What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-23 compared with 2024-04-23 · 223 added, 131 removed, 303 unchanged (54% of the section changed)

10 unchanged sentences

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 quarter ended March 31, 2024, 75% of our $17.2 billion in net sales were from the U.S.

During the six months ended June 30, 2024, 74% of our $35.3 billion in net sales were from the U.S.

Government, either as a prime contractor or as a subcontractor (including 65% from the Department of Defense (DoD)), 25% were from international customers (including foreign military sales (FMS) contracted through the U.S.

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Budget Environment

With three quarters of our sales from the U.S.

With approximately three quarters of our sales from the U.S.

Government, U.S.

Government spending levels, particularly defense spending, and timely funding thereof can affect our financial performance over the short and long term.

On March 22, 2024, the President signed the second Fiscal Year (FY) 2024 Consolidated Appropriations package into law, which includes the DoD.

On March 22, 2024, the President signed the second Fiscal Year (FY) 2024 Consolidated Appropriations package into law, which includes the DoD funding.

This legislation reflects the Fiscal Responsibility Act (FRA) spending limit of $886 billion for National Defense, of which $842 billion was for the DoD base budget.

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While compression on overall requirements driven by the FRA limit is evident, the Office of the Secretary of Defense has stated the FY 2025 budget proposal meets their objectives of keeping National Defense Strategy priorities on track.

On April 20, 2024, the House of Representatives passed three bills providing a total of $95 billion in additional supplemental funding for Ukraine, Israel and Taiwan, to include funding for the restock of U.S.

munitions capacity, and a fourth bill to impose sanctions and allow the use of seized Russian assets to assist Ukraine.

The four bills were combined into to one and sent to the Senate, where it is expected to be passed and subsequently signed into law in the near-term.

The House and Senate continue the legislative process on the FY 2025 budget.

On May 22, 2024, the House Armed Services Committee (HASC) approved its version of the FY25 National Defense Authorization Act.

The bill authorizes $849.8 billion in funding for the DoD, which is consistent with the President’s FY25 budget request.

On June 28, 2024, the FY 2025 DoD Appropriations bill H.R.

8774 passed the House.

This House bill supports additional funding above the President’s FY25 budget request for several programs spread across our four business areas.

On July 8, 2024, the Senate Armed Service Committee (SASC) filed their version of the FY 25 National Defense Authorization Act at a level $25 billion above the cap set by the FRA.

In the coming months, Congress will need to approve or revise the President’s FY 2025 budget proposal through enactment of appropriations bills and other policy legislation, which would then require final approval from the President in order for the FY 2025 budget to become law and complete the budget process.

On April 24, 2024, the President signed a bill providing a total of $95 billion in additional supplemental funding for Ukraine, Israel and Taiwan including funding for the restock of U.S.

munitions capacity.

Supplemental funding legislation is not subject to the FRA limits.

We anticipate the federal budget will continue to be subject to debate and compromise shaped by, among other things, heightened political tensions and the 2024 elections, the global security environment, inflationary pressures, and macroeconomic conditions.

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We continue to expect additional orders over the next several years attributable to the global threat environment.

in a long-cycle business and the U.S.

We operate primarily in a long-cycle business and the U.S.

government has been focused on increasing industry capacity to meet demand.

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Certain costs, including rising labor rates and supplier costs, have increased as a result of inflation, and have adversely affected our margins on certain programs.

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

We continue to work to mitigate challenges caused by the supply chain or current macroeconomic environment on our business, including by supporting small business and at-risk suppliers, deploying resources to work with our supply chain, securing materials and support by executing long-term contracts, identifying alternative sources, and optimizing our supply chain organization through digital transformation and workforce development.

In addition, some suppliers are reducing the duration of pricing validity of their proposals to us or seeking to reopen pricing on existing agreements, which is operationally challenging and increases the risk of cost volatility.

We continue to work to mitigate challenges caused by the supply chain or current macroeconomic environment on our business, including by supporting small business and at-risk suppliers, deploying resources to work with our supply chain, securing materials and support by executing long-term contracts, enforcing existing contract terms, identifying alternative sources, collaborating with our customer to address industry-wide challenges, and optimizing our supply chain organization through digital transformation and workforce development.

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

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

Quarters Ended

2024 March 26,

Quarters Ended Six Months Ended

2024 June 25,

2023 June 30,

2024 June 25,

Net sales $ 18,122 $ 16,693 $ 35,317 $ 31,819

1 unchanged sentence

Gross profit 2,130 2,090 4,123 4,136

Other income (expense), net 36 (9)

Other income, net 18 45 54 36

Operating profit 2,148 2,135 4,177 4,172

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Non-service FAS pension income 15 111 31 221

Other non-operating income, net 45 49

Other non-operating income (expense), net 46 (17) 91 32

Earnings before income taxes 1,948 2,006 3,783 4,000

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Diluted earnings per common share $ 6.85 $ 6.63 $ 13.24 $ 13.24

Certain amounts reported in other income (expense), net, including our share of earnings or losses from equity method investees, are included in the operating profit of our business segments.

Certain amounts reported in other income, net, including our share of earnings or losses from equity method investees, are included in the operating profit of our business segments.

Accordingly, such amounts are included in the discussion of our business segment results of operations.

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

Quarters Ended

2024 March 26,

Quarters Ended Six Months Ended

2024 June 25,

2023 June 30,

2024 June 25,

Products $ 15,109 $ 13,758 $ 29,305 $ 26,284

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Product Sales

Product sales increased $1.7 billion, or 13%, during the quarter ended March 31, 2024, compared to the same period in 2023.

