S. Government prior to the end of the third quarter of 2024 on the Lot 18-19 contract of the F-35 program.
Non-GAAP Financial Measure - Free Cash Flow
Free cash flow is a non-GAAP financial measure that we define as cash from operations less capital expenditures. Our capital expenditures are comprised of equipment and facilities infrastructure and information technology (inclusive of costs for the development or purchase of internal-use software that are capitalized). We use free cash flow to evaluate our business performance and overall liquidity, as well as a performance goal in our annual and long-term incentive plans. We believe free cash flow is a useful measure for investors because it represents the amount of cash generated from operations after reinvesting in the business and that may be available to return to stockholders and creditors (through dividends, stock repurchases and debt repayments) or available to fund acquisitions and other investments. The entire amount of free cash flow is not necessarily available for discretionary expenditures, however, because it does not account for certain mandatory expenditures, such as the repayment of maturing debt and future pension contributions. While management believes that free cash flow as a non-GAAP financial measure may be useful in evaluating our financial performance, it should be considered supplemental to, and not a substitute for, financial information prepared in accordance with GAAP and may not be comparable to similarly titled measures used by other companies.
The following table reconciles net cash provided by operating activities to free cash flow (in millions):
| Nine Months Ended | ||||||||||||||||||||
| September 29, 2024 | September 24, 2023 | |||||||||||||||||||
| Cash from operations | $ | 5,949 | $ | 5,555 | ||||||||||||||||
| Capital expenditures | (1,103) | (987) | ||||||||||||||||||
| Free cash flow | $ | 4,846 | $ | 4,568 | ||||||||||||||||
Free cash flow increased $278 million compared to the same period in 2023 primarily due to the increase in cash provided by operating activities described above, partially offset by higher capital expenditures.
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Investing Activities
Net cash used for investing activities during the nine months ended September 29, 2024 decreased $37 million compared to the same period in 2023, primarily due to proceeds from the sale of our Commercial Engine Solutions (CES) business. Capital expenditures totaled $1.1 billion and $987 million during the nine months ended September 29, 2024 and September 24, 2023. The majority of our capital expenditures are for equipment and facilities infrastructure that generally are incurred to support new and existing programs across all of our business segments. We also incur capital expenditures for information technology to support programs and general enterprise information technology infrastructure, inclusive of costs for the development or purchase of internal-use software.
Financing Activities
Net cash used for financing activities during the nine months ended September 29, 2024 increased $274 million compared to the same period in 2023.
During the nine months ended September 29, 2024 and September 24, 2023, we paid dividends totaling $2.3 billion ($9.45 per share) and $2.3 billion ($9.00 per share).
During the nine months ended September 29, 2024, we paid $2.7 billion to repurchase 5.7 million shares of our common stock. See “Note 9 - Stockholders’ Equity” included in our Notes to Consolidated Financial Statements for additional information. During the nine months ended September 24, 2023, we paid $3.0 billion to repurchase 6.7 million shares of our common stock.
During the nine months ended September 29, 2024 and September 24, 2023, we received net proceeds of $2.0 billion from issuance of senior unsecured notes. See “Note 10 - Other” included in our Notes to Consolidated Financial Statements for additional information.
During the nine months ended September 29, 2024, we repaid $168 million of long-term notes with a fixed interest rate of 8.375% according to their scheduled maturities.
OTHER MATTERS
Status of the F-35 Program
The F-35 program primarily consists of production contracts, sustainment activities, and new development efforts. Production of the aircraft is expected to continue for many years given the U.S. Government’s objective of procuring 2,456 aircraft for the U.S. Air Force, U.S. Marine Corps, and U.S. Navy. We also have commitments from seven international partner countries and eleven Foreign Military Sales (FMS) customers. We continue to see strong international demand for the F-35, with the Czech Republic signing an LOA in January 2024 to procure 24 F-35s, Singapore announcing in February 2024 its intent to purchase eight additional F-35s, and Greece signing an LOA in July 2024 to procure 20 F-35s, becoming the 19th nation to join the F-35 program. We expect international interest to continue to expand in the coming years.
