What changed in this filing

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Item 1. Financial Statements

2023-07-19 compared with 2023-04-18 · 240 added, 122 removed, 530 unchanged (41% of the section changed)

3 unchanged sentences

in millions, except per share data)

Quarters Ended

2023 March 27,

Quarters Ended Six Months Ended

2023 June 26,

2022 June 25,

2023 June 26,

Products $ 13,758 $ 12,761 $ 26,284 $ 25,255

7 unchanged sentences

Gross profit 2,090 1,956 4,136 3,865

Other (expense) income, net ( 9 ) 24

Other income, net 45 7 36 31

Operating profit 2,135 1,963 4,172 3,896

Interest expense ( 223 ) ( 141 ) ( 425 ) ( 276 )

Non-service FAS pension income 110 140

Other non-operating income, net 49 123

Non-service FAS pension income (expense) 111 ( 1,331 ) 221 ( 1,191 )

Other non-operating (expense) income, net ( 17 ) ( 161 ) 32 ( 38 )

Earnings before income taxes 2,006 330 4,000 2,391

8 unchanged sentences

Consolidated Statements of Comprehensive Income

Quarters Ended

2023 March 27,

Quarters Ended Six Months Ended

2023 June 26,

2022 June 25,

2023 June 26,

Net earnings $ 1,681 $ 309 $ 3,370 $ 2,042

1 unchanged sentence

Postretirement benefit plans

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

Other, net, net of tax of $ 4 million in 2023 and $ 1 million in 2022

Net actuarial gain recognized due to plan remeasurements, net of tax of $ 461 million in 2022

— 1,698 — 1,698

Other comprehensive (loss) income, net of tax ( 63 ) 27

Amortization of actuarial losses and prior service credits, net of tax of $ 10 million and $ 20 million in 2023 and $ 15 million and $ 28 million in 2022

( 37 ) 47 ( 74 ) 95

Pension settlement charge, net of tax of $ 314 million in 2022

— 1,156 — 1,156

Other, net, net of tax of $ 4 million and $ 8 million in 2023 and $ 6 million and $ 5 million in 2022

44 ( 90 ) 18 ( 111 )

Other comprehensive income (loss), net of tax 7 2,811 ( 56 ) 2,838

Comprehensive income $ 1,688 $ 3,120 $ 3,314 $ 4,880

39 unchanged sentences

Consolidated Statements of Cash Flows

Quarters Ended

2023 March 27,

Six Months Ended

2023 June 26,

Operating activities

4 unchanged sentences

Deferred income taxes ( 234 ) ( 425 )

Pension settlement charge — 1,470

Changes in assets and liabilities

13 unchanged sentences

Financing activities

Issuance of long-term debt, net of related costs 1,975 2,267

Repayments of long-term debt — ( 2,250 )

Repurchases of common stock ( 1,250 ) ( 2,356 )

8 unchanged sentences

Consolidated Statements of Equity

For the Quarters Ended June 25, 2023 and June 26, 2022

Stock Additional

2 unchanged sentences

Comprehensive

Balance at March 26, 2023 $ 254 $ — $ 17,478 $ ( 8,086 ) $ 9,646

Net earnings — — 1,681 — 1,681

Other comprehensive income, net of tax — — — 7 7

Dividends declared — — ( 1,523 ) — ( 1,523 )

Repurchases of common stock ( 3 ) ( 179 ) ( 568 ) — ( 750 )

Stock-based awards, ESOP activity and other — 179 — — 179

Balance at June 25, 2023 $ 251 $ — $ 17,068 $ ( 8,079 ) $ 9,240

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

Net earnings — — 309 — 309

Other comprehensive income, net of tax — — — 2,811 2,811

Dividends declared — — ( 1,497 ) — ( 1,497 )

Repurchases of common stock ( 2 ) ( 179 ) ( 192 ) — ( 373 )

Stock-based awards, ESOP activity and other 1 179 — — 180

Balance at June 26, 2022 $ 264 $ — $ 19,336 $ ( 8,168 ) $ 11,432

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

Lockheed Martin Corporation

Consolidated Statements of Equity

For the Six Months Ended June 25, 2023 and June 26, 2022

Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Balance at December 31, 2022 $ 254 $ 92 $ 16,943 $ ( 8,023 ) $ 9,266

5 unchanged sentences

Stock-based awards, ESOP activity and other

Balance at March 26, 2023 $ 254 $ — $ 17,478 $ ( 8,086 ) $ 9,646

1 200 — — 201

Balance at June 25, 2023 $ 251 $ — $ 17,068 $ ( 8,079 ) $ 9,240

Balance at December 31, 2021 $ 271 $ 94 $ 21,600 $ ( 11,006 ) $ 10,959

1 unchanged sentence

Other comprehensive income, net of tax

— — — 2,838 2,838

Dividends declared — — ( 2,246 ) — ( 2,246 )

1 unchanged sentence

Stock-based awards, ESOP activity and other

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

1 211 — — 212

Balance at June 26, 2022 $ 264 $ — $ 19,336 $ ( 8,168 ) $ 11,432

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

26 unchanged sentences

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.

