LOCKHEED MARTIN CORP (Form: 10-Q, Received: 04/18/2023 16:20:29)

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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 March 26, 2023


☐			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

LOCKHEED MARTIN CORPORATION

(Exact name of registrant as specified in its charter)

Maryland

52-1893632

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

6801 Rockledge Drive,

Bethesda,

Maryland

20817

(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
Common Stock, $1 par value	LMT	New York Stock Exchange

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.

Large accelerated filer ☒ Accelerated filer ☐ Non–accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

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 253,252,553 shares of our common stock, $1 par value per share, outstanding as of April 14, 2023.

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Lockheed Martin Corporation

Form 10-Q

For the Quarterly Period Ended March 26, 2023

Table of Contents


			Page

PART I. FINANCIAL INFORMATION

	ITEM 1.	Financial Statements (Unaudited)

		Consolidated Statements of Earnings for the Quarters Ended March 26, 2023 and March 27, 2022	3

		Consolidated Statements of Comprehensive Income for the Quarters Ended March 26, 2023 and March 2 7 , 2022	4

		Consolidated Balance Sheets as of March 26, 2023 and December 31, 2022	5

		Consolidated Statements of Cash Flows for the Quarters Ended March 26, 2023 and March 2 7 , 2022	6



		Consolidated Statements of Equity for the Quarters Ended March 26, 2023 and March 2 7 , 2022	7

		Notes to Consolidated Financial Statements	8

		Report of Independent Registered Public Accounting Firm	22

	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	37

	ITEM 4.	Controls and Procedures	37

PART II. OTHER INFORMATION

	ITEM 1.	Legal Proceedings	39

	ITEM 1A.	Risk Factors	39

	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

	ITEM 6.	Exhibits	41

SIGNATURE			42

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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
		March 26, 2023			March 27, 2022
Net sales
Products			$	12,526		$	12,494
Services			2,600			2,470
Total net sales			15,126			14,964
Cost of sales
Products			(11,151)			(11,107)
Services			(2,284)			(2,167)

Other unallocated, net			355			219
Total cost of sales			(13,080)			(13,055)
Gross profit			2,046			1,909
Other (expense) income, net			(9)			24
Operating profit			2,037			1,933
Interest expense			(202)			(135)
Non-service FAS pension income			110			140


Other non-operating income, net			49			123
Earnings before income taxes			1,994			2,061
Income tax expense			(305)			(328)


Net earnings			$	1,689		$	1,733

Earnings per common share
Basic			$	6.63		$	6.46



Diluted			$	6.61		$	6.44




Cash dividends paid per common share			$	3.00		$	2.80

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Lockheed Martin Corporation

Consolidated Statements of Comprehensive Income

(unaudited; in millions)



	Quarters Ended
		March 26, 2023		March 27, 2022
Net earnings		$	1,689	$	1,733
Other comprehensive income, net of tax
Postretirement benefit plans

Amortization of actuarial losses and prior service credits, net of tax of $10 million in 2023 and $13 million in 2022		(37)		48

Other, net, net of tax of $4 million in 2023 and $1 million in 2022		(26)		(21)
Other comprehensive (loss) income, net of tax		(63)		27
Comprehensive income		$	1,626	$	1,760

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Lockheed Martin Corporation

Consolidated Balance Sheets

(in millions, except par value)


	March 26, 2023		December 31, 2022
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	2,440	$	2,547
Receivables, net	2,583		2,505
Contract assets	13,189		12,318
Inventories	3,471		3,088
Other current assets	461		533
Total current assets	22,144		20,991
Property, plant and equipment, net	7,938		7,975
Goodwill	10,776		10,780
Intangible assets, net	2,397		2,459
Deferred income taxes	4,175		3,744
Other noncurrent assets	7,192		6,931
Total assets	$	54,622	$	52,880
Liabilities and equity
Current liabilities
Accounts payable	$	3,271	$	2,117
Salaries, benefits and payroll taxes	2,634		3,075
Contract liabilities	8,336		8,488
Current maturities of long-term debt	115		118
Other current liabilities	2,626		2,089
Total current liabilities	16,982		15,887
Long-term debt, net	15,485		15,429
Accrued pension liabilities	5,422		5,472
Other noncurrent liabilities	7,087		6,826
Total liabilities	44,976		43,614
Stockholders’ equity
Common stock, $1 par value per share	254		254
Additional paid-in capital	—		92
Retained earnings	17,478		16,943
Accumulated other comprehensive loss	(8,086)		(8,023)
Total stockholders’ equity	9,646		9,266


Total liabilities and equity	$	54,622	$	52,880

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Lockheed Martin Corporation

Consolidated Statements of Cash Flows

(unaudited; in millions)


	Quarters Ended
	March 26, 2023		March 27, 2022
Operating activities
Net earnings	$	1,689	$	1,733
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization	325		329
Stock-based compensation	57		54


Deferred income taxes	(117)		(31)



Changes in assets and liabilities
Receivables, net	(78)		(564)
Contract assets	(871)		(1,551)
Inventories	(383)		(163)
Accounts payable	1,217		1,829
Contract liabilities	(152)		(205)
Income taxes	414		317
Qualified defined benefit pension plans	(94)		(116)
Other, net	(443)		(222)
Net cash provided by operating activities	1,564		1,410
Investing activities
Capital expenditures	(294)		(268)
Other, net	35		17
Net cash used for investing activities	(259)		(251)
Financing activities


Repurchases of common stock	(500)		(2,000)
Dividends paid	(784)		(767)

Other, net	(128)		(113)
Net cash used for financing activities	(1,412)		(2,880)
Net change in cash and cash equivalents	(107)		(1,721)
Cash and cash equivalents at beginning of period	2,547		3,604
Cash and cash equivalents at end of period	$	2,440	$	1,883

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Lockheed Martin Corporation

Consolidated Statements of Equity

(unaudited; in millions)



	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity
Balance at December 31, 2022	$	254	$	92	$	16,943	$	(8,023)		$	9,266
Net earnings	—		—		1,689		—			1,689
Other comprehensive income, net of tax	—		—		—		(63)			(63)
Dividends declared	—		—		(768)		—			(768)
Repurchases of common stock	(1)		(113)		(386)		—			(500)
Stock-based awards, ESOP activity and other	1		21		—		—			22
Balance at March 26, 2023	$	254	$	—	$	17,478	$	(8,086)		$	9,646

Balance at December 31, 2021	$	271	$	94	$	21,600	$	(11,006)		$	10,959
Net earnings	—		—		1,733		—			1,733
Other comprehensive income, net of tax	—		—		—		27			27
Dividends declared	—		—		(749)		—			(749)
Repurchases of common stock	(6)		(126)		(1,868)		—			(2,000)
Stock-based awards, ESOP activity and other	—		32		—		—			32

Balance at March 27, 2022	$	265	$	—	$	20,716	$	(10,979)		$	10,002

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited)

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.

Effective January 1, 2023, we no longer consider amortization expense related to purchased intangible assets when evaluating the operating performance of our business segments. As a result, intangible asset amortization expense, which was previously included in segment operating profit, is now reported in unallocated corporate expense within total consolidated operating profit. This change has no impact on our consolidated operating results. Management believes this updated presentation better aligns with how the business is viewed and managed and will provide better insights into business segment performance. This change has been applied to the amounts in this Form 10-Q, including amounts for 2022. See “Note 3 - Information on Business Segments” for further information regarding the impact of this change on our current and prior period segment operating profit.

Additionally, during the third quarter of 2022, we changed the presentation of deferred income taxes related to uncertain tax positions in the operating cash flow section of the consolidated statements of cash flows. First quarter of 2022 amounts have been conformed to current period presentation and this change does not impact previously reported net cash from operating activities.

We close our books and records on the last Sunday of the interim calendar quarter, which was on March 26, for the first quarter of 2023 and March 27, for the first quarter of 2022, 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 as 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, 2022 (2022 Form 10-K).