From program inception through September 29, 2024, we have delivered 1,040 production F-35 aircraft, including 748 F-35A variants, 197 F-35B variants and 95 F-35C variants, and our backlog as of that date was 325 aircraft, demonstrating the F-35 program’s continued progress and longevity. We resumed F-35 deliveries in the third quarter of 2024, after delivering none in the first half of the year, and delivered 44 Technology Refresh 3 (“TR-3”) configured aircraft and four TR-2 configured aircraft in the quarter. We anticipate delivering between 90 and 110 F-35 aircraft in 2024, inclusive of the aircraft delivered in the third quarter. We continue to focus on advancing TR-3 and Block 4 capabilities to support our customers’ mission requirements.
The F-35 program is significant and complex and we and our customers continually review aircraft performance, program and delivery schedule, cost and supply chain issues, and requirements as part of our internal program management efforts and the DoD, Congressional and international countries’ oversight and budgeting processes. Areas of particular focus currently include Lockheed Martin’s and our suppliers’ performance, software maturation related to TR-3 capability and software development more generally, flight test execution, cost of life cycle operations, sustainment, inflation-related cost and supply chain-related cost and schedule pressures, and efforts to increase affordability.
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We remain in negotiations with the U.S. Government on the Lots 18-19 production contract. Although negotiations for this contract are in process, we have been performing work on Lots 18-19 production under initial customer authorization and funding to begin work pursuant to an advance acquisition contract received in the fourth quarter of 2023. We and our industry team continue work in an effort to meet our customer’s desired aircraft delivery dates for the Lots 18-19 aircraft. Our costs began to exceed the advance acquisition contract value and related funding late in the third quarter of 2024. Typically, we recognize revenue on the F-35 program as work is performed. However, we are unable to recognize revenue in excess of the advance acquisition contract value (refer to our revenue recognition policy in our 2023 Form 10-K), which prevented the recognition of revenue and profit on approximately $400 million of costs incurred on the program in the third quarter of 2024, with at least an additional $300 million of impacts across the supply chain. Additionally, we were prevented from invoicing and receiving cash of approximately $450 million through the third quarter of 2024. At the end of the third quarter of 2024, we also had approximately $2 billion in potential termination liability exposure to third parties related to Lots 18-19 (some of which would be recoverable in the unlikely event of a termination). Currently, we expect to receive contractual authorization and funding on the Lots 18-19 production contract with the U.S. Government and resume invoicing costs incurred and recover sales, profit, and cash in the fourth quarter of 2024. However, until a final agreement is reached, or the U.S. Government otherwise provides additional contractual authorization and funding, our results of operations, cash flows, and financial condition will continue to be negatively impacted, and the impacts could be material.
Contingencies
See “Note 7 - Legal Proceedings and Contingencies” included in our Notes to Consolidated Financial Statements for information regarding our contingent obligations, including off-balance sheet arrangements.
Critical Accounting Policies
There have been no significant changes to the critical accounting policies disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Form 10-K, except for an update related to a trademark impairment as a result of the impacts of the U.S. Army announcement to cancel the Future Attack Reconnaissance Aircraft (FARA) program at the conclusion of fiscal year 2024 in our Form 10-Q for the quarter ended June 30, 2024.
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
As disclosed in “Item 7A, Quantitative and Qualitative Disclosures About Market Risk” of our 2023 Form 10-K, we transact business globally and are subject to risks associated with changing foreign currency exchange rates. We enter into foreign currency hedges such as forward and option contracts that change in value as foreign currency exchange rates change. Our exposures to market risk have not changed materially since December 31, 2023. See “Note 8 - Fair Value Measurements” included in our Notes to Consolidated Financial Statements for additional discussion.
ITEM 4. Controls and Procedures
We performed an evaluation of the effectiveness of our disclosure controls and procedures as of September 29, 2024. The evaluation was performed with the participation of senior management of each business segment and key corporate functions, under the supervision of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were operating and effective as of September 29, 2024.