The increase was primarily attributable to higher product sales of $575 million at MFC, $450 million at RMS, $435 million at Aeronautics and $210 million at Space.

Higher product sales at MFC were due to production ramp up on Guided Multiple Launch Rocket Systems (GMLRS), High Mobility Artillery Rocket System (HIMARS), Joint Air-to-Surface Standoff Missile (JASSM) and Long Range Anti-Ship Missile (LRASM) programs.

Higher product sales at RMS were due to new program ramp up within the laser systems portfolio and higher volume on various C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance) and radar programs.

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

Higher product sales at Space were due to higher volume on Fleet Ballistic Missile (FBM) and transport layer programs and ramp up in the hypersonic development programs.

Product sales increased $1.4 billion, or 10%, during the quarter ended June 30, 2024, compared to the same period in 2023.

The increase was primarily attributable to higher product sales of $665 million at RMS, $330 million at MFC, and $325 million at Aeronautics.

Higher product sales at RMS were due to new program ramp up within the laser systems portfolio and higher volume on radar, Black Hawk and CH-53K programs.

Higher product sales at MFC were due to production ramp up on Guided Multiple Launch Rocket Systems (GMLRS), and Long Range Anti-Ship Missile (LRASM) programs.

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

Product sales increased $3.0 billion, or 11%, during the six months ended June 30, 2024, compared to the same period in 2023.

The increase was primarily attributable to higher product sales of $1.1 billion at RMS, $905 million at MFC, $760 million at Aeronautics and $240 million at Space.

Higher product sales at RMS were due to new program ramp up within the laser systems portfolio and higher volume on radar, various C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance), Black Hawk and CH-53K programs.

Higher product sales at MFC were due to production ramp up on GMLRS, High Mobility Artillery Rocket System (HIMARS), Joint Air-to-Surface Standoff Missile (JASSM) and LRASM programs.

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

Higher product sales at Space were due to higher volume on the hypersonic development programs and higher volume on Fleet Ballistic Missile (FBM), transport layer and other space exploration programs, partially offset by lower volume on classified and Orion programs.

Service Sales

Service sales increased $399 million, or 15%, during the quarter ended March 31, 2024, compared to the same period in 2023.

Service sales increased $78 million, or 3%, during the quarter ended June 30, 2024, compared to the same period in 2023.

The increase was primarily attributable to higher service sales of approximately $75 million at Aeronautics due to higher volume on F-35 and C-130 sustainment contracts.

Service sales increased $477 million, or 9%, during the six months ended June 30, 2024, compared to the same period in 2023.

The increase was primarily attributable to higher service sales of approximately $215 million at Aeronautics, $115 million at RMS, and $100 million at Space.

Higher service sales at Aeronautics were due to higher volume on C-130 and F-35 sustainment contracts.

Higher service sales at RMS were due to higher volume on various Training and Logistics Services and C6ISR programs.

Higher service sales at RMS were due to higher volume on various C6ISR programs.

Higher service sales at Space were due to higher volume on national security space services.

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Our consolidated cost of sales were as follows (in millions):

Quarters Ended

2024 March 26,

Quarters Ended Six Months Ended

2024 June 25,

2023 June 30,

2024 June 25,

Cost of sales – products $ (13,520) $ (12,238) $ (26,404) $ (23,389)

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% of service sales 85.7 % 90.0 % 86.2 % 89.0 %

Impairment and severance charges (87) — (87) —

Other unallocated, net 197 277 482 632

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The following discussion of material changes in our consolidated cost of sales for products and services should be read in tandem with the preceding discussion of changes in our consolidated net sales and our business segment results of operations.

Except for potential impacts to our programs resulting from supply chain disruptions and inflation, we have not identified any additional developing trends in cost of sales for products and services that would have a material impact on our future operations.

Except for potential impacts to our programs resulting from supply chain disruptions and inflation, we have

not identified any additional developing trends in cost of sales for products and services that would have a material impact on our future operations.

Product Costs

Product costs increased $1.7 billion, or 16%, during the quarter ended March 31, 2024, compared to the same period in 2023.

The increase was primarily attributable to higher product costs of approximately $650 million at MFC, $460 million at Aeronautics, $400 million at RMS and $220 million at Space due to higher volume and production ramp up as described above in “Product Sales”.

Product costs increased $1.3 billion, or 10%, during the quarter ended June 30, 2024, compared to the same period in 2023.

The increase was primarily attributable to higher product costs of approximately $685 million at RMS, $305 million at Aeronautics, and $275 million at MFC due to higher volume and production ramp up as described above in “Product Sales”.

Product costs increased $3.0 billion, or 13%, during the six months ended June 30, 2024, compared to the same period in 2023.

The increase was primarily attributable to higher product costs of approximately $1.1 billion at RMS, $925 million at MFC, $765 million at Aeronautics and $240 million at Space due to production ramp up and higher volume as described above in “Product Sales”.

Service Costs

Service costs increased $319 million, or 14%, during the quarter ended March 31, 2024, compared to the same period in 2023.

The increase was primarily attributable to higher service costs of $115 million at Aeronautics, $95 million at RMS and $80 million at Space due to higher volume as described above in “Service Sales”.

Service costs decreased $60 million, or 2%, during the quarter ended June 30, 2024, compared to the same period in 2023.

The decrease was primarily attributable to lower service costs of $85 million at RMS and $35 million at Space partially offset by higher service costs of $60 million at Aeronautics.