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

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
		March 26, 2023	March 27, 2022
Weighted average common shares outstanding for basic computations			254.7	268.3
Weighted average dilutive effect of equity awards			1.0	0.9
Weighted average common shares outstanding for diluted computations			255.7	269.2

We compute basic and diluted earnings per common share by dividing net earnings by the respective weighted average number of common shares outstanding for the periods presented. Our calculation of diluted earnings per common share also includes the dilutive effects for the assumed vesting of outstanding restricted stock units (RSUs) and performance stock units (PSUs) based on the treasury stock method. There were no significant anti-dilutive equity awards during the quarters ended March 26, 2023 and March 27, 2022. Basic and diluted weighted average common shares outstanding decreased in 2023 compared to 2022 due to share repurchases. See “Note 9 - Stockholders’ Equity” for more information.

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

As discussed in “Note 1 - Basis of Presentation”, effective January 1, 2023, we no longer consider amortization expense related to purchased intangible assets when evaluating the operating performance of our business segments. As a result, intangible asset amortization expense, which was previously included in segment operating profit, is now reported in unallocated items within total consolidated operating profit.

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Notes to Consolidated Financial Statements (unaudited) (continued)

This change has been applied to the amounts below, including the amounts for 2022. Sales and operating profit for each of our business segments were as follows (in millions):


	Quarters Ended
		March 26, 2023			March 27, 2022
Net sales
Aeronautics			$	6,269		$	6,401
Missiles and Fire Control			2,388			2,452
Rotary and Mission Systems			3,510			3,552
Space			2,959			2,559
Total net sales			$	15,126		$	14,964
Operating profit
Aeronautics			$	675		$	679
Missiles and Fire Control			377			385
Rotary and Mission Systems			350			406
Space			280			248
Total business segment operating profit			1,682			1,718
Unallocated items
FAS/CAS pension operating adjustment			415			426


Intangible asset amortization expense			(62)			(62)
Other, net			2			(149)
Total unallocated items			355			215
Total consolidated operating profit			$	2,037		$	1,933
Intersegment sales
Aeronautics			$	53		$	60
Missiles and Fire Control			146			156
Rotary and Mission Systems			489			455
Space			86			83
Total intersegment sales			$	774		$	754

Unallocated Items

Business segment operating profit excludes the FAS/CAS pension operating adjustment, 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, environmental costs, stock-based compensation expense, changes in the fair value of net 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 U.S. Government Cost Accounting Standards (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 segment’s 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 and total CAS pension cost. As a result, to the extent that CAS pension cost exceeds the service cost component of FAS pension income, we have a favorable FAS/CAS pension operating adjustment.

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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 March 26, 2023
	Aeronautics		MFC		RMS		Space		Total
Net sales
Products	$	5,156	$	2,089	$	2,792	$	2,489	$	12,526
Services	1,113		299		718		470		2,600
Total net sales	$	6,269	$	2,388	$	3,510	$	2,959	$	15,126
Net sales by contract type
Fixed-price	$	4,312	$	1,618	$	2,208	$	764	$	8,902
Cost-reimbursable	1,957		770		1,302		2,195		6,224
Total net sales	$	6,269	$	2,388	$	3,510	$	2,959	$	15,126
Net sales by customer
U.S. Government	$	4,117	$	1,581	$	2,423	$	2,908	$	11,029
International (a)	2,114		805		1,020		45		3,984
U.S. commercial and other	38		2		67		6		113
Total net sales	$	6,269	$	2,388	$	3,510	$	2,959	$	15,126
Net sales by geographic region
United States	$	4,155	$	1,583	$	2,490	$	2,914	$	11,142
Europe	1,130		211		225		23		1,589
Asia Pacific	675		102		438		22		1,237
Middle East	225		455		186		—		866
Other	84		37		171		—		292
Total net sales	$	6,269	$	2,388	$	3,510	$	2,959	$	15,126


	Quarter Ended March 27, 2022
	Aeronautics		MFC		RMS		Space		Total
Net sales
Products	$	5,417	$	2,173	$	2,788	$	2,116	$	12,494
Services	984		279		764		443		2,470
Total net sales	$	6,401	$	2,452	$	3,552	$	2,559	$	14,964
Net sales by contract type
Fixed-price	$	4,686	$	1,713	$	2,218	$	637	$	9,254
Cost-reimbursable	1,715		739		1,334		1,922		5,710
Total net sales	$	6,401	$	2,452	$	3,552	$	2,559	$	14,964
Net sales by customer
U.S. Government	$	4,213	$	1,595	$	2,511	$	2,516	$	10,835
International (a)	2,150		852		971		34		4,007
U.S. commercial and other	38		5		70		9		122
Total net sales	$	6,401	$	2,452	$	3,552	$	2,559	$	14,964
Net sales by geographic region
United States	$	4,251	$	1,600	$	2,581	$	2,525	$	10,957
Europe	1,023		256		187		24		1,490
Asia Pacific	721		106		432		7		1,266
Middle East	262		465		176		3		906
Other	144		25		176		—		345
Total net sales	$	6,401	$	2,452	$	3,552	$	2,559	$	14,964

(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.

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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 26% of our total consolidated net sales for the quarter ended March 26, 2023 and 29% of our total consolidated net sales for the quarter ended March 27, 2022.

Assets

Total assets for each of our business segments were as follows (in millions):


	March 26, 2023		December 31, 2022
Assets
Aeronautics	$	13,247	$	12,055
Missiles and Fire Control	5,630		5,788
Rotary and Mission Systems	17,923		17,988
Space	6,471		6,351
Total business segment assets	43,271		42,182
Corporate assets (a)	11,351		10,698
Total assets	$	54,622	$	52,880

(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 other marketable investments.

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):


	March 26, 2023		December 31, 2022
Contract assets	$	13,189	$	12,318
Contract liabilities	8,336		8,488

Contract assets increased $871 million during the quarter ended March 26, 2023, due to the recognition of revenue related to the satisfaction or partial satisfaction of performance obligations during the quarter ended March 26, 2023 for which we have not yet billed our customers (primarily on the F-35 program at Aeronautics). There were no significant credit or impairment losses related to our contract assets during the quarters ended March 26, 2023 and March 27, 2022.

Contract liabilities decreased $152 million during the quarter ended March 26, 2023, primarily due to revenue recognized in excess of payments received on these performance obligations. During the quarter ended March 26, 2023, we recognized $2.2 billion of our contract liabilities at December 31, 2022 as revenue. During the quarter ended March 27, 2022, we recognized $2.1 billion of our contract liabilities at December 31, 2021 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):


	March 26, 2023		December 31, 2022
Materials, spares and supplies	$	601	$	599
Work-in-process	2,681		2,297
Finished goods	189		192
Total inventories	$	3,471	$	3,088

Costs incurred to fulfill a contract in advance of the contract being awarded are included in inventories as work-in-process if we determine that those costs relate directly to a contract or to an anticipated contract that we can specifically identify and determine that contract award is probable, the costs generate or enhance resources that will be used in satisfying performance obligations, and the costs are recoverable (referred to as pre-contract costs). Pre-contract costs that are initially capitalized in inventory are generally recognized as cost of sales consistent with the transfer of products and services to the customer upon the receipt of the anticipated contract. All other pre-contract costs, including start-up costs, are expensed as incurred. As of March 26, 2023 and December 31, 2022, $980 million and $791 million of pre-contract costs were included in inventories. The increase in pre-contract costs as of March 26, 2023 is primarily driven by our Aeronautics business segment (primarily F-35 program and classified contracts).

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
		March 26, 2023			March 27, 2022
Qualified defined benefit pension plans
Operating:
Service cost			$	(16)		$	(24)
Non-operating:
Interest cost			(365)			(302)
Expected return on plan assets			430			502
Recognized net actuarial losses			(42)			(150)
Amortization of prior service credits			87			90

Non-service FAS pension income			110			140
Total FAS pension income			$	94		$	116
Retiree medical and life insurance plans
Operating:
Service cost			$	(1)		$	(2)
Non-operating:
Interest cost			(17)			(12)
Expected return on plan assets			26			34
Recognized net actuarial gains			8			11
Amortization of prior service costs			(3)			(7)
Non-service FAS retiree medical and life income			14			26
Total FAS retiree medical and life income			$	13		$	24

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

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 recognized net actuarial losses or gains and amortization of prior service credits or costs in the table above, along with similar costs related to our other postretirement benefit plans ($3 million for the quarter ended March 26, 2023 and $5 million for the quarter ended March 27, 2022) were reclassified from accumulated other comprehensive loss (AOCL) and recorded as a component of FAS income for the periods presented. These costs totaled $(47) million ($(37) million, net of tax) during the quarter ended March 26, 2023, and $61 million ($48 million, net of tax) during the quarter ended March 27, 2022.