There were no changes in our internal control over financial reporting during the quarter ended September 29, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Forward-Looking Statements
This Form 10-Q contains statements that, to the extent they are not recitations of historical fact, constitute forward-looking statements within the meaning of the federal securities laws, and are based on our current expectations and assumptions. The words “believe,” “estimate,” “anticipate,” “project,” “intend,” “expect,” “plan,” “outlook,” “scheduled,” “forecast” and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks and uncertainties. Actual results may differ materially due to factors such as:
•our reliance on contracts with the U.S. Government, which are dependent on U.S. Government funding and can be terminated for convenience, and our ability to negotiate favorable contract terms;
•budget uncertainty, the risk of future budget cuts, the impact of continuing resolution funding mechanisms and the debt ceiling and the potential for government shutdowns and changing funding and acquisition priorities;
•risks related to the development, production, sustainment, performance, schedule, cost and requirements of complex and technologically advanced programs, including the F-35 program;
•planned production rates and orders for significant programs, compliance with stringent performance and reliability standards, and materials availability, including government furnished equipment;
•the timing of contract awards or delays in contract definitization as well as the timing and customer acceptance of product deliveries and performance milestones;
•our ability to recover costs under U.S. Government contracts and the mix of fixed-price and cost-reimbursable contracts;
•customer procurement policies that shift risk to contractors, including competitively bid programs with fixed-price development work or follow-on production options or other financial risks; and the impact of investments, cost overruns or other cost pressures and performance issues on fixed price contracts;
•changes in procurement and other regulations and policies affecting our industry, export of our products, cost allowability or recovery, preferred contract type, and performance and progress payments policy;
•performance and financial viability of key suppliers, teammates, joint ventures (including United Launch Alliance), joint venture partners, subcontractors and customers;
•economic, industry, business and political conditions including their effects on governmental policy;
•the impact of inflation and other cost pressures;
•the impact of pandemics and epidemics on our business and financial results, including supply chain disruptions and delays, employee absences, and program delays;
•government actions that prevent the sale or delivery of our products (such as delays in approvals for exports requiring Congressional notification);
•trade policies or sanctions (including Chinese sanctions on us or our suppliers, teammates or partners, U.S. Government sanctions on Türkish entities and persons, and indirect effects of sanctions on Russia to our supply chain);
•our success expanding into and doing business in adjacent markets and internationally and the risks posed by international sales;
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•changes in foreign national priorities and foreign government budgets and planned orders, including potential effects from fluctuations in currency exchange rates;
•the competitive environment for our products and services, including competition from startups and non-traditional defense contractors;
•our ability to develop and commercialize new technologies and products, including emerging digital and network technologies and capabilities;
•our ability to benefit fully from or adequately protect our intellectual property rights;
•our ability to attract and retain a highly skilled workforce and the impact of work stoppages or other labor disruptions;
•cyber or other security threats or other disruptions faced by us or our suppliers;
•our ability to implement and continue, and the timing and impact of, capitalization changes such as share repurchases, dividend payments and financing transactions;
•the accuracy of our estimates and projections;
•changes in pension plan assumptions and actual returns on pension assets; cash funding requirements and pension risk transfers and associated settlement charges;
•realizing the anticipated benefits of acquisitions or divestitures, investments, joint ventures, teaming arrangements or internal reorganizations, and market volatility affecting the fair value of investments that are marked to market;
•our efforts to increase the efficiency of our operations and improve the affordability of our products and services, including through digital transformation and cost reduction initiatives;
•the risk of an impairment of our assets, including the potential impairment of goodwill and intangibles;
•the availability and adequacy of our insurance and indemnities;
•impacts of climate change and compliance with laws, regulations, policies, and customer requirements in response to climate change concerns;
•changes in accounting, U.S. or foreign tax, export or other laws, regulations, and policies and their interpretation or application, and changes in the amount or reevaluation of uncertain tax positions; and
•the outcome of legal proceedings, bid protests, environmental remediation efforts, audits, government investigations or government allegations that we has failed to comply with law, other contingencies and U.S. Government identification of deficiencies in our business systems.
These are only some of the factors that may affect the forward-looking statements contained in this Form 10-Q. For a discussion identifying additional important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, see our filings with the U.S. Securities and Exchange Commission (SEC) including, but not limited to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 and subsequent Quarterly Reports on Form 10-Q. Our filings may be accessed through the Investor Relations page of our website, www.lockheedmartin.com/investor, or through the website maintained by the SEC at www.sec.gov. Information contained on or made available through our website or other websites mentioned in this Form 10-Q is not incorporated into and is not a part of this Form 10-Q, and any references to our website are intended to be inactive textual references only.