Lower service costs at RMS were primarily due to an unfavorable profit adjustment on the Canadian Maritime Helicopter Program (CMHP) in the second quarter of 2023 that did not recur in the second quarter of 2024.

Higher service costs at Aeronautics were due to higher volume as described above in “Service Sales”.

Service costs increased $259 million, or 5%, during the six months ended June 30, 2024, compared to the same period in 2023.

The increase was primarily attributable to higher service costs of $180 million at Aeronautics, and $45 million at Space due to higher volume as described above in “Service Sales”.

Impairment and Severance Charges

During the second quarter of 2024, we recorded charges totaling $87 million ($69 million, or $0.29 per share, after-tax).

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

Other Unallocated, Net

1 unchanged sentence

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 $285 million during the quarter ended March 31, 2024, compared to $355 million during the quarter ended March 26, 2023.

The decrease in other unallocated, net was primarily due to lower gains from the changes in the fair value of assets and liabilities related to deferred compensation plans during the quarter ended March 31, 2024 compared to the same periods in 2023 and fluctuations in costs associated with various corporate items, none of which were individually significant.

Other Income (Expense), Net

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

Other income, net was $36 million during the quarter ended March 31, 2024, compared to other expense, net of $9 million during the quarter ended March 26, 2023.

Other income (expense), net during the quarter ended March 31, 2024 includes higher earnings generated by our equity method investment in ULA due to higher launch volume.

Other unallocated, net reduced cost of sales by $197 million and $482 million during the quarter and six months ended June 30, 2024, compared to $277 million and $632 million during the quarter and six months ended June 25, 2023.

The decrease in other unallocated, net was primarily due to lower gains from the changes in the fair value of assets and liabilities related to deferred compensation plans during the quarter and six months ended June 30, 2024 compared to the same periods in 2023 and fluctuations in costs associated with various corporate items, none of which were individually significant.

Other Income, Net

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

Other income, net was $18 million and $54 million during the quarter and six months ended June 30, 2024, compared to $45 million and $36 million during the quarter and six months ended June 25, 2023.

Other income, net during the quarter ended June 30, 2024 reflects lower earnings generated by certain of our equity method investments, including ULA.

Other income, net during the six months ended June 30, 2024 includes higher earnings generated by our equity method investment in ULA due to higher launch volume.

Interest Expense

Interest expense was $255 million and $202 million during the quarters ended March 31, 2024 and March 26, 2023.

Interest expense was $261 million and $516 million and $223 million and $425 million during the quarters and six months ended June 30, 2024 and June 25, 2023.

The increase in interest expense in 2024 resulted primarily from the issuance of senior unsecured notes in January 2024 and May 2023.

Non-Service FAS Pension Income

Non-service FAS pension income was $16 million and $110 million during the quarters ended March 31, 2024 and March 26, 2023.

Non-service FAS pension income was $15 million and $31 million and $111 million and $221 million during the quarters and six months ended June 30, 2024 and June 25, 2023.

The decrease was primarily due to a lower prior service credit amortization and a reduced asset base as detailed in “Note 6 - Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements.

Other Non-operating Income, Net

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

Other non-operating income, net was $45 million and $49 million during the quarters ended March 31, 2024 and March 26, 2023.

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 $46 million and $91 million during the quarter and six months ended June 30, 2024, compared to other non-operating expense of $17 million and other non-operating income of $32 million during the quarter and six months ended June 25, 2023.

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

Income Tax Expense

Our effective income tax rates were 15.8% and 15.3% for the quarters ended March 31, 2024 and March 26, 2023.

The rates for all 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.

Our effective income tax rates were 15.8% for both the quarter and six months ended June 30, 2024 and 16.2% and 15.8% for the quarter and six months ended June 25, 2023.

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

Changes in U.S.

(federal or state) or foreign tax laws and regulations, or their interpretation and application (including those with retroactive effect), such as the amortization for research or experimental expenditures, could significantly impact our provision for income taxes, the amount of taxes payable, our deferred tax asset and liability balances, and stockholders’ equity.

(federal or state) or foreign tax laws and regulations, or their interpretation and application (including those with retroactive effect), such as the amortization for research and development expenditures, could significantly impact our provision for income taxes, the amount of taxes payable, our deferred tax asset and liability balances, and stockholders’ equity.

In addition to future changes in tax laws, the amount of net deferred tax assets will change periodically based on several factors, including the measurement of our postretirement benefit plan obligations, actual cash contributions to our postretirement benefit plans and the change in the amount or reevaluation of uncertain tax positions.

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The cash tax impact will continue over the five-year amortization period but will decrease over the period and be immaterial by 2027.

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

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

The final determination of tax audits and any related litigation could similarly result in unanticipated increases in our tax expense and affect profitability and cash flows.

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We do not expect Pillar 2 to have a material impact on our effective tax rate or our consolidated results of operation, financial position, and cash flows.

We reported net earnings of $1.5 billion ($6.39 per share) during the quarter ended March 31, 2024, compared to $1.7 billion ($6.61 per share) during the quarter ended March 26, 2023.

Net earnings and earnings per share for the quarter ended March 31, 2024 were affected by the factors mentioned above.

Earnings per share also benefited from a net decrease of approximately 14.1 million weighted average common shares outstanding during the quarter ended March 31, 2024, compared to the same period in 2023.

We reported net earnings of $1.6 billion ($6.85 per share) and $3.2 billion ($13.24 per share) during the quarter and six months ended June 30, 2024, compared to $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.