Amounts for six months ended June 26, 2022 have been conformed to the current period’s 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 June 25 for the second quarter of 2023 and June 26 for the second 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.

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The weighted average number of shares outstanding used to compute earnings per common share were as follows (in millions):

Quarters Ended

2023 March 27,

Quarters Ended Six Months Ended

2023 June 26,

2022 June 25,

2023 June 26,

Weighted average common shares outstanding for basic computations 252.8 265.8 253.7 267.0

Weighted average dilutive effect of equity awards

0.8 0.9 0.9 0.9

Weighted average common shares outstanding for diluted computations

253.6 266.7 254.6 267.9

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.

There were no significant anti-dilutive equity awards during the quarters and six months ended June 25, 2023 and June 26, 2022.

Basic and diluted weighted average common shares outstanding decreased in 2023 compared to 2022 due to share repurchases.

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

Quarters Ended

2023 March 27,

Quarters Ended Six Months Ended

2023 June 26,

2022 June 25,

2023 June 26,

Aeronautics $ 6,875 $ 5,862 $ 13,144 $ 12,263

19 unchanged sentences

Rotary and Mission Systems 505 453 994 908

Space 92 99 178 182

Total intersegment sales $ 827 $ 771 $ 1,601 $ 1,525

2 unchanged sentences

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.

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 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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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.

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.

The operating portion of the total FAS/CAS pension adjustment represents the difference between the service cost component of FAS pension income (expense) and total CAS pension cost.

As a result, to the extent that CAS pension cost exceeds the service cost component of FAS pension income (expense) we have a favorable FAS/CAS pension operating adjustment.

Lockheed Martin Corporation

2 unchanged sentences

Net sales by products and services, contract type, customer, and geographic region were as follows (in millions):

Quarter Ended March 26, 2023

Quarter Ended June 25, 2023

Aeronautics MFC RMS Space Total

19 unchanged sentences

Total net sales $ 6,875 $ 2,755 $ 3,897 $ 3,166 $ 16,693

Quarter Ended March 27, 2022

Six Months Ended June 25, 2023

Aeronautics MFC RMS Space Total

19 unchanged sentences

Total net sales $ 13,144 $ 5,143 $ 7,407 $ 6,125 $ 31,819

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

Quarter Ended June 26, 2022

Aeronautics MFC RMS Space Total

Products $ 4,804 $ 2,444 $ 3,150 $ 2,363 $ 12,761

Services 1,058 303 862 462 2,685

Total net sales $ 5,862 $ 2,747 $ 4,012 $ 2,825 $ 15,446

Net sales by contract type

Fixed-price $ 3,916 $ 1,943 $ 2,589 $ 753 $ 9,201

Cost-reimbursable 1,946 804 1,423 2,072 6,245

Total net sales $ 5,862 $ 2,747 $ 4,012 $ 2,825 $ 15,446

Net sales by customer

Government $ 3,963 $ 1,924 $ 2,785 $ 2,786 $ 11,458

International (a)

1,868 823 1,129 29 3,849

commercial and other 31 — 98 10 139

Total net sales $ 5,862 $ 2,747 $ 4,012 $ 2,825 $ 15,446

Net sales by geographic region

United States $ 3,994 $ 1,924 $ 2,883 $ 2,796 $ 11,597

Europe 845 262 178 20 1,305

Asia Pacific 705 107 553 6 1,371

Middle East 222 417 201 3 843

Other 96 37 197 — 330

Total net sales $ 5,862 $ 2,747 $ 4,012 $ 2,825 $ 15,446

Six Months Ended June 26, 2022

Aeronautics MFC RMS Space Total

Products $ 10,221 $ 4,617 $ 5,938 $ 4,479 $ 25,255

Services 2,042 582 1,626 905 5,155

Total net sales $ 12,263 $ 5,199 $ 7,564 $ 5,384 $ 30,410

Net sales by contract type

Fixed-price $ 8,602 $ 3,656 $ 4,807 $ 1,390 $ 18,455

Cost-reimbursable 3,661 1,543 2,757 3,994 11,955

Total net sales $ 12,263 $ 5,199 $ 7,564 $ 5,384 $ 30,410

Net sales by customer

Government $ 8,176 $ 3,519 $ 5,296 $ 5,302 $ 22,293

International (a)