Our actual financial results likely will be different from those projected due to the inherent nature of projections. Given these uncertainties, forward-looking statements should not be relied on in making investment decisions. The forward-looking statements contained in this Form 10-Q speak only as of the date of our filing. Except where required by applicable law, we expressly disclaim a duty to provide updates to forward-looking statements after the date of this Form 10-Q to reflect subsequent events, changed circumstances, changes in expectations, or the estimates and assumptions associated with them. The forward-looking statements in this Form 10-Q are intended to be subject to the safe harbor protection provided by the federal securities laws.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
We are a party to litigation and other proceedings that arise in the ordinary course of our business, including matters arising under provisions relating to the protection of the environment, and are subject to contingencies related to certain businesses we previously owned. These types of matters could result in fines, penalties, cost reimbursements or contributions, compensatory or treble damages or non-monetary sanctions or relief. We believe the probability is remote that the outcome of each of these matters will have a material adverse effect on the company as a whole, notwithstanding that the unfavorable resolution of any matter may have a material effect on our net earnings and cash flows in any particular interim reporting period. We cannot predict the outcome of legal or other proceedings with certainty.
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We are subject to federal, state, local and foreign requirements for the protection of the environment, including those for discharge of hazardous materials and remediation of contaminated sites. Due in part to the complexity and pervasiveness of these requirements, we are a party to or have property subject to various lawsuits, proceedings and remediation obligations. The extent of our financial exposure cannot in all cases be reasonably estimated at this time.
For more information regarding matters referred to above, including current estimates of the amounts that we believe are required for remediation or clean-up to the extent estimable, see “Note 7 - Legal Proceedings and Contingencies —Legal Proceedings and Environmental Matters” included in our Notes to Consolidated Financial Statements in this Form 10-Q, which is hereby incorporated by reference. For additional information and a description of previously reported matters, see also “Critical Accounting Policies – Environmental Matters” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Note 14 – Legal Proceedings, Commitments and Contingencies,” in the 2023 Form 10-K filed with the SEC and "Note 7 - Legal Proceedings and Contingencies - Legal Proceedings and Environmental Matters,” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 (the “Q2 2024 10-Q”). In addition, as discussed more fully in "Note 7 - Legal Proceedings and Contingencies - Legal Proceedings and Environmental Matters,” in the Q2 2024 10-Q, United States of America, ex rel. Patzer; Cimma v. Sikorsky Aircraft Corp., et al. was dismissed on July 3, 2024, as a result of the settlement agreement entered into in connection with the case on June 21, 2024.
ITEM 1A. Risk Factors
There have been no material changes to the risk factors disclosed in “Item 1A, Risk Factors” of our 2023 Form 10-K. These risks and uncertainties described in our risk factors have the potential to materially affect our business, results of operations, financial condition, cash flows, projected results and future prospects. These risks are not exclusive and additional risks to which we are subject include the factors mentioned under “Forward-Looking Statements” and the risks described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no sales of unregistered equity securities during the quarter ended September 29, 2024.
The following table provides information about our repurchases of our common stock that is registered pursuant to Section 12 of the Securities Exchange Act of 1934 during the quarter ended September 29, 2024.
Period (a) | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b) | Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs (b) | |||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
July 1, 2024 – July 28, 2024 (c) | 388 | $ | 517.72 | — | $ | 8,173 | |||||||||||||||||||||||||||||
July 29, 2024 – August 25, 2024 (c) | 675,569 | $ | 552.63 | 675,345 | $ | 7,800 | |||||||||||||||||||||||||||||
August 26, 2024 – September 29, 2024 (c) | 837,865 | $ | 569.40 | 837,335 | $ | 7,323 | |||||||||||||||||||||||||||||
Total (c) | 1,513,822 | $ | 561.90 | 1,512,680 | |||||||||||||||||||||||||||||||
(a)We close our books and records on the last Sunday of each month to align our financial closing with our business processes, except for the month of December, as our fiscal year ends on December 31. As a result, our fiscal months often differ from the calendar months. For example, September 29, 2024 was the last day of our September 2024 fiscal month.