Net earnings and earnings per share for the quarter and six months ended

June 30, 2024 were affected by the factors mentioned above.

Earnings per share also benefited from a net decrease of approximately 14.0 million weighted average common shares outstanding during both the quarter and six months ended June 30, 2024, compared to the same periods in 2023.

The reduction in weighted average common shares was a result of share repurchases, partially offset by share issuance under our stock-based awards and certain defined contribution plans.

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

Quarters Ended

2024 March 26,

Quarters Ended Six Months Ended

2024 June 25,

2023 June 30,

2024 June 25,

Aeronautics $ 7,277 $ 6,875 $ 14,122 $ 13,144

11 unchanged sentences

FAS/CAS pension operating adjustment 406 416 812 831

Impairment and severance charges (a)

(87) — (87) —

Intangible asset amortization expense (61) (62) (122) (124)

2 unchanged sentences

Total consolidated operating profit $ 2,148 $ 2,135 $ 4,177 $ 4,172

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

Our business segments’ results of operations include pension expense only as calculated under U.S.

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

The non-service FAS pension income (expense) components are included in non-service FAS pension income (expense) in our consolidated statements of earnings.

The non-service FAS pension income components are included in non-service FAS pension income in our consolidated statements of earnings.

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

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

Quarters Ended

2024 March 26,

Quarters Ended Six Months Ended

2024 June 25,

2023 June 30,

2024 June 25,

Total FAS income and CAS cost

53 unchanged sentences

and losses on sales of certain assets.

Our consolidated net profit booking rate adjustments increased segment operating profit by approximately $195 million during the quarter ended March 31, 2024 and $415 million during the quarter ended March 26, 2023.

The impact to 2024 segment operating profit includes a reach-forward loss of $100 million recognized on a classified program at our MFC business segment (as further described on page 22, see the discussion under “Contract Estimates” in Note 10 - Other included in our Notes to Consolidated Financial Statements).

Our consolidated net profit booking rate adjustments increased segment operating profit by approximately $420 million and $615 million during the quarter and six months ended June 30, 2024 and $365 million and $780 million during the quarter and six months ended June 25, 2023.

The impact to the six months ended June 30, 2024 segment operating profit includes a reach-forward loss of $100 million recognized in the first quarter of 2024 on a classified program at our MFC business segment.

The impact to the quarter and six months ended June 25, 2023 included an unfavorable profit adjustment of $100 million on the Canadian Maritime Helicopter Program (CMHP) and a $65 million favorable profit adjustment as a result of a positive resolution of a contractual matter on an international surveillance and control program at our RMS business segment.

See the discussions under “Contract Estimates” in Note 10 - Other included in our Notes to Consolidated Financial Statements (pages 23-24).

We periodically experience performance issues and record losses for certain programs.

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

Quarters Ended

2024 March 26,

Quarters Ended Six Months Ended

2024 June 25,

2023 June 30,

2024 June 25,

Net sales $ 7,277 $ 6,875 $ 14,122 $ 13,144

1 unchanged sentence

Operating margin 10.3 % 10.4 % 10.1 % 10.6 %

Aeronautics’ net sales during the quarter ended March 31, 2024 increased $576 million, or 9%, compared to the same period in 2023.

The increase was primarily attributable to higher net sales of $305 million on the F-35 program due to higher volume on production, development and sustainment contracts;

$155 million on classified programs driven by higher volume;

Aeronautics’ net sales during the quarter ended June 30, 2024 increased $402 million , or 6% , compared to the same period in 2023.

The increase was primarily attributable to higher net sales of $335 million on the F-35 program due to higher volume on sustainment, development and production contracts;

and $105 million on the F-16 program due to the ramp up on production.

Aeronautics’ operating profit during the quarter ended March 31, 2024 was comparable to the same period in 2023.

Operating profit increased $50 million on the F-16 program as operating profit for the first quarter of 2023 reflects the impact of unfavorable profit adjustments on a production contract and sustainment contracts as a result of schedule delays related to software and technical specification risks that did not recur in the first quarter of 2024.

This increase was partially offset by lower operating profit of $30 million on the F-35 program primarily due to lower net profit adjustments on production contracts as a result of higher than anticipated material costs, partially offset by higher volume described above.

Total net profit booking rate adjustments were $40 million lower in the first quarter of 2024 compared to the same period in 2023.

Aeronautics’ operating profit during the quarter ended June 30, 2024 increased $33 million, or 5%, compared to the same period in 2023.

The increase in operating profit was attributable to $35 million from higher volume and program ramp up described above and $25 million from favorable contract mix across the portfolio, partially offset by $25 million of lower profit booking rate adjustments.

The decrease in profit booking rate adjustments was due to a $45 million unfavorable profit adjustment on a classified program because of higher than anticipated costs to maintain program objectives, partially offset by higher net favorable profit adjustments across the portfolio.

Aeronautics’ net sales during the six months ended June 30, 2024 increased $978 million, or 7%, compared to the same period in 2023.

The increase was primarily attributable to higher net sales of $640 million on the F-35 program due to higher volume on development, sustainment and production contracts;

$165 million on the F-16 program due to the ramp up on production;

and $150 million on classified programs driven by higher volume.

Aeronautics’ operating profit during the six months ended June 30, 2024 increased $37 million , or 3%, compared to the same period in 2023.

The increase in operating profit was attributable to $90 million from higher volume and program ramp up described above, partially offset by $65 million of lower profit booking rate adjustments.