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 contributions to our qualified defined benefit pension plans during the quarters ended March 26, 2023 and March 27, 2022.

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 any particular interim reporting period. 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.

United States of America, ex rel. Patzer; Cimma v. Sikorsky Aircraft Corp., et al.

As a result of our acquisition of Sikorsky Aircraft Corporation (Sikorsky), we assumed the defense of and any potential liability for two civil False Claims Act lawsuits pending in the U.S. District Court for the Eastern District of Wisconsin. In October 2014, the U.S. Government filed a complaint in intervention in the first suit, which was brought by qui tam relator Mary Patzer, a former Derco Aerospace (Derco) employee. In May 2017, the U.S. Government filed a complaint in intervention in a second suit, which was brought by qui tam relator Peter Cimma, a former Sikorsky Support Services, Inc. (SSSI) employee. In November 2017, the Court consolidated the cases into a single action for discovery and trial.

The U.S. Government alleges that Sikorsky and two of its wholly-owned subsidiaries, Derco and SSSI, violated the civil False Claims Act and the Truth in Negotiations Act in connection with a contract the U.S. Navy awarded to SSSI in June 2006 to support the Navy’s T-34 and T-44 fixed-wing turboprop training aircraft. SSSI subcontracted with Derco,

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

primarily to procure and manage spare parts for the training aircraft. The U.S. Government contends that SSSI overbilled the Navy on the contract as the result of Derco’s use of prohibited cost-plus-percentage-of-cost (CPPC) pricing to add profit and overhead costs as a percentage of the price of the spare parts that Derco procured and then sold to SSSI. The U.S. Government also alleges that Derco’s claims to SSSI, SSSI’s claims to the Navy, and SSSI’s yearly Certificates of Final Indirect Costs from 2006 through 2012 were false and that SSSI submitted inaccurate cost or pricing data in violation of the Truth in Negotiations Act for a sole-sourced, follow-on “bridge” contract. The U.S. Government’s complaints assert common law claims for breach of contract and unjust enrichment. On November 29, 2021, the District Court granted the U.S. Government’s motion for partial summary judgment, finding that the Derco-SSSI agreement was a CPPC contract.

We believe that we have legal and factual defenses to the U.S. Government’s remaining claims. The U.S. Government seeks damages of approximately $52 million, subject to trebling, plus statutory penalties. Although we continue to evaluate our liability and exposure, we do not currently believe that it is probable that we will incur a material loss. If, contrary to our expectations, the U.S. Government prevails on the remaining issues in this matter and proves damages at or near $52 million and is successful in having such damages trebled, the outcome could have an adverse effect on our results of operations in the period in which a liability is recognized and on our cash flows for the period in which any damages are paid.

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 (IS&GS) business, 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 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 March 26, 2023 and December 31, 2022, the aggregate amount of liabilities recorded relative to environmental matters was $690 million and $696 million, most of which are recorded in other noncurrent liabilities on our consolidated balance sheets. We have recorded assets for the portion of environmental costs that are probable of future recovery totaling $612 million and $618 million at March 26, 2023 and December 31, 2022, most of which are recorded in other noncurrent assets on our consolidated balance sheets.

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

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 of perchlorate and hexavalent chromium at the federal and state level could adversely affect us. In particular, the U.S. Environmental Protection Agency (EPA) is considering whether to regulate hexavalent chromium at the federal level and the California State Water Resources Control Board continues to reevaluate its existing drinking water standard of 6 ppb for perchlorate.

If substantially lower standards are adopted for perchlorate in California or for hexavalent chromium at the federal level, we expect a material increase in our estimates for environmental liabilities and the related assets for the portion of the increased costs that are probable of future recovery in the pricing of our products and services for the U.S. Government. 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 existing and contemplated legal requirements addressing a class of chemicals known generally as per- and polyfluoroalkyl substances (PFAS). PFAS have been used ubiquitously, such as in fire-fighting foams, manufacturing processes, and stain- and stick-resistant products (e.g., Teflon, stain-resistant fabrics). Because we have used products and processes over the years containing some of those compounds, they likely exist as contaminants at many of our environmental remediation sites. Governmental authorities have announced plans, and in some instances have begun, to regulate certain of these compounds at extremely low concentrations in drinking water, which could lead to increased cleanup costs at many 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 $2.8 billion and $2.9 billion at March 26, 2023 and December 31, 2022.

Additionally, we may guarantee the contractual performance of third parties such as joint venture partners. At March 26, 2023 and December 31, 2022, third-party guarantees totaled $908 million and $904 million, of which approximately 72% and 71% 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.

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

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 March 26, 2023 and December 31, 2022, there were no material amounts recorded in our financial statements related to third-party guarantees or novation agreements.

Other Contingencies

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 U.S., 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.

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.

NOTE 8 - FAIR VALUE MEASUREMENTS

Assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following (in millions):



	March 26, 2023								December 31, 2022
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets
Mutual funds	$	893	$	893	$	—	$	—	$	897	$	897	$	—	$	—
U.S. Government securities	115		—		115		—		118		—		118		—
Other securities	665		322		282		61		660		333		264		63
Derivatives	11		—		11		—		18		—		18		—
Liabilities
Derivatives	164		—		164		—		196		—		196		—

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 use derivative instruments principally to reduce our exposure to market risks from changes in foreign currency exchange rates and interest rates. We do not enter into or hold derivative instruments for speculative trading purposes. 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 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. These contracts hedge forecasted

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

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 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 billion at both March 26, 2023 and December 31, 2022. The aggregate notional amount of our outstanding foreign currency hedges was $7.4 billion and $7.3 billion at March 26, 2023 and December 31, 2022. The fair values of our outstanding interest rate swaps and foreign currency hedges at March 26, 2023 and December 31, 2022 were not significant. Derivative instruments did not have a material impact on net earnings and comprehensive income during the quarters ended March 26, 2023 and March 27, 2022. 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.

We also make investments in certain 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 and certain investments are categorized as Level 3 when valuations using observable inputs are unavailable. See “Note 10 - Other - Investments” for more information.

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 $16.5 billion and $16.0 billion at March 26, 2023 and December 31, 2022. The outstanding principal amount of debt, including short-term and long-term debt, was $16.8 billion at both March 26, 2023 and December 31, 2022, excluding $1.2 billion and $1.3 billion of unamortized discounts and issuance costs at March 26, 2023 and December 31, 2022. The estimated fair values of our outstanding debt were determined based on the present value of future cash flows using model-derived valuations that use observable inputs such as interest rates and credit spreads (Level 2).

NOTE 9 - STOCKHOLDERS’ EQUITY

Repurchases of Common Stock

During the quarter ended March 26, 2023, we entered into an accelerated share repurchase (ASR) agreement to

purchase $500 million of our common stock. Under the terms of the ASR agreement, we paid $500 million and received an initial delivery of 0.9 million shares of our common stock. Subsequent to our first quarter 2023, upon final settlement of the ASR agreement in April 2023, we received an additional 0.2 million shares of our common stock for no additional consideration. In addition, in April 2023, we received an additional 1.5 million shares of our common stock for no additional consideration upon final settlement of the ASR we entered into in the fourth quarter of 2022.

The total remaining authorization for future common share repurchases under our share repurchase program was $9.5 billion as of March 26, 2023. 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 declared cash dividends totaling $768 million ($3.00 per share) during the quarter ended March 26, 2023. The total amount 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, 2022	$	(7,866)	$	(157)	$	(8,023)
Other comprehensive income (loss) before reclassifications	—		(29)		(29)

Amounts reclassified from AOCL

Recognition of net actuarial losses (a)	29		—		29
Amortization of net prior service credits (a)	(66)		—		(66)
Other	—		3		3
Total reclassified from AOCL	(37)		3		(34)
Total other comprehensive income (loss)	(37)		(26)		(63)
Balance at March 26, 2023	$	(7,903)	$	(183)	$	(8,086)

Balance at December 31, 2021	$	(10,964)	$	(42)	$	(11,006)
Other comprehensive income (loss) before reclassifications	—		(22)		(22)
Amounts reclassified from AOCL

Recognition of net actuarial losses (a)	115		—		115
Amortization of net prior service credits (a)	(67)		—		(67)
Other	—		1		1
Total reclassified from AOCL	48		1		49
Total other comprehensive income (loss)	48		(21)		27
Balance at March 27, 2022	$	(10,916)	$	(63)	$	(10,979)

(a)Reclassifications from AOCL related to postretirement benefit plans were recorded as a component of FAS income for each period presented. See “Note 6 - Postretirement Benefit Plans”.