(b)In October 2010, our Board of Directors approved and on October 25, 2010 we announced a share repurchase program pursuant to which we are authorized to repurchase our common stock in privately negotiated transactions or in the open market at prices per share not exceeding the then-current market prices. From time to time, our Board of Directors authorizes increases to our share repurchase program. The total remaining authorization for future common share repurchases under our share repurchase program was $7.3 billion as of September 29, 2024. In October 2024, the Board of Directors authorized an increase to the program by $3.0 billion. Under the program, management has discretion to determine the dollar amount of shares to be repurchased and the timing of any repurchases in compliance with applicable law and regulation. This includes purchases pursuant to Rule 10b5-1 plans, including accelerated share repurchases. The program does not have an expiration date.
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(c)During the quarter ended September 29, 2024, the total number of shares purchased included 1,142 shares that were transferred to us by employees in satisfaction of tax withholding obligations associated with the vesting of restricted stock units. These purchases were made pursuant to a separate authorization by our Board of Directors and are not included within the program.
ITEM 5. Other Information
None of our directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or adopted or terminated a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the quarter ended September 29, 2024.
ITEM 6. Exhibits
| Exhibit No. | Description | |||||||
| 10.1 | ||||||||
| 15 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32 | ||||||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document contained in Exhibit 101 | |||||||
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Lockheed Martin Corporation | ||||||||
| (Registrant) | ||||||||
| Date: October 22, 2024 | By: /s/ H. Edward Paul III | |||||||
| H. Edward Paul III | ||||||||
| Vice President and Controller | ||||||||
| (Duly Authorized Officer and Chief Accounting Officer) | ||||||||
49
Exhibit 15
Acknowledgment of
Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Lockheed Martin Corporation
We are aware of the incorporation by reference of our report dated October 22, 2024, relating to the unaudited consolidated interim financial statements of Lockheed Martin Corporation that is included in its Form 10-Q for the quarter ended September 29, 2024, in the following Registration Statements of Lockheed Martin Corporation:
•333-92363 on Form S-8, dated December 8, 1999;
•333-115357 on Form S-8, dated May 10, 2004;
•333-155687 on Form S-8, dated November 25, 2008;
•333-188118 on Form S-8, dated April 25, 2013;
•333-195466 on Form S-8, dated April 24, 2014, July 23, 2014 (Post-Effective Amendment No.1) and April 24, 2020 (Post-Effective Amendment No. 2);
•333-237829, 333-237831, and 333-237832 on Form S-8, each dated April 24, 2020;
•333-271323 on Form S-8, dated April 18, 2023; and
•333-271325 on Form S-3, dated April 18, 2023.
/s/ Ernst & Young LLP
Tysons, Virginia
October 22, 2024
Exhibit 31.1
CERTIFICATION OF JAMES D. TAICLET PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James D. Taiclet, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Lockheed Martin Corporation;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/s/ James D. Taiclet | |||||||||||
James D. Taiclet | |||||||||||
| Chief Executive Officer | |||||||||||
| Date: October 22, 2024 | |||||||||||
Exhibit 31.2
CERTIFICATION OF JESUS MALAVE PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jesus Malave, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Lockheed Martin Corporation;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/s/ Jesus Malave | ||||||||
| Jesus Malave | ||||||||
| Chief Financial Officer | ||||||||
| Date: October 22, 2024 | ||||||||
Exhibit 32
CERTIFICATION OF JAMES D. TAICLET AND JESUS MALAVE PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Lockheed Martin Corporation (the “Corporation”) on Form 10-Q for the period ended September 29, 2024, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, James D. Taiclet, Chief Executive Officer of the Corporation, and I, Jesus Malave, Chief Financial Officer of the Corporation, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
/s/ James D. Taiclet | |||||
James D. Taiclet | |||||
| Chief Executive Officer | |||||
/s/ Jesus Malave | |||||
| Jesus Malave | |||||
| Chief Financial Officer | |||||
Date: October 22, 2024