The decrease in profit booking rate adjustments was due to higher than anticipated material costs on F-35 production contracts and $65 million of unfavorable profit adjustments on a classified program because of higher than anticipated costs to maintain program objectives;

partially offset by lower unfavorable profit adjustments on F-16 contracts due to lower levels of labor cost growth.

Missiles and Fire Control

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

Quarters Ended

2024 March 26,

Quarters Ended Six Months Ended

2024 June 25,

2023 June 30,

2024 June 25,

Net sales $ 3,102 $ 2,755 $ 6,095 $ 5,143

1 unchanged sentence

Operating margin 14.5 % 13.5 % 12.5 % 14.5 %

MFC’s net sales during the quarter ended March 31, 2024 increased $605 million, or 25%, compared to the same period in 2023 .

The increase was primarily attributable to higher net sales of $460 million for tactical and strike missile programs due to production ramp up on GMLRS, HIMARS , JASSM and LRASM programs;

and $100 million for integrated air and missile defense programs primarily due to higher volume on PAC-3 and Terminal High Altitude Area Defense (THAAD).

MFC’s operating profit during the quarter ended March 31, 2024 decreased $66 million , or 18%, compared to the same period in 2023.

The decrease was primarily attributable to lower operating profit for tactical and strike missile programs due to a $100 million reach-forward loss recognized for an option on a classified program and an unfavorable profit adjustment on HELLFIRE as a result of additional costs expected to be incurred associated with a contract claim, partially offset by the production ramp up described above.

Total net profit booking rate adjustments, inclusive of the $100 million loss described above, were $120 million lower in the first quarter of 2024 compared to the same period in 2023.

MFC’s net sales during the quarter ended June 30, 2024 increased $347 million , or 13% , compared to the same period in 2023.

The increase was primarily attributable to higher net sales of $320 million for tactical and strike missile programs due to production ramp up on Guided Multiple Launch Rocket Systems (GMLRS) and Long Range Anti-Ship Missile (LRASM) programs.

MFC’s operating profit during the quarter ended June 30, 2024 increased $79 million, or 21%, compared to the same period in 2023 , due to $80 million of higher profit booking rate adjustments which primarily reflects higher favorable profit booking rate adjustments on PAC-3 and Apache due to better than anticipated cost performance.

Additionally, operating profit increased $30 million from production ramp up described above, offset by $30 million decrease from contract mix.

MFC’s net sales during the six months ended June 30, 2024 increased $952 million, or 19%, compared to the same period in 2023.

The increase was primarily attributable to higher net sales of $780 million for tactical and strike missile programs due to production ramp up on GMLRS, LRASM and Javelin programs.

MFC’s operating profit during the six months ended June 30, 2024 increased $13 million, or 2%, compared to the same period in 2023.

The increase in operating profit was attributable to $110 million from the production ramp up described above, partially offset by $40 million of lower profit booking rate adjustments and $55 million from contract mix .

The decrease in profit booking rate adjustments was due to a $100 million reach-forward loss recognized in the first quarter of 2024 for an option on a classified program, partially offset by higher favorable profit booking rate adjustments on PAC-3 and Apache as described above.

Rotary and Mission Systems

In February 2024, the U.S.

Army announced it is cancelling the Future Attack Reconnaissance Aircraft (FARA) program at the conclusion of fiscal year 2024, for which our Sikorsky business was competing.

We are currently evaluating the potential effect of this decision on our Sikorsky business operations including assessing the recoverability of certain assets.

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

Quarters Ended

2024 March 26,

Quarters Ended Six Months Ended

2024 June 25,

2023 June 30,

2024 June 25,

Net sales $ 4,548 $ 3,897 $ 8,636 $ 7,407

1 unchanged sentence

Operating margin 10.9 % 11.6 % 10.7 % 10.9 %

RMS’ net sales during the quarter ended March 31, 2024 increased $578 million , or 16%, compared to the same period in 2023.

The increase was primarily attributable to higher net sales of $295 million on integrated warfare systems and sensors (IWSS) programs due to new program ramp up within the laser systems portfolio and higher volume on the Aegis and radar programs;

$150 million for various C6ISR programs due to higher volume;

and $100 million for Sikorsky helicopter programs due to higher volume on Seahawk and CH-53K programs.

RMS’ operating profit during the quarter ended March 31, 2024 increased $80 million , or 23%, compared to the same period in 2023.

The increase was primarily attributable to higher operating profit of $40 million on IWSS programs due to higher volume described above and a favorable profit rate adjustment as a result of the delivery of a ground-based radar which retired the technical risk;

and $25 million on Sikorsky helicopter programs due to higher volume described above and higher margins due to contract mix, partially offset by unfavorable profit adjustments on Seahawk programs.

profit booking rate adjustments were $30 million lower in the first quarter of 2024 compared to the same period in 2023.

RMS’ net sales during the quarter ended June 30, 2024 increased $651 million, or 17%, compared to the same period in 2023.

The increase was primarily attributable to higher net sales of $420 million on integrated warfare systems and sensors (IWSS) programs due to higher volume on radar programs and the Canadian Surface Combatant (CSC) program, and new program ramp up within the laser systems portfolio;

and $160 million for Sikorsky helicopter programs due to higher production volume on Black Hawk and CH-53K programs.

RMS’ operating profit during the quarter ended June 30, 2024 increased $41 million, or 9%, compared to the same period in 2023.

The increase in operating profit was attributable to $70 million from higher volume described above, partially offset by $20 million of lower profit booking rate adjustments.

