What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-17 compared with 2023-07-19 · 224 added, 197 removed, 324 unchanged (57% of the section changed)

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and international customers with products and services that have defense, civil and commercial applications, with our principal customers being agencies of the U.S.

During the six months ended June 25, 2023, 74% of our $31.8 billion in net sales were from the U.S.

During the nine months ended September 24, 2023, 74% of our $48.7 billion in net sales were from the U.S.

Government, either as a prime contractor or as a subcontractor (including 64% from the Department of Defense (DoD)), 25% were from international customers (including foreign military sales (FMS) contracted through the U.S.

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Supplemental funding legislation is not subject to the budget caps.

Additionally, the FRA will result in a decrease in government spending for FY 2024 by one percent from FY 2023 enacted levels if Congress does not pass all twelve defense and non-defense discretionary appropriations bills by the end of 2023 and, as a result, a continuing resolution is in effect on or after January 1, 2024.

Three of the four congressional defense committees have reported their versions of the FY 2024 defense bill for consideration by their respective full chambers and the remaining committee could act by the end of July 2023.

As noted above, the FRA spending cap limits the ability of the defense committees to support significant increases in program funding without supplemental or emergency funding designations.

If all twelve bills are not enacted, the sequestration process would be initiated on January 1, 2024, with effective implementation no later than April 30, 2024.

The House and Senate continue the legislative process on the FY 2024 budget.

Final passage of the FY 2024 National Defense Authorization Act (NDAA) is anticipated before the end of the calendar year.

Congress will also continue its effort to move appropriations bills and conference agreements, but these actions are dependent on the House leadership vote and Senate calendar.

The FRA spending cap limits the ability of the defense committees to support significant increases in program funding without supplemental or emergency funding designations.

Overall, congressional sentiment remains strong for supporting the National Defense Strategy and defense spending.

However, we anticipate that the federal budget will continue to be subject to debate and compromise shaped by, among other things, heightened political tensions, the global security environment, inflationary pressures and macroeconomic conditions.

The result may be shifting funding priorities, which could have material impacts on defense spending broadly and our programs in particular.

On September 30, 2023, the President signed a continuing resolution to continue funding the U.S government at FY 2023 levels through the earlier of November 17, 2023, or until FY 2024 appropriations bills are enacted.

Under the continuing resolution, funding at amounts consistent with appropriated levels for FY 2023 are available, subject to certain restrictions, but new contract and program starts are not authorized.

We expect our key programs will continue to be supported and funded under the continuing resolution.

However, during periods covered by continuing resolutions, we may experience delays in new awards of our products and services, and those delays may adversely affect our results of operations.

If Congress is not able to enact FY 2024 appropriations bills or extend the continuing resolution, the U.S.

government will enter a whole or partial shutdown.

The impact of any government shutdown is uncertain.

However, if a government shutdown were to occur and were to continue for an extended period, we could be at risk of program cancellations, schedule delays, production halts and other disruptions and nonpayment, which could adversely affect our results of operations.

We anticipate the federal budget will continue to be subject to debate and compromise shaped by, among other things, heightened political tensions, the global security environment, inflationary pressures, and macroeconomic conditions.

The result may be shifting funding priorities, which could have material impacts on defense spending broadly and our programs.

See also the discussion of U.S.

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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 and continue to engage in contract discussions.

Russia’s invasion of Ukraine significantly elevated global geopolitical tensions and security concerns resulting in 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.

Government and its allies to Ukraine has created U.S.

Government and allied demand to replenish U.S.

stockpiles, resulting in additional and potential future orders for our products, including for the ramp-up in production capacity for certain products.

given the long-cycle nature of our business and current industry capacity, we do not expect a significant increase in 2023 sales from new contracts in response to the conflict.

However, given the long-cycle nature of our business and current industry capacity, we do not expect a significant increase in 2023 sales from new contracts in response to the conflict.

We continue to work with the U.S.

Government and our supply chain to evaluate increases in capacity at certain of our operations to anticipate potential demand and enable us to deliver critical capabilities.

Our business and financial performance may also be affected by general economic conditions.

Supply chains continue to recover from global disruptions experienced over the last few years.

We continue working to minimize supply chain challenges, including performance and shortages, as these challenges may adversely impact our performance and our financial results.

Our business and financial performance is also affected by general economic conditions.

Supply chain disruptions persist, and we continue to experience supply chain challenges, including supplier shortages and performance issues, which have delayed certain customer deliveries and adversely impacted our performance and our financial results year to date.

While we continue working to minimize the impact of supply chain challenges, many of these challenges are industry wide or caused by geopolitical events that are outside of our control.

In addition, 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.

Certain costs, including rising labor rates and supplier costs, on several of our programs have increased as a result of inflation, and put pressure on achieving our expected margins on the programs.

In addition, some suppliers are reducing the typical duration of pricing validity in their proposals to us, which can be operationally challenging and increase the risk of cost volatility.

Although inflation did not significantly impact our financial results in the second quarter of 2023, if we continue to experience high rates of inflation, 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.

If we continue to experience high rates of inflation, and we are unable to successfully mitigate the impact, our future profits, margins and cash flows, particularly for existing fixed-price contracts, may be adversely affected.

Inflation and higher interest rates can also constrain the overall purchasing power of our customers for our products and services potentially impacting future orders.

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Our consolidated results of operations were as follows (in millions, except per share data):

Quarters Ended Six Months Ended

2023 June 26,

2022 June 25,

2023 June 26,

Quarters Ended Nine Months Ended

September 24,

2023 September 25,

2022 September 24,

2023 September 25,

Net sales $ 16,878 $ 16,583 $ 48,697 $ 46,993

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Gross profit 2,048 2,120 6,184 5,985

Other income, net 45 7 36 31

Other (expense) income, net (6) 39 30 70

Operating profit 2,042 2,159 6,214 6,055

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Non-service FAS pension income (expense) 111 111 332 (1,080)

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

Other non-operating income (expense), net 37 (26) 69 (64)

Earnings before income taxes 1,953 2,099 5,953 4,490

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Our consolidated net sales were as follows (in millions):

Quarters Ended Six Months Ended

2023 June 26,

2022 June 25,

2023 June 26,

Quarters Ended Nine Months Ended

September 24,

2023 September 25,

2022 September 24,

2023 September 25,

Products $ 14,014 $ 14,011 $ 40,298 $ 39,266

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Product Sales

Product sales increased $1.0 billion, or 8%, during the quarter ended June 25, 2023 compared to the same period in 2022.