4,018 1,675 2,100 63 7,856

commercial and other 69 5 168 19 261

Total net sales $ 12,263 $ 5,199 $ 7,564 $ 5,384 $ 30,410

Net sales by geographic region

United States $ 8,245 $ 3,524 $ 5,464 $ 5,321 $ 22,554

Europe 1,868 518 365 44 2,795

Asia Pacific 1,426 213 985 13 2,637

Middle East 484 882 377 6 1,749

Other 240 62 373 — 675

Total net sales $ 12,263 $ 5,199 $ 7,564 $ 5,384 $ 30,410

(a) International sales include foreign military sales (FMS) contracted through the U.S.

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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.

Net sales for the F-35 program represented approximately 26 % of our total consolidated net sales for both the quarter and six months ended June 25, 2023 and 23 % and 26 % of our total consolidated net sales for the quarter and six months ended June 26, 2022.

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

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Contract liabilities 8,184 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.

Contract assets increased $ 690 million during the six months ended June 25, 2023, due to the recognition of revenue related to the satisfaction or partial satisfaction of performance obligations during the six months ended June 25, 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 and six months ended June 25, 2023 and June 26, 2022.

Contract liabilities decreased $ 304 million during the six months ended June 25, 2023, primarily due to revenue recognized in excess of payments received on these performance obligations.

During the quarter and six months ended June 25, 2023, we recognized $ 1.1 billion and $ 3.3 billion of our contract liabilities at December 31, 2022 as revenue.

During the quarter and six months ended June 26, 2022, we recognized $ 1.4 billion and $ 3.5 billion of our contract liabilities at December 31, 2021 as revenue.

Lockheed Martin Corporation

8 unchanged sentences

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).

These advanced procurement costs are generally incurred in order to enhance our ability to achieve schedule and certain customer milestones.

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).

As of June 25, 2023 and December 31, 2022, $ 1.0 billion and $ 791 million of pre-contract costs were included in inventories.

The increase in pre-contract costs as of June 25, 2023 is primarily driven by our Aeronautics business segment (primarily F-35 program and classified contracts).

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

NOTE 6 - POSTRETIREMENT BENEFIT PLANS

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

2023 March 27,

FAS income (expense)

The pretax FAS income (expense) related to our qualified defined benefit pension plans and retiree medical and life insurance plans consisted of the following (in millions):

Quarters Ended Six Months Ended

2023 June 26,

2022 June 25,

2023 June 26,

Qualified defined benefit pension plans

3 unchanged sentences

Expected return on plan assets 431 503 861 1,005

Recognized net actuarial losses ( 42 ) ( 150 )

Amortization of actuarial losses ( 42 ) ( 151 ) ( 84 ) ( 301 )

Amortization of prior service credits 87 90 174 180

Non-service FAS pension income 110 140

Total FAS pension income $ 94 $ 116

Pension settlement charge — ( 1,470 ) — ( 1,470 )

Non-service FAS pension income (expense) 111 ( 1,331 ) 221 ( 1,191 )

Total FAS pension income (expense) $ 95 $ ( 1,355 ) $ 189 $ ( 1,239 )

Retiree medical and life insurance plans

3 unchanged sentences

Expected return on plan assets 26 34 52 68

Recognized net actuarial gains 8 11

Amortization of actuarial gains 8 12 16 23

Amortization of prior service costs ( 2 ) ( 7 ) ( 5 ) ( 14 )

1 unchanged sentence

Total FAS retiree medical and life income $ 13 $ 25 $ 26 $ 49

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 (expense) for our qualified defined benefit pension plans in the non-service FAS pension income (expense) account;

and the non-service components of our FAS income (expense) for our retiree medical and life insurance plans as part of the other non-operating (expense) income, net account on our consolidated statements of earnings.

The amortization of net actuarial losses or gains and prior service credits or costs in the table above, along with similar costs related to our other postretirement benefit plans ($ 4 million and $ 7 million for the quarter and six months ended June 25, 2023 and $ 6 million and $ 11 million for the quarter and six months ended June 26, 2022) were reclassified from accumulated other comprehensive loss (AOCL) and recorded as a component of FAS income (expense) for the periods presented.