The decrease in profit booking rate adjustments was due to unfavorable profit adjustments on Seahawk and Black Hawk production programs as a result of increased costs, partially offset by the net impact in the second quarter of 2023 of both a $65 million favorable profit adjustment on an international surveillance and control program and a $100 million unfavorable profit adjustment on the Canadian Maritime Helicopter Program (CMHP) that did not recur in the second quarter of 2024.

RMS’ net sales during the six months ended June 30, 2024 increased $1.2 billion , or 17%, compared to the same period in 2023.

The increase was primarily attributable to higher net sales of $715 million on IWSS programs due to higher volume on radar programs and the CSC program, and new program ramp up within the laser systems portfolio;

$260 million for Sikorsky helicopter programs due to higher production volume on CH-53K, Black Hawk and Seahawk programs;

and $235 million for various C6ISR programs due to higher volume.

RMS’ operating profit during the six months ended June 30, 2024 increased $121 million, or 15%, compared to the same period in 2023.

The increase in operating profit was attributable to $130 million from higher volume and program ramp up described above and $20 million from favorable contract mix, partially offset by $50 million of lower profit booking rate adjustments.

The decrease in profit booking rate adjustments was due to unfavorable profit adjustments on Seahawk and Black Hawk production programs, partially offset by the net impact in 2023 of various profit adjustments that did not recur in 2024 as described above.

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

Quarters Ended

2024 March 26,

Quarters Ended Six Months Ended

2024 June 25,

2023 June 30,

2024 June 25,

Net sales $ 3,195 $ 3,166 $ 6,464 $ 6,125

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Operating margin 10.8 % 9.9 % 10.4 % 9.7 %

Space’s net sales during the quarter ended March 31, 2024 increased $310 million , or 10%, compared to the same period in 2023.

The increase was primarily attributable to higher net sales of $140 million for strategic and missile defense programs due to higher volume on FBM and ramp up in the hypersonic and Next Generation Interceptor (NGI) development programs;

and higher net sales of $115 million for national security space programs due to higher volume on Transport Layer and GPS III programs and ramp up on the Tracking Layer program.

Space’s operating profit during the quarter ended March 31, 2024 increased $45 million , or 16%, compared to the same period in 2023.

The increase was primarily attributable to $30 million of higher equity earnings from our investment in United Launch Alliance (ULA) due to higher launch volume, and higher operating profit of $20 million on strategic and missile defense programs due to the higher volume described above.

These increases were partially offset by lower operating profit of $25 million for national security space programs due to the impact of lower net favorable profit adjustments on Next Gen OPIR as a result of the timing of the award and incentive fee assessments.

Total net profit booking rate adjustments were $30 million lower in the first quarter of 2024 compared to the same period in 2023.

Total equity earnings/(losses) (primarily ULA) represented approximately $15 million or 5% in the first quarter of 2024, compared to approximately $(15) million, or (5)% for the same period in 2023.

Space’s net sales during the quarter ended June 30, 2024 increased $29 million, or 1%, compared to the same period in 2023.

The increase was primarily attributable to higher net sales of $110 million for strategic and missile defense programs due to higher volume on the hypersonics and Fleet Ballistic Missile (FBM) programs;

partially offset by lower net sales of $50 million for national security space due to lower volume on classified programs and $45 million for commercial civil space due to lower volume on the Orion program.

Space’s operating profit during the quarter ended June 30, 2024 increased $34 million, or 11%, compared to the same period in 2023.

The increase in operating profit was attributable to $20 million from favorable contract mix across the portfolio and $20 million of higher profit booking rate adjustments.

The increase in profit booking rate adjustments was due to higher favorable profit adjustments on the FBM program.

Space’s net sales during the six months ended June 30, 2024 increased $339 million , or 6%, compared to the same period in 2023.

The increase was primarily attributable to higher net sales of $245 million for strategic and missile defense programs due to higher volume on the hypersonics and FBM programs;

and higher net sales of $65 million for national security space programs due to higher volume on GPS III and Transport Layer programs and ramp up on the Tracking Layer, partially offset by lower volume on classified programs.

Net sales for commercial civil space were comparable as lower volume and the impact of lower favorable profit adjustments on the Orion program was offset by higher volume on other space exploration programs.

Space’s operating profit during the six months ended June 30, 2024 increased $79 million, or 13%, compared to the same period in 2023.

The increase was primarily attributable to $45 million from favorable contract mix across the portfolio, $25 million from higher volume described above and $25 million of higher equity earnings driven by higher launch volume from our investment in United Launch Alliance (ULA), partially offset by $10 million of lower profit booking rate adjustments.

The decrease in profit booking rate adjustments reflects lower net favorable profit adjustments on the Orion program.

Total equity earnings/(losses) (primarily ULA) represented approximately $10 million, or 3%, and $25 million, or 4%, of Space's operating profit during the quarter and six months ended June 30, 2024, compared to approximately $20 million, or 6%, and $5 million, or 1% for the same periods in 2023.

FINANCIAL CONDITION

Liquidity and Capital Resources

At March 31, 2024, we had cash and cash equivalents of $2.8 billion that was generally available to fund ordinary business operations without significant legal, regulatory or other restrictions.

At June 30, 2024, we had cash and cash equivalents of $2.5 billion that was generally available to fund ordinary business operations without significant legal, regulatory or other restrictions.

Our principal source of liquidity is our cash from operations.

However, we also have access to credit markets, if needed, for liquidity or general corporate purposes, including share repurchases.

This access includes our $3.0 billion revolving credit facility or the ability to issue commercial paper and letters of credit to support customer advance payments and for other trade finance purposes such as guaranteeing our performance on particular contracts.

There were no borrowings outstanding under the revolving credit facility and commercial paper at both March 31, 2024 and December 31, 2023.

As of March 31, 2024, we were in compliance with all covenants contained in our debt and credit agreements.

However, we also have access to credit markets, if needed, for liquidity or general corporate purposes.

This access includes our $3.0 billion revolving credit facility or the ability to issue commercial paper.

There were no borrowings outstanding under the revolving credit facility and commercial paper at both June 30, 2024 and December 31, 2023.

As of June 30, 2024, we were in compliance with all covenants contained in our debt and credit agreements.

We believe our cash and cash equivalents, our expected cash flow generated from operations and our access to credit markets will be sufficient to meet our cash requirements and cash deployment plans over the next twelve months and beyond based on our current business plans.

Cash received from customers is our primary source of cash from operations.

We generally do not begin work on contracts until funding is appropriated by the customer.

However, from time to time, we fund customer programs ourselves pending government appropriations.

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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 42% of the sales we recorded during the quarter ended March 31, 2024, 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 June 30, 2024, as we are authorized to bill as the costs are incurred.

A number of our fixed-price contracts may provide for performance-based payments, which allow us to bill and collect cash as we perform on the contract.

The amount of performance-based payments and the related milestones are

encompassed in the negotiation of each contract.

The amount of performance-based payments and the related milestones are encompassed in the negotiation of each contract.

The timing of such payments may differ from the timing of the costs incurred related to our contract performance, thereby affecting our cash flows.

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Government from time to time withholds payments on certain of our billings based on contract terms or regulatory provisions.

Ultimately, the impact of policy changes or withholding payments may delay the receipt of cash, but the cumulative amount of cash collected during the life of the contract should not vary.

Ultimately, the impact of policy changes or withholding payments may delay the receipt of cash, but the total amount of cash collected during the life of the contract should not vary.

We have a disciplined and dynamic cash deployment strategy to invest in our business and key technologies to provide our customers with enhanced capabilities, enhance stockholder value, and position ourselves to take advantage of new business opportunities when they arise.

Consistent with that strategy, we have continued to invest in our business and technologies through capital expenditures, independent research and development, and selective business acquisitions and investments.

Consistent with that strategy, we have continued to invest in our business

and technologies through capital expenditures, independent research and development, and selective business acquisitions and investments.

We continue to return cash to stockholders through dividends and share repurchases.

As of March 31, 2024, the total remaining authorization for future common share repurchases under our program was $9.0 billion.

As of June 30, 2024, the total remaining authorization for future common share repurchases under our program was $8.2 billion.

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 could be required to make pension contributions earlier and/or in excess than planned if our return on pension assets is less than our assumptions, which would reduce our free cash flow.

We may also make additional contributions on an ad hoc basis at our discretion.

There were no material changes during the quarter ended March 31, 2024 to our contractual commitments as presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2023 Form 10-K that were outside the ordinary course of our business.

We may also make additional contributions at our discretion.

There were no material changes during the quarter or six months ended June 30, 2024 to our contractual commitments as presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2023 Form 10-K that were outside the ordinary course of our business, except for, the $2.0 billion of senior unsecured notes issued on January 29, 2024.

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

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

Quarters Ended

2024 March 26,

Six Months Ended

2024 June 25,

Cash and cash equivalents at beginning of year $ 1,442 $ 2,547

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Net cash used for investing activities (744) (593)

Net cash provided by (used for) financing activities 85 (1,412)

Net cash used for financing activities (1,686) (945)

Net change in cash and cash equivalents 1,081 1,126

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Operating Activities

Net cash provided by operating activities during the quarter ended March 31, 2024 was comparable to the same period in 2023.

Net cash provided by operating activities during the six months ended June 30, 2024 increased $847 million compared to the same period in 2023.

The increase was primarily due to improvements in working capital (defined as receivables, contract assets, and inventories less accounts payable and contract liabilities) and the timing of federal tax payments.

Improvements in working capital were driven by liquidation of inventories (primarily at our RMS business segment), timing of production and billing cycles impacting receivables (primarily F-35 at Aeronautics and Integrated Air and Missile Defense at MFC, partially offset by IWSS at RMS) and contract liabilities (primarily at Aeronautics, MFC and

Space business segments).

These improvements were partially offset by the timing of cash payments related to accounts payable (primarily Aeronautics).

Non-GAAP Financial Measure - Free Cash Flow

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We believe free cash flow is a useful measure for investors because it represents the amount of cash generated from operations after reinvesting in the business and that may be available to return to stockholders and creditors (through dividends, stock repurchases and debt repayments) or available to fund acquisitions and other investments.

The entire amount of free cash flow is not necessarily available for discretionary expenditures, however, because it does not account for certain mandatory expenditures, such as the repayment of maturing debt and pension contributions.

While management believes that free cash flow as a non-GAAP financial measure may be useful in evaluating our financial performance, it should be considered supplemental to, and not a substitute for, financial information prepared in accordance with GAAP and may not be comparable to similarly titled measures used by other companies.

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

Quarters Ended

2024 March 26,

Six Months Ended

2024 June 25,

Cash from operations $ 3,511 $ 2,664

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Free cash flow $ 2,763 $ 2,041

Free cash flow increased $722 million compared to the same period in 2023 primarily due to the increase in cash provided by operating activities described above, partially offset by higher capital expenditures.

Investing Activities

Net cash used for investing activities during the quarter ended March 31, 2024 increased $113 million compared to the same period in 2023 .

Capital expenditures totaled $378 million and $294 million during the quarters ended March 31, 2024 and March 26, 2023.

Net cash used for investing activities during the six months ended June 30, 2024 increased $151 million compared to the same period in 2023 .

Capital expenditures totaled $748 million and $623 million during the six months ended June 30, 2024 and June 25, 2023.

The majority of our capital expenditures are for equipment and facilities infrastructure that generally are incurred to support new and existing programs across all of our business segments.

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Financing Activities

Net cash provided by financing activities during the quarter ended March 31, 2024 increased $1.5 billion compared to the same period in 2023 .

During the quarter ended March 31, 2024 and March 26, 2023, we paid dividends totaling $780 million ($3.15 per share) and $784 million ($3.00 per share).

During the quarter ended March 31, 2024, we paid $1.0 billion to repurchase 2.3 million shares of our common stock.

Net cash used for financing activities during the six months ended June 30, 2024 increased $741 million compared to the same period in 2023 .

During the six months ended June 30, 2024 and June 25, 2023, we paid dividends totaling $1.5 billion ($6.30 per share) and $1.5 billion ($6.00 per share).

During the six months ended June 30, 2024, we paid $1.9 billion to repurchase 4.2 million shares of our common stock.

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

During the quarter ended March 26, 2023, we paid $500 million to repurchase 1.1 million shares of our common stock.

During the quarter ended March 31, 2024, we received net proceeds of $2.0 billion from issuance of senior unsecured notes.

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

During the six months ended June 30, 2024 and June 25, 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 six months ended June 30, 2024, we repaid $168 million of long-term notes with a fixed interest rate of 8.375% according to their scheduled maturities.

OTHER MATTERS

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In February 2024, Singapore announced its intent to purchase eight F-35As to complement the 12 F-35Bs to which it has previously committed.

Since program inception through March 31, 2024, we have delivered 992 production F-35 aircraft, including 710 F-35A variants, 197 F-35B variants and 85 F-35C variants, demonstrating the F-35 program’s continued progress and longevity.

Our backlog as of March 31, 2024 was 373 aircraft and our aircraft production rate remains at approximately 156 per year;

however, we had no customer deliveries of aircraft in the first quarter of 2024.

Deliveries of aircraft with Technology Refresh-3 (TR-3) capability remain on hold as the software is finalized.

We continue to target a second quarter 2024 customer acceptance of a specific software configuration permitting deliveries of TR-3 aircraft and expect deliveries to begin in the third quarter 2024.

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

Since program inception through June 30, 2024, we have delivered 992 production F-35 aircraft, including 710 F-35A variants, 197 F-35B variants and 85 F-35C variants, demonstrating the F-35 program’s continued progress and longevity.

Our backlog as of June 30, 2024 was 373 aircraft;

however, we had no customer deliveries of aircraft in the first half of 2024.

We began deliveries of the first Technology Refresh 3 (“TR-3”) configured F-35 aircraft in July 2024.

Our expectation remains that we will continue with a production rate of 156 aircraft per year and deliver between 75 and 110 aircraft in the second half of this year, primarily in the TR-3 configuration.

We are working with the JPO on the terms and conditions related to the timing of the final payments for TR-3 configured aircraft and a phased approach to delivery.

We continue to focus on advancing TR-3 and Block 4 capabilities to support our customers’ mission requirements.

We remain in negotiations with the U.S.

Government on the Lot 18-19 production contracts.

Without additional contractual direction from the U.S.

Government, we will exceed the current contractual authorization and funding on the Lot 18-19 advance acquisition contract during the third quarter of 2024.

If this materializes, it could negatively impact our results of operations, cash flows, and financial condition.

We continue to engage with the U.S.

Government to reach a mutually agreeable solution.

Given the size and complexity of the F-35 program, we anticipate continual reviews on 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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Critical Accounting Policies

There have been no significant changes to the critical accounting policies disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Form 10-K, except for, as set forth below, trademark impairment as a result of the impacts of the U.S.

Army announcement to cancel the Future Attack Reconnaissance Aircraft (FARA) program at the conclusion of fiscal year 2024.

Goodwill and Intangible Assets

The carrying value of our goodwill balance was $10.8 billion at June 30, 2024 and December 31, 2023, including $2.7 billion of goodwill at our Sikorsky reporting unit.

The carrying value of our Sikorsky reporting unit also included an indefinite-lived trademark intangible asset of $837 million and $887 million as of June 30, 2024 and December 31, 2023.

The fair values of our goodwill and indefinite-lived trademark intangible asset at our Sikorsky reporting unit can be significantly impacted by its performance, the amount and timing of expected future cash flows, contract terminations, changes in expected future orders, general market pressures, including U.S.

Government budgetary constraints, discount rates, long term growth rates, and changes in U.S.

(federal or state) or foreign tax laws and regulations, or their interpretation and application, including those with retroactive effect, along with other significant judgments.

second quarter of 2024, we recorded a charge of $50 million ($40 million, or $0.16 per share, after-tax) for trademark impairment resulting from the strategic review of our Sikorsky business during the second quarter of 2024 due, in part, to the impacts of the U.S.

Army announcement to cancel the Future Attack Reconnaissance Aircraft (FARA) program at the conclusion of fiscal year 2024, for which our Sikorsky business was competing.

Additionally, we reevaluated the carrying value of our goodwill balance and concluded that no impairment existed.

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