The increase was primarily attributable to higher product sales of $840 million at Aeronautics due to higher volume on F-35 production contracts.

Product sales increased $1.0 billion, or 4%, during the six months ended June 25, 2023 compared to the same period in 2022.

The increase was primarily attributable to higher product sales of $670 million at Space and $580 million at Aeronautics.

Higher product sales at Space were due to higher development volume for Next Generation Interceptor (NGI) and classified programs.

Higher product sales at Aeronautics were due to higher volume on classified and F-35 production contracts.

Product sales during the quarter ended September 24, 2023 were comparable to the same period in 2022.

Lower product sales of $535 million at Aeronautics were mostly offset by higher product sales of $280 million at RMS and $175 million at Space.

Lower product sales at Aeronautics were due to lower volume on F-35 production contracts.

Higher product sales at RMS were due to higher volume on various integrated warfare systems and sensors (IWSS) programs.

Higher product sales at Space were due to higher volume on strategic and missile defense programs (Next Generation Interceptor (NGI) development and Fleet Ballistic Missile (FBM)).

Product sales increased $1.0 billion, or 3%, during the nine months ended September 24, 2023 compared to the same period in 2022.

The increase was primarily attributable to higher product sales of $845 million at Space due to higher volume for strategic and missile defense programs (NGI development and FBM) and national security space programs (Global Positioning System (GPS) III,Transport Layer development and classified development programs).

Service Sales

Service sales increased $250 million, or 9%, during the quarter ended June 25, 2023 compared to the same period in 2022.

The increase was primarily attributable to higher sales of approximately $170 million at Aeronautics due to higher volume on F-35 sustainment contracts.

Service sales increased $380 million, or 7%, during the six months ended June 25, 2023 compared to the same period in 2022.

Service sales increased $292 million, or 11%, during the quarter ended September 24, 2023 compared to the same period in 2022.

The increase was primarily attributable to higher sales of approximately $165 million at Aeronautics due to higher volume on F-35 sustainment contracts.

Service sales increased $672 million, or 9%, during the nine months ended September 24, 2023 compared to the same period in 2022.

The increase was primarily attributable to higher sales of approximately $465 million at Aeronautics due to higher volume on F-35 sustainment contracts and $115 million at Space due to higher volume on national security space programs (classified development and Space-Based Infrared System (SBIRS)).

Cost of Sales

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Quarters Ended Six Months Ended (a)

2023 June 26,

2022 June 25,

2023 June 26,

September 24,

2023 September 25,

2022 September 24,

2023 September 25,

Cost of sales – products $ (12,571) $ (12,493) $ (35,960) $ (34,939)

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Product Costs

Product costs increased $899 million, or 8%, during the quarter ended June 25, 2023 compared to the same period in 2022.

The increase was primarily attributable to higher product costs of $740 million at Aeronautics due to higher volume on F-35 production contracts.

Product costs increased $943 million, or 4%, during the six months ended June 25, 2023 compared to the same period in 2022.

The increase was primarily attributable to higher product costs of $575 million at Space and $500 million at Aeronautics.

Higher product costs at Space were due to higher development volume for NGI and classified programs.

Higher product costs at Aeronautics were due to higher volume on classified and F-35 production contracts.

Product costs increased $78 million, or 1%, during the quarter ended September 24, 2023 compared to the same period in 2022.

The increase was primarily attributable to higher product costs of $245 million at RMS, and $200 million at

Space, offset by lower product costs of $445 million at Aeronautics.

Higher product costs at RMS were due to higher volume on various IWSS programs.

Higher product costs at Space were due to higher volume for strategic and missile defense programs (NGI development and FBM) and national security space programs (GPS III).

Lower product costs at Aeronautics were due to lower volume on F-35 production contracts.

Product costs increased $1.0 billion, or 3%, during the nine months ended September 24, 2023 compared to the same period in 2022.

The increase was primarily attributable to higher product costs of $775 million at Space due to higher volume for strategic and missile defense programs (NGI development and FBM) and national security space programs (GPS III,Transport Layer development and classified development programs).

Service Costs

Service costs increased $286 million, or 12%, during the quarter ended June 25, 2023 compared to the same period in 2022.

The increase was primarily attributable to higher service costs of approximately $170 million at Aeronautics due to higher volume on F-35 sustainment contracts.

Service costs increased $403 million, or 9%, during the six months ended June 25, 2023 compared to the same period in 2022.

Service costs increased $275 million, or 12%, during the quarter ended September 24, 2023 compared to the same period in 2022.

The increase was primarily attributable to higher service costs of approximately $155 million at Aeronautics due to higher volume on F-35 sustainment contracts.

Service costs increased $678 million, or 10%, during the nine months ended September 24, 2023 compared to the same period in 2022.

The increase was primarily attributable to higher service costs of approximately $440 million at Aeronautics due to higher volume on F-35 sustainment contracts and $100 million at Space due to higher volume on national security space programs (classified and SBIRS).

Other Unallocated, Net

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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 $277 million and $632 million during the quarter

and six months ended June 25, 2023, compared to $205 million and $424 million during the quarter and six months ended June 26, 2022.

The increase in other unallocated, net was primarily due to gains in the fair value of assets and liabilities related to deferred compensation plans during the quarter and six months ended June 25, 2023, compared to losses in the same periods in 2022.

Other Income, Net

Other income, net, primarily includes earnings generated by equity method investees.