These costs totaled $( 47 ) million ($( 37 ) million, net of tax) and $( 94 ) million ($( 74 ) million, net of tax) during the quarter and six months ended June 25, 2023, and $ 62 million ($ 47 million, net of tax) and $ 123 million ($ 95 million, net of tax) during the quarter and six months ended June 26, 2022.

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.

Purchase of Group Annuity Contracts and Pension Remeasurement

The quarter and six months ending June 26, 2022 reflect a noncash, non-operating pension settlement charge of $ 1.5 billion ($ 1.2 billion, or $ 4.33 per share, after-tax) recognized in connection with the transfer of $ 4.3 billion of our gross defined benefit pension obligations and related plan assets to an insurance company on June 24, 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.

We made no contributions to our qualified defined benefit pension plans during the quarters and six months ended June 25, 2023 and June 26, 2022.

NOTE 7 - LEGAL PROCEEDINGS AND CONTINGENCIES

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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,

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

primarily to procure and manage spare parts for the training aircraft.

SSSI subcontracted with Derco, primarily to procure and manage spare parts for the training aircraft.

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.

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.

Government’s complaints assert common law claims for breach of contract and unjust enrichment.

Government’s complaints assert

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

common law claims for breach of contract and unjust enrichment.

On November 29, 2021, the District Court granted the U.S.

31 unchanged sentences

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.

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

At June 25, 2023 and December 31, 2022, the aggregate amount of liabilities recorded relative to environmental matters was $ 687 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 $ 610 million and $ 618 million at June 25, 2023 and December 31, 2022, most of which are recorded in other noncurrent assets on our consolidated balance sheets.

Environmental remediation activities usually span many years, which makes estimating liabilities a matter of judgment because of uncertainties with respect to assessing the extent of the contamination as well as such factors as changing remediation technologies and changing regulatory environmental standards.

1 unchanged sentence

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.

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

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

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.

8 unchanged sentences

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.

Environmental Protection Agency (EPA) is considering whether to regulate hexavalent chromium at the federal level, and as a result of a recent court decision, must regulate perchlorate at the federal level.

The California State Water Resources Control Board (SWRCB) continues to reevaluate its existing drinking water standard of 6 parts per billion (ppb) for perchlorate.

The California SWRCB has also proposed to regulate hexavalent chromium at 10 ppb, which we currently do not expect would materially increase our cleanup costs in California.

If substantially lower standards are adopted for perchlorate or for hexavalent chromium, 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.

The amount that would be allocable to our non-U.S.

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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.

We had total outstanding letters of credit and surety bonds aggregating $ 2.9 billion at both June 25, 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.

At June 25, 2023 and December 31, 2022, third-party guarantees totaled $ 912 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.

1 unchanged sentence

Third-party guarantees do not include guarantees issued on behalf of subsidiaries and other consolidated entities.

In determining our exposures, we evaluate the reputation, performance on contractual obligations, technical capabilities and credit quality of our current and former joint venture partners and the transferee under novation agreements all of which include a guarantee as required by the FAR.

At June 25, 2023 and December 31, 2022, there were no material amounts recorded in our financial statements related to third-party guarantees or novation agreements.

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

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

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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

June 25, 2023 December 31, 2022

Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3

14 unchanged sentences

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

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.

These contracts hedge forecasted foreign currency transactions in order to minimize fluctuations in our earnings and cash flows associated with changes in foreign currency exchange rates.

We designate foreign currency hedges as cash flow hedges.

2 unchanged sentences

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.

For variable rate borrowings, we may use

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

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 aggregate notional amount of our outstanding interest rate swaps was $ 1.3 billion at both June 25, 2023 and December 31, 2022.

The aggregate notional amount of our outstanding foreign currency hedges was $ 7.3 billion at both June 25, 2023 and December 31, 2022.

The fair values of our outstanding interest rate swaps and foreign currency hedges at June 25, 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 and six months ended June 25, 2023 and June 26, 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.

We also make investments in early-stage companies that we believe are advancing or developing new technologies applicable to our business.

Investments that have quoted market prices in active markets (Level 1) are recorded at fair value and reflected in other securities and certain investments are categorized as Level 3 when valuations using observable inputs are unavailable.

2 unchanged sentences

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 value of our outstanding debt was $ 18.1 billion and $ 16.0 billion at June 25, 2023 and December 31, 2022.