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 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.

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

profit 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 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 may also be impacted favorably or unfavorably by other items, which may or may not impact sales. Favorable items may include the positive resolution of contractual matters, cost recoveries on severance and restructuring, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual matters; COVID-19 impacts or 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 $415 million during the quarter ended March 26, 2023 and $405 million during the quarter ended March 27, 2022. These adjustments increased net earnings by approximately $328 million ($1.28 per share) during the quarter ended March 26, 2023 and $320 million ($1.19 per share) during the quarter ended March 27, 2022. We recognized net sales from performance obligations satisfied in prior periods of approximately $433 million during the quarter ended March 26, 2023, and $416 million during the quarter ended March 27, 2022, which primarily relate to changes in profit booking rates that impacted revenue.

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 are increasingly implementing procurement policies 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. Any such losses are recorded in the period in which the loss is evident.

We have experienced performance issues on a classified fixed-price incentive fee contract that involves highly complex design and systems integration at our Aeronautics business segment and have periodically recognized reach-forward losses. We continue to monitor the technical requirements, remaining work, schedule, and estimated costs to complete the program. Based the revised schedule, which was agreed to in 2021, cumulative losses were approximately $270 million as of March 26, 2023. We will continue to monitor our performance, any future changes in scope, and estimated costs to complete the program and 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. In addition, we and our industry team will incur advanced procurement costs (also referred to as pre-contract costs) in order to enhance our ability to achieve the revised 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 are responsible for a program to design, develop and construct a ground-based radar at our RMS business segment. The program has experienced performance issues for which we have periodically recognized reach-forward losses. As of March 26, 2023, cumulative losses were approximately $280 million. We will continue to monitor our performance, any future changes in scope, and estimated costs to complete the program and may have to record additional losses in future periods if we experience further performance issues, increases in scope, or cost growth.

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

However, based on the losses previously recorded and our current estimate of the sales and costs to complete the program, at this time we do not anticipate that additional losses, if any, would be material to our financial results or financial condition.

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 March 26, 2023, our ending backlog was $145.1 billion. We expect to recognize approximately 36% 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 rate was 15.3% for the quarter ended March 26, 2023 and 15.9% for the quarter ended March 27, 2022. The rates for both periods benefited from research and development tax credits, tax deductions for foreign derived intangible income, dividends paid to our defined contribution plans with an employee stock ownership plan feature, and employee equity awards. The rate for the first quarter of 2023 was lower than the first quarter of 2022 primarily due to increased research and development tax credits.

As of December 31, 2022, our liabilities associated with uncertain tax positions were $1.6 billion. For the quarter ended March 26, 2023, our liabilities associated with uncertain tax positions increased to $1.9 billion with a corresponding increase to net deferred tax assets resulting from the Tax Cuts and Jobs Act of 2017’s elimination of the option for taxpayers to deduct research and development expenditures immediately in the year incurred and instead requiring taxpayers to amortize such expenditures over five years.

Investments

We make investments in certain companies that we believe are advancing or developing new technologies applicable to our business. These investments may be in the form of common or preferred stock, warrants, convertible debt securities or investments in funds. Most of the 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. Investments with quoted market prices in active markets (Level 1) (publicly held securities) are recorded at fair value. Certain investments are categorized as Level 3 when valuations using observable inputs are unavailable. The carrying amounts of the Level 1 investments were $606 million and $589 million at March 26, 2023 and December 31, 2022. Due to changes in fair value and/or sales of investments, we recorded net gains of $29 million ($22 million, or $0.09 per share, after-tax) and $103 million ($77 million, or $0.29 per share, after-tax) during the quarters ended March 26, 2023 and March 27, 2022. These gains and losses are reflected in the other non-operating income, net account on our consolidated statements of earnings.

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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 March 26, 2023, the related consolidated statements of earnings, comprehensive income, cash flows and equity for the quarters ended March 26, 2023 and March 27, 2022, 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, 2022, 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 26, 2023, 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, 2022, 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

April 18, 2023

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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, 2022 (2022 Form 10-K).

BUSINESS OVERVIEW

We are a global security and aerospace company 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 quarter ended March 26, 2023, 73% of our $15.1 billion in net sales were from the U.S. Government, either as a prime contractor or as a subcontractor (including 63% from the Department of Defense (DoD)), 26% 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 nearly 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 December 29, 2022, the President signed the FY 2023 Omnibus Appropriations Act into law, which provides $858 billion in total national defense funding, of which $816.7 billion is for the DoD base budget. This reflects a $44.6 billion increase over the FY 2023 request for national defense spending, and a $43.7 billion increase for the DoD. The President’s Fiscal Year (FY) 2024 budget request was submitted to Congress on March 9, 2023 initiating the FY 2024 defense authorization and appropriations legislative process. The request includes $866 billion for National Defense, of which $842 billion is for the DoD base budget.

In addition to the FY 2024 budget process, Congress will have to contend with the legal limit on U.S. debt, commonly known as the debt ceiling. The current statutory limit of $31.4 trillion was reached in January, requiring the Treasury Department to take accounting measures to continue normally financing U.S. government obligations while avoiding exceeding the debt ceiling. It is expected, however, the U.S. government will exhaust these measures by June 2023. If the debt ceiling is not raised, the U.S. government may not be able to fulfill its funding obligations and there could be significant disruption to all discretionary programs and wider financial and economic repercussions. The federal budget and debt ceiling are expected to continue to be the subject of considerable congressional debate. Although we believe DoD, intelligence and homeland security programs will continue to receive consensus support for increased funding and would likely receive priority if this scenario came to fruition, the effect on individual programs or Lockheed Martin cannot be predicted at this time.

See also the discussion of U.S. Government funding risks within “Item 1A, Risk Factors” included in our 2022 Form 10-K.

Geopolitical and Economic Environment

We operate in a complex and evolving global security environment and our business is affected by geopolitical issues. Russia’s invasion of Ukraine has significantly elevated global geopolitical tensions and security concerns. As a result, we have received increased interest for certain of our products and services as countries seek to improve their security posture. In addition, security assistance provided by the U.S. Government to Ukraine has created U.S. Government demand to replenish U.S. stockpiles, resulting in additional and potential future orders for our products. We have seen this interest result in initiation of new contract discussions. However, given the long-cycle nature of our business and current industry capacity, we do not expect a significant increase in near term sales from new contracts in response to the conflict. We continue to evaluate capacity at our operations and the supply chain to anticipate potential demand and enable us to deliver critical capabilities.

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COVID-19 has previously impacted our operational and financial performance and its impact in future periods, including our ability to execute our programs in the expected timeframe, remains uncertain and will depend on future COVID-19 related developments, including the impact of COVID-19 infection or potential new variants or subvariants, and supplier impacts and related government actions to prevent and manage disease spread. The long-term impacts of COVID-19 on government budgets and other funding priorities, including international priorities, that impact demand for our products and services also are difficult to predict, but could negatively affect our future results and performance.

Our business and financial performance may also be affected by general economic conditions. Heightened levels of inflation and the potential worsening of macro-economic conditions present risks for Lockheed Martin, our suppliers and the stability of the broader defense industrial base. We have been experiencing impacts to our labor rates and suppliers have signaled inflation related cost pressures, which will continue to flow through to our costs and pricing. Although inflation did not significantly impact our financial results in the first quarter of 2023, if inflation remains at current levels for an extended period, or increases, and we are unable to successfully mitigate the impact, our costs are likely to increase, resulting in pressure on our profits, margins and cash flows, particularly for existing fixed-price contracts. Inflation can also constrain the overall purchasing power of our customers for our products and services potentially impacting future orders. 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 2022 Form 10-K.