Other income, net was $45 million and $36 million during the quarter and six months ended June 25, 2023, compared to $7 million and $31 million during the quarter and six months ended June 26, 2022.

Other income, net during the quarter ended June 25, 2023 includes higher earnings generated by certain of our equity method investments, including United Launch Alliance (ULA) which was due to launch mix.

Other income, net during the six months ended June 25, 2023 includes other corporate income items, none of which were individually significant, partially offset by lower earnings generated by our equity method investment in ULA due to lower launch volume and an increase in new product development costs.

Other unallocated, net reduced cost of sales by $251 million and $883 million during the quarter and nine months ended September 24, 2023, compared to $265 million and $689 million during the quarter and nine months ended September 25, 2022.

There were lower losses from the changes in the fair value of assets and liabilities related to deferred compensation plans during the quarter and nine months ended September 24, 2023 compared to the same periods in 2022.

Other (Expense) Income, Net

Other (expense) income, net, primarily includes earnings generated by equity method investees.

Other expense, net was $6 million compared to other income, net of $39 million during the quarters ended September 24, 2023 and 2022.

Other income, net was $30 million and $70 million during the nine months ended September 24, 2023 and 2022.

Other (expense) income, net during the quarter and nine months ended September 24, 2023 includes 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 and six months ended June 25, 2023 was $223 million and $425 million, compared to $141 million and $276 million during the quarter and six months ended June 26, 2022.

Interest expense during the quarter and nine months ended September 24, 2023 was $237 million and $662 million, compared to $145 million and $421 million during the quarter and nine months ended September 25, 2022.

The increase in interest expense in 2023 resulted primarily from the issuance of senior unsecured notes in October 2022 and May 2023.

Non-Service FAS Pension Income

Non-service FAS pension income was $111 million and $221 million during the quarter and six months ended June 25, 2023, compared to expense of $1.3 billion and $1.2 billion during the quarter and six months ended June 26, 2022.

Non-service FAS pension expense for the quarter and six months ended June 26, 2022 includes a noncash, non-operating pension settlement charge of $1.5 billion ($1.2 billion, or $4.33 per share, after-tax), related to the transfer of $4.3 billion of our gross defined benefit pension obligations and related plan assets to an insurance company.

Other Non-operating (Expense) Income, Net

Other non-operating (expense) income, net primarily includes gains or losses related to changes in the fair value of early-stage company investments or gains or losses upon sale of these investments.

During the quarter ended June 25, 2023, other non-operating expense, net was $17 million compared to $161 million during the quarter ended June 26, 2022.

During the six months ended June 25, 2023, other non-operating income, net was $32 million compared to other non-operating expense, net of $38 million during the six months ended June 26, 2022.

Other non-operating (expense) income, net for the quarter and six months ended June 25, 2023 includes lower losses related to fair value adjustments of early-stage company investments and lower debt transaction costs.

Non-Service FAS Pension Income (Expense)

Non-service FAS pension income was $111 million during the quarters ended September 24, 2023 and 2022.

Non-service FAS pension income was $332 million compared to non-service FAS pension expense of $1.1 billion during the nine months ended September 24, 2023 and 2022.

Non-service FAS pension expense for the nine months ended September 25, 2022 includes a noncash, non-operating pension settlement charge of $1.5 billion ($1.2 billion, or $4.33 per share, after-tax), related to the transfer of $4.3 billion of our gross defined benefit pension obligations and related plan assets to an insurance company during the second quarter of 2022.

Other Non-operating Income (Expense), Net

Other non-operating income (expense), net primarily includes gains or losses related to changes in the fair value of early-stage company investments or gains or losses upon sale of these investments.

Other non-operating income, net was $37 million compared to other non-operating expense, net of $26 million during the quarters ended September 24, 2023 and 2022.

Other non-operating income, net was $69 million compared to other non-operating expense, net of $64 million during the nine months ended September 24, 2023 and 2022.

Other non-operating income (expense), net for the quarter and nine months ended September 24, 2023 includes lower losses related to fair value adjustments of early-stage company investments and higher interest income compared to the same periods in 2022.

See “Note 10 - Other” included in our Notes to Consolidated Financial Statements for additional information.

Income Tax Expense

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.

Our effective income tax rates were 13.8% and 15.1% for the quarter and nine months ended September 24, 2023 and 15.3% and 14.9% for the quarter and nine months ended September 25, 2022.

The rate for the third quarter of 2023 was lower than the third quarter of 2022 primarily due to additional research and development tax credits for prior years.

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.

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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.

We reported net earnings of $1.7 billion ($6.63 per share) and $3.4 billion ($13.24 per share) during the quarter and six months ended June 25, 2023, compared to $309 million ($1.16 per share) and $2.0 billion ($7.62 per share) during the quarter and six months ended June 26, 2022.

Net earnings and earnings per share for the quarter and six months ended June 25, 2023 were affected by the factors mentioned above.

Earnings per share also benefited from a net decrease of approximately 13.1 million and 13.3 million weighted average common shares outstanding during the quarter and six months ended June 25, 2023, compared to the same periods in 2022.

We reported net earnings of $1.7 billion ($6.73 per share) and $5.1 billion ($19.97 per share) during the quarter and nine months ended September 24, 2023, compared to $1.8 billion ($6.71 per share) and $3.8 billion ($14.31 per share) during the quarter and nine months ended September 25, 2022.

Net earnings and earnings per share for the quarter and nine months ended September 24, 2023 were affected by the factors mentioned above.

Earnings per share also benefited from a net decrease of approximately 14.9 million and 13.8 million weighted average common shares outstanding during the quarter and nine months ended September 24, 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.

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

Quarters Ended Six Months Ended

2023 June 26,

2022 June 25,

2023 June 26,

Quarters Ended Nine Months Ended

September 24,

2023 September 25,

2022 September 24,

2023 September 25,

Aeronautics $ 6,717 $ 7,089 $ 19,861 $ 19,352

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The total FAS/CAS pension adjustments, including the service and non-service cost components of FAS pension income (expense) for our qualified defined benefit pension plans, were as follows (in millions):

Quarters Ended Six Months Ended

2023 June 26,

2022 June 25,

2023 June 26,

Quarters Ended Nine Months Ended

September 24,

2023 September 25,

2022 September 24,

2023 September 25,

Total FAS income (expense) and CAS cost

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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.