The outstanding principal amount of debt, including short-term and long-term debt, was $ 18.8 billion and $ 16.8 billion at June 25, 2023 and December 31, 2022, excluding $ 1.3 billion of unamortized discounts and issuance costs at both June 25, 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).

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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.

During the six months ended June 25, 2023, we repurchased 4.2 million shares of our common stock for $ 1.3 billion, pursuant to accelerated share repurchase (ASR) agreements and open market purchases.

During the second quarter of 2023, under the terms of an ASR agreement, we paid $ 200 million and received an initial delivery of 0.3 million shares of our common stock.

We received 0.1 million additional shares upon final settlement in the third quarter of 2023.

In addition, we repurchased 1.1 million shares for $ 500 million under an ASR agreement that we entered into in the first quarter of 2023.

As previously disclosed, we received 1.5 million shares of our common stock for no additional consideration upon final settlement of the ASR agreement that we entered into in the fourth quarter of 2022.

The total remaining authorization for future common share repurchases under our share repurchase program was $ 8.8 billion as of June 25, 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.

We declared cash dividends totaling $ 768 million ($ 3.00 per share) during the quarter ended March 26, 2023.

We declared cash dividends totaling $ 2.3 billion ($ 9.00 per share) during the six months ended June 25, 2023.

In June 2023, we declared our 2023 third quarter dividend totaling approximately $ 756 million ($ 3.00 per share), which will be paid in September 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.

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Amounts reclassified from AOCL

Recognition of net actuarial losses (a)

Amortization of net prior service credits (a)

Amortization of net actuarial losses (b)

Amortization of net prior service credits (b)

( 132 ) — ( 132 )

Other — 13 13

Total reclassified from AOCL ( 74 ) 13 ( 61 )

Total other comprehensive income (loss) ( 37 ) ( 26 ) ( 63 )

Balance at March 26, 2023 $ ( 7,903 ) $ ( 183 ) $ ( 8,086 )

Total other comprehensive (loss) income ( 74 ) 18 ( 56 )

Balance at June 25, 2023 $ ( 7,940 ) $ ( 139 ) $ ( 8,079 )

Balance at December 31, 2021 $ ( 10,964 ) $ ( 42 ) $ ( 11,006 )

Other comprehensive income (loss) before reclassifications — ( 22 ) ( 22 )

Other comprehensive income (loss) before reclassifications (a)

1,698 ( 121 ) 1,577

Amounts reclassified from AOCL

Recognition of net actuarial losses (a)

Amortization of net prior service credits (a)

Pension settlement charge (a)

1,156 — 1,156

Amortization of net actuarial losses (b)

Amortization of net prior service credits (b)

( 135 ) — ( 135 )

Other — 10 10

Total reclassified from AOCL 1,251 10 1,261

Total other comprehensive income (loss) 2,949 ( 111 ) 2,838

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”.

Balance at June 26, 2022 $ ( 8,015 ) $ ( 153 ) $ ( 8,168 )

(a) Changes in AOCL before reclassifications related to our postretirement benefit plans represent the net actuarial gains from the interim remeasurement of certain defined benefit pension plans required as a result of the purchase of group annuity contracts to transfer $ 4.3 billion of our gross defined benefit pension obligations and related plan assets to an insurance company on June 24, 2022.

See “Note 6 - Postretirement Benefit Plans.” Also as a result, during the quarter ended June 26, 2022, we recognized a noncash, non-operating pension settlement charge of $ 1.5 billion ($ 1.2 billion, or $ 4.33 per share, after-tax).

(b) These amounts include $( 37 ) million and $ 47 million, net of tax, for the quarters ended June 25, 2023 and June 26, 2022, which are comprised of the amortization of net actuarial losses of $ 29 million and $ 115 million for the quarters ended June 25, 2023 and June 26, 2022, and the amortization of net prior service credits of $ 66 million and $ 68 million for the quarters ended June 25, 2023 and June 26, 2022.

NOTE 10 - OTHER

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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.

Conversely, our profit booking rates may decrease if the

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

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.

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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

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.

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.

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Unfavorable items may include the adverse resolution of contractual matters;

COVID-19 impacts or supply chain disruptions;

supply chain disruptions;

restructuring charges (except for significant severance actions, which are excluded from segment operating results);

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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.

Our consolidated net profit booking rate adjustments increased segment operating profit by approximately $ 365 million and $ 780 million during the quarter and six months ended June 25, 2023 and $ 455 million and $ 860 million during the quarter and six months ended June 26, 2022.