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. 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
		March 26, 2023			March 27, 2022
Net sales			$	15,126		$	14,964
Cost of sales			(13,080)			(13,055)
Gross profit			2,046			1,909
Other (expense) income, net			(9)			24
Operating profit			2,037			1,933
Interest expense			(202)			(135)


Non-service FAS pension income			110			140
Other non-operating income, net			49			123
Earnings before income taxes			1,994			2,061
Income tax expense			(305)			(328)


Net earnings			$	1,689		$	1,733
Diluted earnings per common share			$	6.61		$	6.44

Certain amounts reported in other (expense) income, 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.

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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
		March 26, 2023			March 27, 2022
Products		$	12,526		$	12,494
% of total net sales		82.8		%	83.5		%
Services		2,600			2,470
% of total net sales		17.2		%	16.5		%
Total net sales		$	15,126		$	14,964

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.

Product Sales

Product sales during the quarter ended March 26, 2023 were comparable to the same period in 2022 as higher product sales of $375 million at Space were mostly offset by lower product sales of $260 million at Aeronautics and $85 million at MFC. Higher product sales at Space was due to higher development volume for classified programs and higher development volume for Next Generation Interceptor (NGI). Lower product sales at Aeronautics were due to lower volume on F-35 production contracts, partially offset by higher volume on classified contracts. Lower product sales at MFC were due to lower volume for Guided Multiple Launch Rocket Systems (GMLRS).

Service Sales

Service sales increased $130 million, or 5%, during the quarter ended March 26, 2023 compared to the same period in 2022. The increase is primarily attributable to higher sales of approximately $130 million at Aeronautics due to higher volume on F-35 sustainment contracts.

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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 (a)
		March 26, 2023				March 27, 2022
Cost of sales – products			$	(11,151)			$	(11,107)
% of product sales			89.0		%		88.9		%
Cost of sales – services			(2,284)				(2,167)
% of service sales			87.8		%		87.7		%

Other unallocated, net			355				219
Total cost of sales			$	(13,080)			$	(13,055)

(a)Effective January 1, 2023, the company reclassed intangible asset amortization expense out of the business segment operating profit and into the unallocated items line item to better align with how management views and manages the business. See “Note 1 - Basis of Presentation” included in our Notes to Consolidated Financial Statements for further information regarding the impact of this change on our current and prior period segment operating profit.

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.

Product Costs

Product costs during the quarter ended March 26, 2023 were comparable to the same period in 2022 as higher product costs of $305 million at Space were offset by lower product costs of $240 million at Aeronautics and $75 million at MFC. Higher product costs at Space were due to higher development volume for classified programs and higher development volume for NGI. Lower product costs at Aeronautics were due to lower volume on F-35 production contracts, partially offset by higher volume on classified contracts. Lower product costs at MFC were due to lower volume for GMLRS.

Service Costs

Service costs increased $117 million, or 5%, during the quarter ended March 26, 2023 compared to the same period in 2022. The increase was primarily attributable to higher product costs of approximately $115 million at Aeronautics due to higher volume on F-35 sustainment contracts.

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 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 $355 million during the quarter ended March 26, 2023, compared to $219 million during the quarter ended March 27, 2022. Other unallocated, net was higher primarily due

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to gains during the quarter ended March 26, 2023, compared to losses during the same period in 2022 for the fair value of assets and liabilities related to deferred compensation plans.

Other (Expense) Income, Net

Other (expense) income, net, primarily includes earnings generated by equity method investees. Other expense, net was $9 million during the quarter ended March 26, 2023, compared to other income, net of $24 million during the quarter ended March 27, 2022. Other expense, net during the quarter ended March 26, 2023 included lower earnings generated by our equity method investment in ULA due to lower launch volume and an increase in new product development costs.

Interest Expense

Interest expense during the quarter ended March 26, 2023 was $202 million, compared to $135 million during the quarter ended March 27, 2022. The increase in interest expense in 2023 resulted primarily from the issuance of notes in October of 2022.

Non-Service FAS Pension Income

Non-service FAS pension income was $110 million during the quarter ended March 26, 2023, compared to $140 million during the quarter ended March 27, 2022. The decrease was primarily due to higher interest cost and lower plan assets and associated expected return. See “Note 6 - Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements for additional information.

Other Non-operating Income, Net

Other non-operating income, net primarily includes gains or losses related to changes in the fair value of investments or gains or losses upon sale of investments. During the quarter ended March 26, 2023, other non-operating income, net was $49 million compared to $123 million during the quarter ended March 27, 2022. The decrease during the quarter ended March 26, 2023 was primarily due to lower gains for the fair value of certain investments. See “Note 10 - Other” included in our Notes to Consolidated Financial Statements for additional information.

Income Tax Expense

Our effective income tax rate was 15.3% for the quarter ended March 26, 2023 and 15.9% for the quarter ended March 27, 2022.The rates for both periods benefited from research and development tax credits, tax deductions for foreign derived intangible income, dividends paid to our defined contribution plans with an employee stock ownership plan feature, and employee equity awards. The rate for the first quarter of 2023 was lower than the first quarter of 2022 primarily due to increased research and development tax credits.

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 or experimental 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 2023 cash tax liability by approximately $575 million and our net deferred tax assets will increase by a similar amount. The actual impact on 2023 cash tax liability will depend on the amount of research and development expenses paid or incurred in 2023 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.

As of December 31, 2022, our liabilities associated with uncertain tax positions were $1.6 billion. For the quarter ended March 26, 2023, our liabilities associated with uncertain tax positions increased to $1.9 billion with a corresponding increase to net deferred tax assets primarily as a result of the provision described above from the Tax Cuts and Jobs Act of 2017.

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We are regularly under audit or examination by tax authorities, including foreign tax authorities (including in, amongst others, Australia, Canada, India, Italy, Japan, Poland, and the United Kingdom). 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.

On August 16, 2022, the President signed into law the Inflation Reduction Act of 2022 which contained provisions effective January 1, 2023, including a 15% corporate minimum tax and a 1% excise tax on stock buybacks, both of which were immaterial to our financial results, financial position and cash flows.

Net Earnings

We reported net earnings of $1.7 billion ($6.61 per share) during the quarter ended March 26, 2023, compared to $1.7 billion ($6.44 per share) during the quarter ended March 27, 2022. Net earnings and earnings per share for the quarter ended March 26, 2023 were affected by the factors mentioned above. Earnings per share also benefited from a net decrease of approximately 13.5 million weighted average common shares outstanding during the quarter ended March 26, 2023, compared to the same periods in 2022. 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.

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.

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 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.

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Sales and operating profit for each of our business segments were as follows (in millions):


	Quarters Ended
		March 26, 2023			March 27, 2022
Net sales
Aeronautics			$	6,269		$	6,401
Missiles and Fire Control			2,388			2,452
Rotary and Mission Systems			3,510			3,552
Space			2,959			2,559
Total net sales			$	15,126		$	14,964
Operating profit
Aeronautics			$	675		$	679
Missiles and Fire Control			377			385
Rotary and Mission Systems			350			406
Space			280			248
Total business segment operating profit			1,682			1,718
Unallocated items
FAS/CAS pension operating adjustment			415			426
Intangible asset amortization expense			(62)			(62)
Other, net			2			(149)
Total unallocated items			355			215
Total consolidated operating profit			$	2,037		$	1,933

Effective January 1, 2023, we no longer consider amortization expense related to purchased intangible assets when evaluating the operating performance of our business segments. As a result, intangible asset amortization expense, which was previously included in segment operating profit, is now reported in unallocated items within total consolidated operating profit. This change has been applied to the accompanying amounts above, including the amounts for 2022. See “Note 1 - Basis of Presentation” included in our Notes to Consolidated Financial Statements for further information regarding the impact of this change on our current and prior period segment operating profit. We also included supplemental tables under the caption Pro Forma Business Segment Summary Operating Results in our earnings release included as exhibit 99.1 to our Current Report on Form 8-K filed January 24, 2023, which provide unaudited pro forma financial information reflecting the impact of the change in presentation as-if it had been applicable for the quarters and year to date periods in 2022 and 2021. The supplemental tables, the earnings release and the Current Report on Form 8-K are not, and shall not be deemed to be, incorporated by reference herein.

Our business segments’ results of operations include pension expense only as calculated under U.S. Government Cost Accounting Standards (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 segment’s 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 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, 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
		March 26, 2023			March 27, 2022
Total FAS income and CAS cost
FAS pension income			$	94		$	116
Less: CAS pension cost			431			450
Total FAS/CAS pension adjustment			$	525		$	566

Service and non-service cost reconciliation
FAS pension service cost			$	(16)		$	(24)
Less: CAS pension cost			431			450
Total FAS/CAS pension operating adjustment			415			426
Non-service FAS pension income			110			140
Total FAS/CAS pension adjustment			$	525		$	566

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.

Many of our contracts span several years and include highly complex technical requirements. At the outset of a contract, 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 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 and the estimated costs to fulfill our industrial cooperation agreements, sometimes referred to as offset 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 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. Conversely, our profit booking rates may decrease if the estimated total costs to complete the contract increase. 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.

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

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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.

Changes in net sales and operating profit generally are expressed in terms of volume. 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.

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 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 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 may also be impacted favorably or unfavorably by other items, which may or may not impact sales. Favorable items may include the positive resolution of contractual matters, cost recoveries on severance and restructuring, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual matters; COVID-19 impacts or 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.

We periodically experience performance issues and record losses for certain programs. For further discussion on programs at Aeronautics and RMS, see “Note 10 - Other” included in our Notes to Consolidated Financial Statements.

We have contracted with the Canadian Government for the Canadian Maritime Helicopter Program 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 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 less than originally anticipated, which has impacted program revenues and the recovery of our costs under this program. Future sales and recovery of existing and future costs under the program are highly dependent upon achieving a certain number of flight hours, which are uncertain and dependent on aircraft availability and performance, and the availability of Canadian government resources. We are currently in discussions with the Canadian Government to potentially restructure certain contractual terms and conditions that may be beneficial to both parties. Future performance issues or changes in our estimates due to revised contract scope or customer requirements may affect our ability to recover our costs and may result in a loss that 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 and we have provided force majeure notices under the affected contracts. The TUHP contracts may be restructured or terminated, either in whole or in part, which could result in a further reduction in sales, the imposition of penalties or assessment of damages, and increased unrecoverable costs, which could have an adverse effect on our financial results.

Our MFC business segment was previously awarded a competitively bid classified contract, which includes multiple phases of the program. We are currently performing on a phase which is primarily structured as cost-type. Additional phases are primarily fixed price and are not currently able to be awarded. If the additional phases are awarded at a later date, we expect that those phases would be performed at a loss. We will continue to monitor the circumstances on the program and may be required to recognize a reach-forward loss if circumstances change. Any such losses could be material to our financial results.

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Aeronautics

Summary operating results for our Aeronautics business segment were as follows (in millions):



	Quarters Ended
		March 26, 2023				March 27, 2022
Net sales			$	6,269			$	6,401
Operating profit			675				679
Operating margin			10.8		%		10.6		%

Aeronautics’ net sales in the quarter ended March 26, 2023 decreased $132 million, or 2%, compared to the same period in 2022. The decrease was primarily attributable to lower net sales of $335 million for the F-35 program due to lower volume on production contracts. This decrease was partially offset by higher sales of $135 million on classified programs due to higher volume and $70 million for the F-16 program due to higher production and sustainment volume.

Aeronautics’ operating profit in the quarter ended March 26, 2023 was comparable to the same period in 2022. Operating profit for the F-35 program was comparable as lower volume on production contracts was mostly offset by contract mix. Operating profit for the F-16 program was comparable as higher volume on production and sustainment contracts was offset by higher unfavorable profit adjustments on a production contract and sustainment contracts. Total net profit booking rate adjustments were approximately $15 million lower in the first quarter of 2023 compared to the same period in 2022.

Missiles and Fire Control

Summary operating results for our MFC business segment were as follows (in millions):


	Quarters Ended
		March 26, 2023				March 27, 2022
Net sales			$	2,388			$	2,452
Operating profit			377				385
Operating margin			15.8		%		15.7		%

MFC’s net sales in the quarter ended March 26, 2023 decreased $64 million, or 3%, compared to the same period in 2022. The decrease was primarily attributable to lower net sales of $85 million for sensors and global sustainment programs as net sales for the first quarter of 2022 reflect the impact of a favorable profit adjustment on an international program as a result of a requirements modification that did not recur in the first quarter of 2023; and lower net sales of $60 million for tactical and strike missile programs due to lower volume (Guided Multiple Launch Rocket Systems (GMLRS)). These decreases were partially offset by higher net sales of $70 million for integrated air and missile defense programs due to the impact of higher net favorable profit adjustments (Patriot Advanced Capability-3 (PAC-3)).

MFC’s operating profit in the quarter ended March 26, 2023 decreased $8 million, or 2%, compared to the same period in 2022. The decrease was primarily attributable to lower operating profit of $85 million for sensors and global sustainment programs due to the favorable profit adjustment on an international program in the first quarter of 2022 as described above. This decrease was partially offset by higher operating profit of $60 million for integrated air and missile defense programs due to the impact of higher net favorable profit adjustments (PAC-3). In addition, operating margin was positively impacted when compared to the first quarter of 2022 due to contract mix at tactical and strike missiles. Total net profit booking rate adjustments were approximately $25 million lower in the first quarter of 2023 compared to the same period in 2022.

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Rotary and Mission Systems

On December 5, 2022, the U.S. Army selected Sikorsky’s competitor in the Future Long Range Assault Aircraft Competition, a component of its Future Vertical Lift initiative to replace a portion of its assault and utility helicopter fleet. On December 28, 2022, Sikorsky, on behalf of Team DEFIANT, filed a protest with the U.S. Government Accountability Office (GAO) challenging the U.S. Army’s decision, and on April 6, 2023 the GAO issued a decision denying the protest. We are not pursuing further litigation in this matter. Sikorsky remains one of two competitors for the other component of the Future Vertical Lift initiative, the Future Attack Reconnaissance Aircraft competition.

Summary operating results for our RMS business segment were as follows (in millions):


	Quarters Ended
		March 26, 2023				March 27, 2022
Net sales			$	3,510			$	3,552
Operating profit			350				406
Operating margin			10.0		%		11.4		%

RMS’ net sales in the quarter ended March 26, 2023 decreased $42 million, or 1%, compared to the same period in 2022. The decrease was primarily attributable to lower net sales of $75 million for Sikorsky helicopter programs due to lower production volume (Black Hawk); and lower net sales of $60 million for various C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance) programs due to lower volume. These decreases were partially offset by higher net sales of $85 million for integrated warfare systems and sensors (IWSS) programs due to higher volume (Aegis and TPY-4 programs).

RMS’ operating profit in the quarter ended March 26, 2023 decreased $56 million, or 14%, compared to the same period in 2022. The decrease was primarily attributable to lower operating profit of $65 million for Sikorsky helicopter programs due to lower production volume, net favorable profit adjustments, and contract mix on the Black Hawk program and unfavorable profit adjustments (CH-53K). Total net profit booking rate adjustments were $35 million lower in the first quarter of 2023 compared to the same period in 2022.

Space

Summary operating results for our Space business segment were as follows (in millions):


	Quarters Ended
		March 26, 2023				March 27, 2022
Net sales			$	2,959			$	2,559
Operating profit			280				248
Operating margin			9.5		%		9.7		%

Space’s net sales in the quarter ended March 26, 2023 increased $400 million, or 16%, compared to the same period in 2022. The increase was primarily attributable to higher net sales of $185 million for strategic and missile defense programs due to higher development volume (Next Generation Interceptor (NGI)); higher net sales of $170 million for national security space programs due to higher development volume (classified programs) and the impact of higher net favorable profit adjustments (Next Generation Overhead Persistent Infrared geosynchronous satellites (Next Gen OPIR) and classified programs); and higher net sales of $55 million for commercial civil space programs due to higher volume (Orion).

Space’s operating profit in the quarter ended March 26, 2023 increased $32 million, or 13%, compared to the same period in 2022. The increase was primarily attributable to higher operating profit of $70 million for national security space programs due to the impact of higher net favorable profit adjustments (Next Gen OPIR and classified programs). This increase was partially offset by $45 million of lower equity earnings from the company's investment in United Launch Alliance (ULA) due to lower launch volume and an increase in new product development costs. Total net profit booking rate adjustments were $85 million higher in the first quarter of 2023 compared to the same period in 2022.

Total equity (losses)/earnings (primarily ULA) represented approximately $(15) million, or (5)%, of Space's operating profit in the first quarter of 2023, compared to approximately $30 million, or 12% in the first quarter of 2022.

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FINANCIAL CONDITION

Liquidity and Cash Flows

At March 26, 2023, we had cash and cash equivalents of $2.4 billion. 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, including share repurchases. This access includes our $3.0 billion revolving credit facility or the ability to issue commercial paper, and letters of credit to support customer advance payments and for other trade finance purposes such as guaranteeing our performance on particular contracts. 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.

Cash received from customers, either from the payment of invoices for work performed or for advances from non-U.S. government customers in excess of costs incurred, is our primary source of cash from operations. We generally do not begin work on contracts until funding is appropriated by the customer. 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 41% of the sales we recorded during the quarter ended March 26, 2023, 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.

The U.S. Government has indicated that it would consider progress payments as the baseline for negotiating payment terms on fixed-price contracts, rather than performance-based payments. In contrast to negotiated performance-based payment terms, progress payment provisions correspond to a percentage of the amount of costs incurred during the performance of the contract and are invoiced regularly as costs are incurred. Our cash flows may be affected if the U.S. Government changes its payment policies or decides to withhold payments on our billings. For example, the U.S. Government increased the progress payment rate applicable to us from 80% to 90% at the beginning of the COVID-19 pandemic and a reversal or modification of this policy could affect the timing of our cash flows. While the impact of policy changes or withholding payments may delay the receipt of cash, the cumulative amount of cash collected during the life of the contract should not vary.

Since the COVID-19 pandemic began, we have remained committed to accelerating payments to the supply chain with a focus on small and at-risk businesses. We will continue to utilize accelerated payments throughout 2023 on an as needed basis.

We have a balanced 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 have returned cash to stockholders through dividends and share repurchases. During the quarter ended March 26, 2023, we entered into an accelerated share repurchase (ASR) agreement to repurchase $500 million of our common stock. As of March 26, 2023, the total remaining authorization for future common share repurchases under our program was $9.5 billion, which is expected to be utilized over a three-year period through 2025. We expect to fund the repurchases through a combination of cash from operations and the issuance of additional debt. 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 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

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from the pension trust. See “Note 6 - Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements for additional information. Future pension risk transfer transactions could also be significant and result in us making additional contributions to the pension trust.

There were no material changes during the quarter ended March 26, 2023 to our contractual commitments as presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Form 10-K that were outside the ordinary course of our business.

The following table provides a summary of our cash flow information followed by a discussion of the key elements (in millions):


	Quarters Ended
	March 26, 2023		March 27, 2022
Cash and cash equivalents at beginning of year	$	2,547	$	3,604
Operating activities
Net earnings	1,689		1,733
Noncash adjustments	265		352
Changes in working capital	(267)		(654)
Other, net	(123)		(21)
Net cash provided by operating activities	1,564		1,410
Net cash used for investing activities	(259)		(251)
Net cash used for financing activities	(1,412)		(2,880)
Net change in cash and cash equivalents	(107)		(1,721)
Cash and cash equivalents at end of period	$	2,440	$	1,883

Operating Activities

Net cash provided by operating activities during the quarter ended March 26, 2023 increased $154 million compared to the same period in 2022. The increase was primarily due to various changes in working capital, primarily production and billing cycles impacting contract assets and receivables (primarily F-35 program at Aeronautics and missile programs at MFC), partially offset by the timing of cash payments for accounts payable (primarily Aeronautics).

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 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):


	Quarters Ended
	March 26, 2023		March 27, 2022
Cash from operations	$	1,564	$	1,410
Capital expenditures	(294)		(268)
Free cash flow	$	1,270	$	1,142

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Investing Activities

Net cash used for investing activities during the quarter ended March 26, 2023 increased $8 million compared to the same period in 2022. Capital expenditures totaled $294 million and $268 million during the quarters ended March 26, 2023 and March 27, 2022. 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 was $1.4 billion during the quarter ended March 26, 2023, compared to $2.9 billion during the same period in 2022.

During the quarters ended March 26, 2023 and March 27, 2022, we paid dividends totaling $784 million ($3.00 per share) and $767 million ($2.80 per share).

During the quarter ended March 26, 2023, we paid $500 million to repurchase 1.1 million shares of our common stock, of which 0.2 million shares were received upon settlement in April 2023. See “Note 9 - Stockholders’ Equity” included in our Notes to Consolidated Financial Statements for additional information. During the quarter ended March 27, 2022, we paid $2.0 billion to repurchase 4.7 million shares of our common stock, of which 0.6 million shares were received upon settlement in April 2022.

Capital Resources

At March 26, 2023, we held cash and cash equivalents of $2.4 billion that was generally available to fund ordinary business operations without significant legal, regulatory, or other restrictions.

At March 26, 2023, we had a $3.0 billion revolving credit facility (the Revolving Credit Facility) with various banks with an expiration date of August 24, 2027 that is available for general corporate purposes including supporting commercial paper borrowings. We may request and the banks may grant, at their discretion, an increase in the borrowing capacity under the Revolving Credit Facility of up to an additional $500 million. There were no borrowings outstanding under the Revolving Credit Facility at March 26, 2023.

We have agreements in place with financial institutions to provide for the issuance of commercial paper. The outstanding balance of commercial paper can fluctuate daily and the amount outstanding during the period may be greater than or less than the amount reported at the end of the period. There were no commercial paper borrowings outstanding as of March 26, 2023 and December 31, 2022. We may, as conditions warrant, from time to time issue commercial paper backed by our Revolving Credit Facility to manage the timing of cash flows. However, depending on market conditions, commercial paper may not be available on favorable terms or at all.

Our total outstanding short-term and long-term debt, net of unamortized discounts and issuance costs was $15.6 billion as of March 26, 2023 and is in the form of publicly-issued notes that bear interest at fixed rates. As of March 26, 2023, we were in compliance with all covenants contained in our debt and credit agreements.

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.

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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 current inventory objective of 2,456 aircraft for the U.S. Air Force, U.S. Marine Corps, and U.S. Navy; commitments from our seven international partner countries and nine Foreign Military Sales (FMS) customers; as well as interest from other countries. We continue to see strong international demand for the F-35. The Government of Canada announced in January 2023 their commitment to purchase 88 F-35 aircraft. In February 2023, the government of Singapore announced its intent to exercise an option to purchase an additional eight F-35 aircraft, increasing its total quantity to 12. In March of 2023, the government of South Korea announced approval to purchase an additional 20 F-35 aircraft, increasing its total quantity to 60.

During the first quarter of 2023, we delivered five aircraft and had a backlog of 340 aircraft. Deliveries in the quarter were impacted by an issue with the Government Furnished Equipment (GFE) engine that occurred at the end of 2022 and resulted in a pause in flight operations, which prevented aircraft deliveries until flight operations and deliveries resumed in March 2023. We currently expect that we will deliver fewer than the prior plan of 147-153 aircraft in 2023 due to both software maturation related to the Technology Refresh 3 (TR-3) configuration and hardware delivery timing; we will provide an updated range pending the results of future flight tests. Despite the change in the delivery range, currently we do not expect a material impact to our 2023 financial outlook. Since program inception through the first quarter of 2023, we have delivered 899 production F-35 aircraft to U.S. and international customers, including 652 F-35A variants, 178 F-35B variants, and 69 F-35C variants, demonstrating the F-35 program’s continued progress and longevity.

Given the size and complexity of the F-35 program, we anticipate that there will be continual reviews related to aircraft performance, program, and delivery schedule, cost, and requirements as part of the DoD, Congressional, and international countries’ oversight, and budgeting processes. Current program challenges include our and our suppliers’ performance (including COVID-19 performance-related challenges), software development, execution of future flight tests and findings resulting from testing and operating the aircraft, the level of cost associated with life cycle operations, sustainment and potential contractual obligations, inflation-related cost pressures, and the ability to improve affordability.

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 2022 Form 10-K.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

As disclosed in “Item 7A, Quantitative and Qualitative Disclosures About Market Risk” of our 2022 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, 2022. 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 March 26, 2023. 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 March 26, 2023.

There were no changes in our internal control over financial reporting during the quarter ended March 26, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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:

•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;

•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;

•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 COVID-19 or future epidemics on our business and financial results, including supply chain disruptions and delays, employee absences, and program delays;

• government actions that disrupt our supply chain or 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 potential 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;

• 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, 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;

• the impact of pension risk transfers, including potential noncash settlement charges, timing and estimates regarding pension funding and movements in interest rates and other changes that may affect pension plan assumptions, stockholders’ equity, the level of the FAS/CAS adjustment, and actual returns on pension plan assets;

• 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 recorded at the Sikorsky line of business;

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• 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 have 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, 2022 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.

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 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 information regarding the matters discussed 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” included in our Notes to Consolidated Financial Statements in this Form 10-Q. 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 our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission.

ITEM 1A. Risk Factors

There have been no material changes to the risk factors disclosed in “Item 1A, Risk Factors” of our 2022 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.

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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no sales of unregistered equity securities during the quarter ended March 26, 2023.

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 March 26, 2023.


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)
January 1, 2023 – January 29, 2023	—	$	—	—	$	10,023
January 30, 2023 – February 26, 2023 (c)	876,418	$	479.27	868,452	$	9,523
February 27, 2023 – March 26, 2023 (d)	251,388	$	479.49	—	$	9,523
Total(c)(d)	1,127,806	$	479.48	868,452

(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, March 26, 2023 was the last day of our March 2023 fiscal month.

(b)In 2010, our Board of Directors approved 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. On October 17, 2022, the Board of Directors authorized an increase to the program by $14.0 billion. The total remaining authorization for future common share repurchases under our share repurchase program was $9.5 billion as of March 26, 2023. 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.

(c)During the quarter ended March 26, 2023, we entered into an accelerated share repurchase (ASR) agreement to purchase $500 million of our common stock. Under the terms of the ASR agreement, we paid $500 million and received an initial delivery of 868,452 shares of our common stock in February 2023. Upon final settlement of the ASR agreement in April 2023, we received an additional 184,437 shares of our common stock based on the average price paid per share of $474.88, calculated with reference to the volume-weighted average price (VWAP) of our common stock over the term of the agreement, less a negotiated discount. Average Price Paid Per Share in the table above does not include ASR shares.

(d)During the quarter ended March 26, 2023, the total number of shares purchased included 259,354 shares that were transferred to us by employees in satisfaction of tax withholding obligations associated with the vesting of restricted stock units and performance stock units. These purchases were made pursuant to a separate authorization by our Board of Directors and are not included within the program.

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ITEM 6. Exhibits


Exhibit No.						Description


3.1						Bylaws of Lockheed Martin Corporation, as amended and restated effective February 22, 2023 (incorporated by reference to Exhibit 3.1 to Lockheed Martin Corporation's Current Report on Form 8-K filed with the SEC on February 23, 2023)

10.1						Form of 2023 Annual Restricted Stock Unit Award Agreement under the Lockheed Martin Corporation 2020 Incentive Performance Award Plan

10.2						Form of Performance Stock Unit Award Agreement (2023 - 2025 Performance Period) under the Lockheed Martin Corporation 2020 Incentive Performance Award Plan

10.3						Form of Long Term Incentive Performance Award Agreement (2023 - 2025 Performance Period) under the Lockheed Martin Corporation 2020 Incentive Performance Award Plan

10.4						Amendment to Outstanding Long-Term Incentive Performance and Performance Stock Unit Award Agreements (effective February 22, 2023)

10.5						Lockheed Martin Corporation 2021 Management Incentive Compensation Plan, amended and restated effective January 1, 2023

15						Acknowledgment of Independent Registered Public Accounting Firm

31.1						Certification of James D. Taiclet pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2						Certification of Jesus Malave pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

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: April 18, 2023						By: /s/ H. Edward Paul III
						H. Edward Paul III
						Vice President and Controller
						(Duly Authorized Officer and Chief Accounting Officer)


Title			Annual Base Pay Multiple

Chairman, President and Chief Executive Officer			6 times
Chief Operating Officer; Chief Financial Officer			4 times
Executive Vice Presidents			3 times
Senior Vice Presidents			2 times
Other Elected Officers			2 times
Other Vice Presidents			1 times


Company	Ticker	Company	Ticker
AECOM	ACM	L3Harris Technologies, Inc.	LHX
AGCO Corporation	AGCO	Northrop Grumman Corporation	NOC
Builders FirstSource, Inc.	BLDR	Otis Worldwide Corporation	OTIS
Carrier Global Corporation	CARR	PACCAR Inc.	PCAR
Caterpillar Inc.	CAT	Parker-Hannifin Corporation	PH
Cummins Inc.	CMI	Quanta Services, Inc.	PWR
Deere & Company	DE	Raytheon Technologies Corporation	RTX
Eaton Corporation plc	ETN	Stanley Black & Decker, Inc.	SWK
Emerson Electric Co.	EMR	Textron Inc.	TXT
EMCOR Group, Inc.	EME	The Boeing Company	BA
General Dynamics Corporation	GD	3M Company	MMM
General Electric Company	GE	Trane Technologies plc	TT
Honeywell International Inc.	HON	United Rentals, Inc.	URI
Huntington Ingalls Industries, Inc.	HII	Univar Solutions Inc.	UNVR
Illinois Tool Works Inc.	ITW	W.W. Grainger, Inc.	GWW
Johnson Controls International plc	JCI	WESCO International, Inc.	WCC


Band	Percentile Ranking	Total Stockholder Return Performance Factor
One	75th - 100th	200% (Maximum)
Two	60th	150%
Three	50th	100%
Four	40th	50%
Five	35th	25% (Threshold)


ROIC Band			ROIC Performance Factor
112% of Target			200% (Maximum)
ROIC Target			100%
90% of Target			25% (Threshold)


Free Cash Flow Band			Free Cash Flow Performance Factor
130% of Target			200% (Maximum)
Free Cash Flow Target			100%
85% of Target			25% (Threshold)


Acceptance Deadline			3rd ¶
Award			1st ¶
Award Date			Header
Beneficiary			Plan
Free Cash Flow			§ 4.2(a)
Free Cash Flow Performance Factor Free Cash Flow Target			§ 4.2 § 2.1(c)
Cause			§ 8.3(a)
Change in Control			Plan
Code			Plan
Committee			2nd ¶
Corporation			1st ¶
Currency Exchange Risk			§ 16
DDE			§ 1.1(c)
Divestiture			§ 5.1(c)(ii)
Earned Award			§ 2.1(d)
Employee			Plan
Exchange Act			Plan
Fair Market Value			Plan
Good Reason			§ 8.3(b)
Insider			Plan
Maximum Award			§ 1.1(b)
Minimum Service Date			§ 5.1(b)(ii)
Peer Company			§ 3.1
Peer Performance Group			§ 3.1
Performance-Based Award Percentile Ranking			Plan § 3.2
Performance Period			§ 1.2
Personal Data			§ 10
Plan			1st ¶
Post-Employment Conduct Agreement			4th ¶
PSU			1st ¶, § 1.1(a)
Retirement			§ 5.1(c)(iii)
ROIC			§ 4.1(a)
ROIC Performance Factor ROIC Target Share-Based Awards			§ 4.1 § 2.1(b) Plan
Stock			Plan
Stock Ownership Requirements			4th ¶
Stock Plan System			2nd ¶
Subsidiary			Plan
Target Award			1st ¶; § 1.1(a)


Tax or Taxes Tax Reform			Plan § 4.1(a)
Total Disability			§ 5.1(c)(i)
Total Stockholder Return or TSR			§ 3.2
Total Stockholder Return Performance Factor 2023 Long Range Plan			§ 3.1; § 3.2 § 4.4
Vesting Period			§ 1.3


Affected Agreements
Long-Term Incentive Performance Award Agreement for the 2021 – 2023 Performance Period (the “2021 LTIP Agreement”)
Performance Stock Unit Award Agreement for the 2021 – 2023 Performance Period (the “2021 PSU Agreement” and together with the 2021 LTIP Agreement, the “2021 Agreements”)
Long-Term Incentive Performance Award Agreement for the 2022 – 2024 Performance Period (the “2022 LTIP Agreement”)
Performance Stock Unit Award Agreement for the 2022 – 2024 Performance Period (the “2022 PSU Agreement” and together with the 2022 LTIP Agreement, the “2022 Agreements”)


						/s/ James D. Taiclet
						James D. Taiclet
						Chief Executive Officer
Date: April 18, 2023



						/s/ Jesus Malave
						Jesus Malave
						Chief Financial Officer
Date: April 18, 2023