Increases or decreases in profit booking rates are recognized in the 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.

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and losses on sales of certain assets.

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.

Our consolidated net profit booking rate adjustments increased segment operating profit by approximately $335 million and $1.1 billion during the quarter and nine months ended September 24, 2023 and $455 million and $1.3 billion during the quarter and nine months ended September 25, 2022.

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.

We have contracted with the Canadian Government for the Canadian Maritime Helicopter Program (CMHP) at our RMS business segment that provides for design, development, and production of CH-148 aircraft (the Original Equipment contract), which is a military variant of the S-92 helicopter, and for logistical support to the fleet (the In Service Support contract) over an extended time period.

We are currently in discussions with the Canadian Government to potentially restructure certain contractual terms and conditions that may be beneficial to both parties.

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During the second quarter of 2023, due to increases in estimated costs for the production and lower than planned revenues for the logistical support program considering recent discussions with the customer and subsequent analysis, we recognized a loss of $100 million ($75 million, or $0.29 per share, after tax) on the program.

Future performance issues or changes in our estimates due to the outcome of any restructuring discussions, including revised contract scope or customer requirements may further affect our ability to recover our costs or our assessment of the likelihood of cost recovery and may result in additional losses that could be material to our operating results.

Future performance issues, lower than forecast flight hours, or changes in our estimates due to the outcome of any restructuring discussions, including revised contract scope or customer requirements may further affect our ability to recover our costs, including the contract assets recognized on the balance sheet, or our assessment of the likelihood of cost recovery and may result in additional losses that could be material to our operating results.

As of September 24, 2023, cumulative losses remained unchanged.

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.

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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, or we could elect to pursue other relief or remedies, which could result in a further reduction in sales, the imposition of penalties or assessment of damages, and increased unrecoverable costs, which could have an adverse effect on our financial results.

The TUHP contracts may be negotiated to be restructured or terminated, either in whole or in part,

during which, we could be at risk of recording a reach-forward loss in future periods.

Additionally, we could elect to pursue other relief or remedies, which could result in a further reduction in sales, the imposition of penalties or assessment of damages, and increased unrecoverable costs, which could 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.

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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.

If the additional phases are awarded at later dates, some of which could be within the next twelve months, we expect that those phases would be performed at a loss.

We will continue to monitor the circumstances on the program and we may be required to recognize a reach-forward loss related to any additional phases at such time they become probable that they will be awarded.

Any such losses could be material to our financial results.

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

Quarters Ended Six Months Ended

2023 June 26,

2022 June 25,

2023 June 26,

Quarters Ended Nine Months Ended

September 24,

2023 September 25,

2022 September 24,

2023 September 25,

Net sales $ 6,717 $ 7,089 $ 19,861 $ 19,352

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Operating margin 10.0 % 10.7 % 10.4 % 10.6 %

Aeronautics’ net sales during the quarter ended June 25, 2023 increased $1.0 billion, or 17%, compared to the same period in 2022.

The increase was primarily attributable to higher net sales of $735 million for the F-35 program due to higher volume on production contracts partially driven by lower volume in the second quarter of 2022 due to the impact of the delays in receiving additional contractual authorization and funding under the Lots 15-17 contract and higher volume on sustainment contracts;

higher net sales of $100 million on classified programs due to higher volume;

and higher net sales of $90 million for the C-130 program due to higher volume on sustainment contracts.

Aeronautics’ operating profit during the quarter ended June 25, 2023 increased $105 million, or 17%, compared to the same period in 2022.

The increase was primarily attributable to higher operating profit of $75 million for the F-35 program due to higher volume on production contracts;

and higher operating profit of $20 million on classified programs due to lower unfavorable profit adjustments.

Total net profit booking rate adjustments in the second quarter of 2023 were comparable to the same period in 2022 .

Aeronautics’ net sales in the six months ended June 25, 2023 increased $881 million, or 7%, compared to the same period in 2022.

The increase was primarily attributable to higher net sales of $400 million for the F-35 p rogram due to higher volume on sustainment, development and production contracts;

higher net sales of $235 million on classified programs due to higher volume;

and higher net sales of $130 million for the F-16 program due to higher production volume.

Aeronautics’ operating profit in the six months ended June 25, 2023 increased $101 million , or 8%, compared to the same period in 2022.

The increase was primarily attributable to higher operating profit of $70 million for the F-35 program due to higher volume and contract mix on production and development contracts, partially offset by lower favorable profit adjustments on sustainment contracts;

and higher operating profit of $25 million on classified programs due to higher volume.

Total net profit booking rate adjustments were $15 million lower in the six months ended June 25, 2023 compared to the same period in 2022 .

Aeronautics’ net sales during the quarter ended September 24, 2023 decreased $372 million, or 5%, compared to the same period in 2022.

The decrease was primarily attributable to lower net sales of $525 million for the F-35 program due to lower volume on production contracts and the recognition in the third quarter 2022 of $325 million of sales deferred from the second quarter of 2022 until additional contractual authorization and funding was received on the Lot 15 contract.

This decrease was partially offset by higher net sales of $125 million on classified programs due to higher volume.

Aeronautics’ operating profit during the quarter ended September 24, 2023 decreased $88 million, or 12%, compared to the same period in 2022.

The decrease was primarily attributable to lower operating profit of $115 million for the F-35 program due to lower volume and lower favorable profit adjustments on production contracts and the recognition of sales and associated operating profit in the third quarter of 2022 on the Lot 15 contract as described above.

This decrease was partially offset by higher operating profit of $50 million on classified programs due to higher net favorable profit adjustments in 2023 and the absence in 2023 of unfavorable profit adjustments recorded in the third quarter of 2022.

Total net profit booking rate adjustments were $80 million lower in the third quarter of 2023 compared to the same period in 2022.

Aeronautics’ net sales in the nine months ended September 24, 2023 increased $509 million, or 3%, compared to the same period in 2022.

The increase was primarily attributable to higher net sales of $360 million on classified programs due to higher volume and higher net sales of $165 million for the F-16 program due to higher production volume.

These increases were partially offset by lower net sales of $125 million for the F-35 program due to lower volume on production contracts partially offset by higher volume on sustainment and development contracts.

Aeronautics’ operating profit in the nine months ended September 24, 2023 was comparable to the same period in 2022.

Operating profit increased $80 million on classified programs due to higher volume and the absence in 2023 of unfavorable profit adjustments recorded in the third quarter of 2022.

This increase was offset by lower operating profit of $75 million for the F-22 program due to lower net favorable profit adjustments.

Total net profit booking rate adjustments were $95 million lower in the nine months ended September 24, 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 Six Months Ended

2023 June 26,

2022 June 25,

2023 June 26,

Quarters Ended Nine Months Ended

September 24,

2023 September 25,

2022 September 24,

2023 September 25,

Net sales $ 2,939 $ 2,831 $ 8,082 $ 8,030

1 unchanged sentence

Operating margin 13.5 % 13.5 % 14.2 % 14.8 %

MFC’s net sales during the quarter ended June 25, 2023 were comparable to the same period in 2022.

Higher net sales of $20 million for tactical and strike missile programs due to higher volume (Precision Strike Missile (PrSM)) was offset by lower net sales of $20 million for integrated air and missile defense programs due to lower volume (Terminal High Altitude Area Defense (THAAD)).

MFC’s operating profit during the quarter ended June 25, 2023 decreased $47 million, or 11%, compared to the same period in 2022.

The decrease was primarily attributable to lower operating profit of $25 million for sensors and global sustainment programs due to lower net favorable profit adjustments (Sniper Advanced Targeting Pod (SNIPER ® ) and Infrared Search and Track (IRST21 ® ));

and lower operating profit of $20 million for tactical and strike missile programs due to lower net favorable profit adjustments (High Mobility Artillery Rocket System (HIMARS) and Joint Air-to-Surface Standoff Missile (JASSM)).

Total net profit booking rate adjustments were $55 million lower in the second quarter of 2023 compared to the same period in 2022.

MFC’s net sales in the six months ended June 25, 2023 decreased $56 million, or 1%, compared to the same period in 2022 .

The decrease was primarily attributable to lower net sales of $100 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 2023.

This decrease was partially offset by higher net sales of $50 million for integrated air and missile defense programs due to higher volume and the impact of higher net favorable profit adjustments (Patriot Advanced Capability-3 (PAC-3)).

MFC’s operating profit in the six months ended June 25, 2023 decreased $55 million, or 7%, compared to the same period in 2022 .

The decrease was primarily attributable to lower operating profit of $110 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 $50 million for integrated air and missile defense programs due to higher volume (PAC-3) and higher net favorable profit adjustments (PAC-3 and THAAD).

Total net profit booking rate adjustments were approximately $80 million lower in the six months ended June 25, 2023 compared to the same period in 2022 .

MFC’s net sales during the quarter ended September 24, 2023 increased $108 million, or 4%, compared to the same period in 2022.

The increase was primarily attributable to higher net sales of $125 million for tactical and strike missile programs due to higher volume (Guided Multiple Launch Rocket Systems (GMLRS) and High Mobility Artillery Rocket System (HIMARS)).

These increases were partially offset by lower net sales of $60 million for integrated air and missile defense programs due to lower volume (Patriot Advanced Capability-3 (PAC-3)).

MFC’s operating profit during the quarter ended September 24, 2023 increased $15 million, or 4%, compared to the same period in 2022.

The increase was primarily attributable to higher operating profit of $10 million for sensors and global sustainment programs due to higher net favorable profit adjustments (Apache).

Operating profit for integrated air and missile defense programs was comparable to the same period in 2022 due to lower favorable profit adjustments (PAC-3) in 2023 offset by the absence in 2023 of a $40 million unfavorable profit adjustment on the Advanced Radar Threat System Variant 2 (ARTS-V2) program in the third quarter of 2022.

Total net profit booking rate adjustments were $15 million higher in the third quarter of 2023 compared to the same period in 2022.

MFC’s net sales in the nine months ended September 24, 2023 increased $52 million, or 1%, compared to the same period in 2022.

The increase was primarily attributable to higher net sales of $85 million for tactical and strike missile programs due to higher volume (Precision Strike Missile (PrSM)), partially offset by lower net sales of $80 million for sensors and global sustainment programs due to the absence in 2023 of the impact of a favorable profit adjustment on an international program as a result of a requirements modification in 2022.

MFC’s operating profit in the nine months ended September 24, 2023 decreased $40 million, or 3%, compared to the same period in 2022.

The decrease was primarily attributable to lower operating profit of $100 million for sensors and global sustainment programs due to the absence in 2023 of the favorable profit adjustment on an international program in 2022 as described above.

This decrease was partially offset by higher operating profit of $50 million for integrated air and missile defense programs due to the absence in 2023 of a $40 million unfavorable profit adjustment on the ARTS-V2 program in the third quarter of 2022.

Total net profit booking rate adjustments were approximately $65 million lower in the nine months ended September 24, 2023 compared to the same period in 2022.

Rotary and Mission Systems

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

Quarters Ended Six Months Ended

2023 June 26,

2022 June 25,

2023 June 26,

Quarters Ended Nine Months Ended

September 24,

2023 September 25,

2022 September 24,

2023 September 25,

Net sales $ 4,121 $ 3,781 $ 11,528 $ 11,345

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Operating margin 11.7 % 12.5 % 11.2 % 11.8 %

RMS’ net sales during the quarter ended June 25, 2023 decreased $115 million, or 3%, compared to the same period in 2022.

The decrease was primarily attributable to lower net sales of $145 million for Sikorsky helicopter programs due to lower production volume (Black Hawk).

This decrease was partially offset by higher net sales of $60 million for integrated warfare systems and sensors (IWSS) programs due to higher volume (Aegis, Defense of Guam, and TPY-4 programs).

RMS’ operating profit during the quarter ended June 25, 2023 decreased $7 million, or 2%, compared to the same period in 2022.The decrease was primarily attributable to lower operating profit of $60 million for Sikorsky helicopter programs due to an unfavorable profit adjustment of $100 million on the Canadian Maritime Helicopter Program (CMHP) as a result of increased costs and lower than planned revenues and lower production volume (Black Hawk), partially offset by higher equity earnings and higher net favorable profit adjustments (Seahawk).

This decrease was partially offset by higher operating profit of $75 million for IWSS programs primarily due to a favorable profit adjustment of $65 million as a

result of a positive resolution of a contractual matter on an international surveillance and control program.

Additionally, the decreases in net profit booking rate adjustments and volume as described above were partially offset by contract mix.

Total net profit booking rate adjustments were $40 million lower in the second quarter of 2023 compared to the same period in 2022.

RMS’ net sales in the six months ended June 25, 2023 decreased $157 million, or 2%, compared to the same period in 2022.

The decrease was primarily attributable to lower net sales of $220 million for Sikorsky helicopter programs due to lower production volume (Black Hawk);

and lower net sales of $80 million for various C6ISR programs due to lower volume.

These decreases were partially offset by higher net sales of $145 million for IWSS programs due to higher volume (Aegis, Defense of Guam, and TPY-4 programs).

RMS’ operating profit in the six months ended June 25, 2023 decreased $63 million, or 7%, compared to the same period in 2022.

The decrease was primarily attributable to lower operating profit of $125 million for Sikorsky helicopter programs due to an unfavorable profit adjustment of $100 million on CMHP as described above and lower production volume on the Black Hawk program;

and lower operating profit of $35 million for TLS programs due to lower favorable profit adjustments.

These decreases were partially offset by higher operating profit of $90 million for IWSS programs primarily due to a favorable profit adjustment of $65 million on an international surveillance and control program as described above.

Total net profit booking rate adjustments were $75 million lower in the six months ended June 25, 2023 compared to the same period in 2022.

RMS’ net sales during the quarter ended September 24, 2023 increased $340 million, or 9%, compared to the same period in 2022.

The increase was primarily attributable to higher net sales of $235 million for IWSS programs due to new program ramp up (Defense of Guam, Indirect Fire Protection Capability High Energy Laser (IFPC-HEL) and TPY-4 programs) and higher volume (Aegis);

and higher net sales of $60 million on C6IRSR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance) programs due to higher volume.

RMS’ operating profit during the quarter ended September 24, 2023 increased $10 million, or 2%, compared to the same period in 2022.

The increase was primarily attributable to higher operating profit of $50 million for IWSS programs due to higher favorable profit adjustments (Littoral Combat Ship (LCS)) and new program ramp up (Defense of Guam, IFPC-HEL and TPY-4 programs).

This increase was partially offset by lower operating profit of $35 million for Sikorsky

helicopter programs due to lower favorable profit adjustments (Combat Rescue Helicopter (CRH) and Black Hawk).

Total net profit booking rate adjustments were $25 million lower in the third quarter of 2023 compared to the same period in 2022.

RMS’ net sales in the nine months ended September 24, 2023 increased $183 million, or 2%, compared to the same period in 2022.

The increase was primarily attributable to higher net sales of $380 million for IWSS programs due to higher volume (Aegis) and new program ramp up (Defense of Guam and TPY-4 programs), partially offset by lower net sales of $190 million for Sikorsky helicopter programs due to lower production volume (Black Hawk).

RMS’ operating profit in the nine months ended September 24, 2023 decreased $53 million, or 4%, compared to the same period in 2022.

The decrease was primarily attributable to lower operating profit of $160 million for Sikorsky helicopter programs due to an unfavorable profit adjustment of $100 million in the second quarter of 2023 on the CMHP as a result of increases in estimated costs and lower than planned revenues and lower production volume (Black Hawk).This decrease was partially offset by higher operating profit of $140 million for IWSS programs primarily due to the favorable profit adjustment of $65 million in second quarter of 2023 as a result of a positive resolution of a contractual matter on an international surveillance and control program, along with higher volume (Aegis) and higher favorable profit adjustments (LCS).

Total net profit booking rate adjustments were $100 million lower in the nine months ended September 24, 2023 compared to the same period in 2022.

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

Quarters Ended Six Months Ended

2023 June 26,

2022 June 25,

2023 June 26,

Quarters Ended Nine Months Ended

September 24,

2023 September 25,

2022 September 24,

2023 September 25,

Net sales $ 3,101 $ 2,882 $ 9,226 $ 8,266

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Operating margin 8.4 % 10.5 % 9.2 % 10.0 %

Space’s net sales during the quarter ended June 25, 2023 increased $341 million, or 12%, compared to the same period in 2022.

The increase was primarily attributable to higher net sales of $150 million for strategic and missile defense programs due to higher development volume (NGI);

higher net sales of $120 million for national security space programs due to higher development volume (classified and Transport Layer programs);

and higher net sales of $65 million for commercial civil space programs due to higher volume (Orion).

Space’s operating profit during the quarter ended June 25, 2023 increased $41 million, or 15%, compared to the same period in 2022.

The increase was primarily attributable to higher operating profit of $25 million for commercial civil space programs due to higher net favorable profit adjustments and higher volume (Orion);

and higher operating profit of $15 million for higher equity earnings from the company's investment in ULA due to launch mix.

Total net profit booking rate adjustments in the second quarter of 2023 were comparable to the same period in 2022.

Space’s net sales in the six months ended June 25, 2023 increased $741 million, or 14%, compared to the same period in 2022.

The increase was primarily attributable to higher net sales of $335 million for strategic and missile defense programs due to higher development volume (NGI);

higher net sales of $290 million for national security space programs due to higher development volume (classified and Transport Layer programs);

Space’s net sales during the quarter ended September 24, 2023 increased $219 million, or 8%, compared to the same period in 2022.

The increase was primarily attributable to higher net sales of $135 million for strategic and missile defense programs due to higher volume (NGI development and FBM);

higher net sales of $45 million for national security space programs due to higher volume (GPS III);

and higher net sales of $40 million for commercial civil space programs due to higher volume (Orion).

Space’s operating profit in the six months ended June 25, 2023 increased $73 million, or 14%, compared to the same period in 2022.

The increase was primarily attributable to higher operating profit of $90 million for national security space programs due to higher net favorable profit adjustments (classified programs and Next Gen OPIR);

and higher operating profit of $25 million for commercial civil space programs due to higher net favorable profit adjustments and higher volume (Orion).

These increases were partially offset by $30 million of lower equity earnings from ULA due to lower launch volume and an increase in new product development costs.

Total net profit booking rate adjustments were $90 million higher in the six months ended June 25, 2023 compared to the same period in 2022 .

Total equity earnings (primarily ULA) represented approximately $20 million, or 6%, and $5 million, or 1%, of Space's operating profit during the quarter and six months ended June 25, 2023, compared to approximately $5 million, or 2%, and $35 million, or 7%, during the quarter and six months ended June 26, 2022.

Space’s operating profit during the quarter ended September 24, 2023 decreased $45 million, or 15%, compared to the same period in 2022.

The decrease was primarily attributable to $35 million of lower equity earnings from ULA due to lower launch volume.

Total net profit booking rate adjustments were $30 million lower in the third quarter of 2023 compared to the same period in 2022.

Spa ce’s net sales in the nine months ended September 24, 2023 increased $960 million, or 12%, compared to the same period in 2022.

The increase was primarily attributable to higher net sales of $470 million for strategic and missile defense programs due to higher volume (NGI development and FBM);

higher net sales of $335 million for national security space programs due to higher volume (GPS III, Transport Layer development and classified development programs);

and higher net sales of $160 million for commercial civil space programs due to higher volume and higher favorable profit adjustments (Orion).

Space’s operating profit in the nine months ended September 24, 2023 increased $28 million, or 3%, compared to the same period in 2022.

The increase was primarily attributable to higher operating profit of $80 million for national security space programs due to higher net favorable profit adjustments (classified programs and Next Generation Overhead Persistent Infrared (Next Gen OPIR)).This increase was partially offset by $65 million of lower equity earnings from ULA due to lower launch volume and an increase in new product development costs.

Total net profit booking rate adjustments were $60 million higher in the nine months ended September 24, 2023 compared to the same period in 2022.

Total equity earnings (primarily ULA) represented approximately $15 million, or 6%, and $20 million, or 2%, of Space's operating profit during the quarter and nine months ended September 24, 2023, compared to approximately $50 million, or 16%, and $85 million, or 10%, during the quarter and nine months ended September 25, 2022.

FINANCIAL CONDITION

Liquidity and Cash Flows

At June 25, 2023, we had cash and cash equivalents of $3.7 billion.

At September 24, 2023, we had cash and cash equivalents of $3.6 billion.

Our principal source of liquidity is our cash from operations.

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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 June 25, 2023, as we are authorized to bill as the costs are incurred.

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 September 24, 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.

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We have returned cash to stockholders through dividends and share repurchases.

As of June 25, 2023, the total remaining authorization for future common share repurchases under our program was $8.8 billion, which is expected to be utilized through 2025.

We expect to fund the repurchases with cash from operations.

In October 2023, the Board of Directors authorized a fourth quarter dividend payment of $3.15 per share, representing an increase of $0.15 per share over the prior quarterly dividend payment.

The Board of Directors also authorized an increase of $6.0 billion to our share repurchase program in addition to the $7.0 billion remaining in authorization as of September 24, 2023.

We currently expect that the authorization amount will be utilized for share repurchases through 2026.

We expect to fund the repurchases through a combination of cash on hand and the issuance of 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.

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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 from the pension trust.

We also actively manage our pension obligations and expect to continue to opportunistically manage our pension liabilities through the purchase of

group annuity contracts or other actions for portions of our outstanding defined benefit pension obligations using assets from the pension trust.

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 or six months ended June 25, 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.

Future pension risk transfer transactions could be significant and result in us making additional contributions to the pension trust and/or require us to recognize noncash, non-operating pension settlement charges in earnings in the applicable reporting period.

There were no material changes during the quarter or nine months ended September 24, 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):

Six Months Ended

2023 June 26,

Nine Months Ended

September 24,

2023 September 25,

Cash and cash equivalents at beginning of year $ 2,547 $ 3,604

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Operating Activities

Net cash provided by operating activities during the six months ended June 25, 2023 decreased $77 million compared to the same period in 2022.

T he decrease was primarily due to the timing of federal tax payments, mostly offset by various changes in working capital.

Net cash provided by operating activities during the nine months ended September 24, 2023 decreased $319 million compared to the same period in 2022.

T he decrease was primarily due to the timing of federal tax payments.

Non-GAAP Financial Measure - Free Cash Flow

6 unchanged sentences

The following table reconciles net cash provided by operating activities to free cash flow (in millions):

Six Months Ended

2023 June 26,

Nine Months Ended

September 24,

2023 September 25,

Cash from operations $ 5,555 $ 5,874

2 unchanged sentences

Investing Activities

Net cash used for investing activities during the six months ended June 25, 2023 increased $10 million compared to the same period in 2022.

Capital expenditures totaled $623 million and $572 million during the six months ended June 25, 2023 and June 26, 2022.

Net cash used for investing activities during the nine months ended September 24, 2023 was comparable to the same period in 2022.

Capital expenditures totaled $987 million and $977 million during the nine months ended September 24, 2023 and September 25, 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.

1 unchanged sentence

Financing Activities

Net cash used for financing activities was $945 million during the six months ended June 25, 2023, compared to $4.0 billion during the same period in 2022.

During the six months ended June 25, 2023 and June 26, 2022, we paid dividends totaling $1.5 billion ($6.00 per share) and $1.5 billion ($5.60 per share).

During the six months ended June 25, 2023, we paid $1.3 billion to repurchase 4.2 million shares of our common stock.

Net cash used for financing activities was $3.6 billion during the nine months ended September 24, 2023, compared to $6.1 billion during the same period in 2022.

During the nine months ended September 24, 2023 and September 25, 2022, we paid dividends totaling $2.3 billion ($9.00 per share) and $2.3 billion ($8.40 per share).

During the nine months ended September 24, 2023, we paid $3.0 billion to repurchase 6.7 million shares of our common stock.

See “Note 9 - Stockholders’ Equity” included in our Notes to Consolidated Financial Statements for additional information.

During the six months ended June 26, 2022, we paid $2.4 billion to repurchase 7.7 million shares of our common stock.

During the quarter ended June 25, 2023, we received net proceeds of $2.0 billion from issuance of senior unsecured notes.

During the nine months ended September 25, 2022, we paid $3.7 billion to repurchase 11.1 million shares of our common stock.

During the nine months ended September 24, 2023, we received net proceeds of $2.0 billion from issuance of senior unsecured notes.

See “Note 10 - Other” included in our Notes to Consolidated Financial Statements for additional information.

During the nine months ended September 25, 2022, we received net proceeds of $2.3 billion from issuance of senior unsecured notes and used the net proceeds from the offering to redeem all of the outstanding $500 million Notes due 2023, $750 million Notes due 2025 and used the remaining balance of the net proceeds to redeem $1.0 billion of our

outstanding $2.0 billion Notes due 2026.

During the nine months ended September 24, 2023, we repaid $115 million of long-term notes with a fixed interest rate of 7.00% according to their scheduled maturities.

Capital Resources

At June 25, 2023, we held cash and cash equivalents of $3.7 billion that was generally available to fund ordinary business operations without significant legal, regulatory or other restrictions.

At June 25, 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.

At September 24, 2023, we held cash and cash equivalents of $3.6 billion that was generally available to fund ordinary business operations without significant legal, regulatory or other restrictions.

At September 24, 2023, we had a $3.0 billion revolving credit facility (the Revolving Credit Facility) with various banks that is available for general corporate purposes including supporting commercial paper borrowings.

Effective August 24, 2023, we extended the expiration date of the Revolving Credit Facility from August 24, 2027 to August 24, 2028.

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 June 25, 2023.

There were no borrowings outstanding under the Revolving Credit Facility at September 24, 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 June 25, 2023 and December 31, 2022.

There were no commercial paper borrowings outstanding as of September 24, 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 $17.5 billion as of June 25, 2023 and is in the form of publicly-issued notes that bear interest at fixed rates.

The outstanding debt at June 25, 2023 is inclusive of the second quarter 2023 issuance of $2.0 billion in aggregate principal amount of senior unsecured notes.

As of June 25, 2023, we were in compliance with all covenants contained in our debt and credit agreements.

Our total outstanding short-term and long-term debt, net of unamortized discounts and issuance costs was $17.4 billion as of September 24, 2023 and is in the form of publicly-issued notes that bear interest at fixed rates.

We use variable interest rate swaps to convert a portion of the fixed rate borrowings to variable rate borrowings, see “Note 8 – Fair Value Measurements” included in our Notes to Consolidated Financial Statements for additional information.

As of September 24, 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.

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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 2023, the Government of South Korea announced approval to purchase an additional 20 F-35 aircraft, increasing its total quantity to 60.

During the second quarter of 2023, we delivered 45 aircraft and ended the quarter with a backlog of 421 aircraft.

We currently expect to deliver between 100 and 120 aircraft in 2023 driven by the software maturation, acceptance and certification related to the Technology Refresh 3 (TR-3) configuration, and hardware delivery timing.

An extended delay to delivery of TR-3 equipped aircraft will not change the bottom end of the range in 2023 but could cause a further reduction in the Lot 15-17 contract profitability from higher costs and lower performance incentives.

We currently anticipate full recovery of delayed deliveries (primarily in 2024) resulting in 2024 deliveries above the prior expectation of 147-153, and we continue to expect 156 deliveries in 2025 and the foreseeable future.

The supply chain and production system continue to execute at a rate to support future year deliveries.

Since program inception through the second quarter of 2023, we have delivered 944 production F-35 aircraft to U.S.

In September 2023, the Israel Defense Ministry submitted an official letter of request to advance Israel’s procurement of a third F-35 squadron, increasing their total quantity of aircraft from 50 to 75.

Also in September 2023, the U.S.

Department of State formally approved the sale of up to 25 more F-35s to South Korea, beyond the currently approved purchase of 40 aircraft.

During the third quarter of 2023, we delivered 30 aircraft, bringing year-to-date 2023 deliveries to 80, and ended the quarter with a backlog of 391 aircraft.

Since program inception through the third quarter of 2023, we have delivered 974 production F-35 aircraft to U.S.

and international customers, including 703 F-35A variants, 191 F-35B variants, and 80 F-35C variants, demonstrating the F-35 program’s continued progress and longevity.

During the third quarter of 2023, we updated our F-35 Technology Refresh 3 (“TR-3”) schedule projections and we currently anticipate delivering the first TR-3 aircraft between April and June 2024.

As a result, we now expect to deliver 97 aircraft in 2023 (all in the TR-2 configuration), which we do not currently anticipate will impact our 2023 financial outlook.

We are producing F-35s at a rate of 156 per year and expect to continue at that pace while simultaneously working to finalize TR-3 software development and testing.

Additionally, we remain focused on receiving the necessary hardware from our suppliers to deliver this critical combat capability for the F-35.

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.

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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 2. Management’s Discussion and Analysis