These adjustments increased net earnings by approximately $ 288 million ($ 1.14 per share) and $ 616 million ($ 2.42 per share) during the quarter and six months ended June 25, 2023 and $ 359 million ($ 1.35 per share) and $ 679 million ($ 2.53 per share) during the quarter and six months ended June 26, 2022.

We recognized net sales from performance obligations satisfied in prior periods of approximately $ 359 million and $ 792 million during the quarter and six months ended June 25, 2023, and $ 481 million and $ 897 million during the quarter and six months ended June 26, 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.

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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.

As of June 25, 2023, cumulative losses remained at approximately $ 270 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, 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.

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 schedule and certain

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

We will monitor the recoverability of pre-contract costs, which could be impacted by the customer’s decision regarding future phases of the program.

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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.

As of June 25, 2023, cumulative losses remained at approximately $ 280 million.

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.

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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.

As of June 25, 2023, our ending backlog was $ 158.0 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.

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.

Our effective income tax rates were 16.2 % and 15.8 % for the quarter and six months ended June 25, 2023 and 6.4 % and 14.6 % for the quarter and six months ended June 26, 2022.

The rate for the second quarter of 2022 was lower than the second quarter of 2023 primarily due to lower earnings before income taxes resulting from a noncash, non-operating pension settlement charge of $ 1.5 billion, which reduced the tax expense by approximately $ 314 million.

The rates for all periods benefited from research and development tax credits, tax deductions for foreign derived intangible income, and dividends paid to our defined contribution plans with an employee stock ownership plan feature.

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.

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.

For the six months ended June 25, 2023, our liabilities associated with uncertain tax positions increased to $ 2.1 billion with a corresponding increase to net deferred tax assets primarily 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.

We make investments in companies that we believe are advancing or developing new technologies applicable to our business.

These investments are primarily in early-stage companies and may be in the form of common or preferred stock, warrants, convertible debt securities or investments in funds.

Most of these investments are in equity securities without readily determinable fair values (privately held securities), which are measured initially at cost and are then adjusted to fair value only if there is an observable price change or reduced for impairment, if applicable.

The carrying amounts of the investments were $ 587 million and $ 589 million at June 25, 2023 and December 31, 2022.

Due to changes in fair value and/or sales of investments, we recorded net losses of $ 40 million ($ 30 million, or $ 0.12 per share, after tax) and $ 11 million ($ 8 million, or $ 0.03 per share, after-tax) during the quarter and six months ended June 25, 2023 and net losses of $ 143 million ($ 107 million, or $ 0.40 per share, after-tax) and $ 40 million ($ 30 million, or $ 0.11 per share,

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

after-tax) during the quarter and six months ended June 26, 2022 .

These losses are reflected in the other non-operating income, net account on our consolidated statements of earnings.

Debt Issuance

On May 25, 2023, we issued a total of $ 2.0 billion of senior unsecured notes, consisting of $ 500 million aggregate principal amount of 4.45 % Notes due May 15, 2028 (the “2028 Notes”), $ 850 million aggregate principal amount of 4.75 % Notes due February 15, 2034 (the “2034 Notes”) and $ 650 million aggregate principal amount of 5.20 % Notes due February 15, 2055 (the “2055 Notes” and, together with the 2028 Notes and 2034 Notes, the “Notes”) in a registered public offering.

Net proceeds of $ 1,975 million were received from the offering after deducting pricing discounts and debt issuance costs, which are being amortized and recorded as interest expense over the term of the Notes.

We will pay interest on the 2028 Notes semi-annually in arrears on May 15 and November 15 with the first payment to be made on November 15, 2023.

Additionally, we will pay interest on the 2034 Notes and 2055 Notes on February 15 and August 15 of each year with the first payment to be made on August 15, 2023.

We may, at our option, redeem the Notes of any series in whole or in part at any time and from time to time at a redemption price equal to the greater of 100 % of the principal amount of the Notes to be redeemed or an applicable make-whole amount, plus accrued and unpaid interest to the date of redemption.

The Notes rank equally in right of payment with all of our existing unsecured and unsubordinated indebtedness.

Report of Independent Registered Public Accounting Firm

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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”) .

We have reviewed the accompanying consolidated balance sheet of Lockheed Martin Corporation (the Company) as of June 25, 2023 , the related consolidated statements of earnings, comprehensive income and equity for the quarters and six months ended June 25, 2023 and June 26, 2022, and consolidated statements of cash flows for the six months ended June 25, 2023 and June 26, 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.

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Tysons, Virginia

April 18, 2023

July 18, 2023

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements