What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-22 compared with 2024-07-23 · 209 added, 217 removed, 309 unchanged (58% 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 30, 2024, 74% of our $35.3 billion in net sales were from the U.S.

During the nine months ended September 29, 2024, 74% of our $52.4 billion in net sales were from the U.S.

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

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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.

This legislation reflects the Fiscal Responsibility Act of 2023 (FRA) spending limit of $886 billion for National Defense, of which $842 billion was for the DoD base budget.

The President’s FY 2025 budget request was submitted to Congress on March 11, 2024, initiating the FY 2025 defense authorization and appropriations legislative process.

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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.

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.

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Supplemental funding legislation is not subject to the FRA limits.

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

The House Armed Services and Appropriations Committees marked the FY25 Defense budget consistent with the FY25 President’s Budget Request (PBR) and Congressionally mandated budget caps established by the FRA with a topline of $849.8 billion.

The Senate Armed Services and Appropriations Committees did not adhere to the FRA spending caps and marked budgets above the PBR, with the committees providing between a $21 billion and $25 billion increase over the PBR level.

Regardless of toplines, all four bills support additional funding for several of our programs, spread across our four business areas.

A Continuing Resolution (CR) passed the House and Senate on September 25, 2024 and was signed by the President on September 26, 2024.

The bill funds U.S.

Government operations through December 20, 2024.

After the November 2024 election, Congress will return to the task of funding the U.S.

Government for the balance of the FY 2025.

Significant differences that must be resolved include the different allocations as noted above and policy matters that arose during consideration of the CR and the underlying bills.

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

For example, in 2024, our Missiles and Fire Control business segment expects to begin realizing higher year over year sales from the production ramp up associated with munitions replenishment.

We continue to work with the U.S.

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These issues have delayed certain customer deliveries, have been a limiting factor on our ability to ramp up production in response to customer demand for certain products and have caused out-of-sequence manufacturing, which increases costs and decreases operational efficiency.

In addition, elevated levels of inflation and macro-economic conditions present risks for Lockheed Martin, our suppliers and the stability of the broader defense industrial base.

In addition, elevated levels of inflation and macroeconomic conditions present risks for us, our suppliers and the stability of the broader defense industrial base.

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

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

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

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

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

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

Quarters Ended Six Months Ended

2024 June 25,

2023 June 30,

2024 June 25,

Quarters Ended Nine Months Ended

September 29,

2024 September 24,

2023 September 29,

2024 September 24,

Net sales $ 17,104 $ 16,878 $ 52,421 $ 48,697

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Gross profit 2,117 2,048 6,240 6,184

Other income, net 18 45 54 36

Other income (expense), net 23 (6) 77 30

Operating profit 2,140 2,042 6,317 6,214

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Non-service FAS pension income 16 111 47 332

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

Other non-operating income, net 18 37 109 69

Earnings before income taxes 1,918 1,953 5,701 5,953

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Diluted earnings per common share $ 6.80 $ 6.73 $ 20.05 $ 19.97

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.

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

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

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

Quarters Ended Six Months Ended

2024 June 25,

2023 June 30,

2024 June 25,

Quarters Ended Nine Months Ended

September 29,

2024 September 24,

2023 September 29,

2024 September 24,

Products $ 14,472 $ 14,014 $ 43,777 $ 40,298

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Product Sales

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.

Product sales increased $458 million, or 3%, during the quarter ended September 29, 2024, compared to the same period in 2023.

The increase was primarily attributable to higher product sales of $305 million at RMS and $200 million at MFC.

Higher product sales at RMS were due to higher volume across the integrated warfare systems and sensors (IWSS) portfolio.

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

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.

Product sales increased $3.5 billion, or 9%, during the nine months ended September 29, 2024, compared to the same period in 2023.

The increase was primarily attributable to higher product sales of $1.4 billion at RMS, $1.1 billion at MFC and $775 million at Aeronautics.

Higher product sales at RMS were primarily within the IWSS portfolio due to higher volume on radar programs and new program ramp up within the laser systems portfolio.

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

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

Higher product sales at Aeronautics were due to higher volume on F-35 and F-16 production contracts along with growth on classified programs.

Service Sales

Service sales 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 C6ISR programs.

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

Service sales decreased $232 million, or 8%, during the quarter ended September 29, 2024, compared to the same period in 2023.

The decrease was primarily attributable to lower service sales of approximately $240 million at Aeronautics due to lower volume on F-35 sustainment contracts.

Service sales increased $245 million, or 3%, during the nine months ended September 29, 2024, compared to the same period in 2023.

The increase was primarily attributable to higher service sales of approximately $135 million at Space and $55 million at RMS.

Higher service sales at Space were due to higher volume on national security space services, while higher service sales at RMS were due to higher volume across the portfolio.

Cost of Sales

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

Quarters Ended Six Months Ended

2024 June 25,

2023 June 30,

2024 June 25,

Quarters Ended Nine Months Ended

September 29,

2024 September 24,

2023 September 29,

2024 September 24,

Cost of sales – products $ (12,964) $ (12,571) $ (39,368) $ (35,960)

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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 $1.3 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”.

Product costs increased $393 million, or 3%, during the quarter ended September 29, 2024, compared to the same period in 2023.

The increase was primarily attributable to higher product costs of approximately $290 million at RMS and $145 million at MFC due to higher volume and production ramp up as described above in “Product Sales”.

Product costs increased $3.4 billion, or 9%, during the nine months ended September 29, 2024, compared to the same period in 2023.

The increase was primarily attributable to higher product costs of approximately $1.4 billion at RMS, $1.1 billion at MFC and $795 million at Aeronautics.

Higher product costs at RMS and MFC were due to production ramp up and higher volume as described above in “Product Sales”.

Higher product costs at Aeronautics was due to higher volume as described above in “Product Sales” and unfavorable profit rate adjustments on a classified program because of higher than anticipated costs to achieve program objectives.

Service Costs

Service costs decreased $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”.

Service costs decreased $238 million, or 9%, during the quarter ended September 29, 2024, compared to the same period in 2023.

The decrease was primarily attributable to lower service costs $240 million at Aeronautics.

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

Service costs during the nine months ended September 29, 2024 were comparable to the same period in 2023.

Service costs at RMS in 2023 included an unfavorable profit adjustment on the Canadian Maritime Helicopter Program (CMHP) that did not recur in 2024, which was offset by higher volume at Space as described above in “Service Sales”.

Impairment and Severance Charges

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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 $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.

Other unallocated, net reduced cost of sales by $249 million and $731 million during the quarter and nine months ended September 29, 2024, compared to $251 million and $883 million during the quarter and nine months ended September 24, 2023.

The decrease in other unallocated, net was primarily due to lower gains from the changes in the fair value of assets and liabilities related to deferred compensation plans during the nine months ended September 29, 2024 compared to the same periods in 2023 and fluctuations in costs associated with various corporate items, none of which were individually significant.

Other Income (Expense), Net

Other income, net was $23 million and $77 million during the quarter and nine months ended September 29, 2024, compared to other expense, net of $6 million and other income, net of $30 million during the quarter and nine months ended September 24, 2023.

Other income (expense), net, primarily includes earnings generated by equity method investees, as well as gains or losses for acquisitions, divestitures, and other items, none of which are individually significant.

Interest Expense

Interest expense was $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.

Interest expense was $256 million and $772 million and $237 million and $662 million during the quarters and nine months ended September 29, 2024 and September 24, 2023.

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

Non-service FAS pension income

Non-service FAS pension income was $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 (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.

Non-service FAS pension income was $16 million and $47 million and $111 million and $332 million during the quarters and nine months ended September 29, 2024 and September 24, 2023.

The decrease was primarily due to a

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

Other non-operating income, net

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

Other non-operating income, net was $18 million and $109 million and $37 million and $69 million during the quarters and nine months ended September 29, 2024 and September 24, 2023.

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

Income Tax Expense

Our effective income tax rates were 15.8% 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.

Our effective income tax rates were 15.4% and 15.6% for the quarter and nine months ended September 29, 2024 and 13.8% and 15.1% for the quarter and nine months ended September 24, 2023.

The rate for the third quarter 2024 was higher than the rate for the third quarter 2023 primarily due to additional research and development tax credits that were claimed for years prior to 2023 reflected in the 2023 rate.

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

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The Organisation for Economic Co-operation and Development (OECD) has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as Pillar 2), with certain aspects of Pillar 2 effective January 1, 2024 and other aspects effective January 1, 2025.

While it is uncertain whether the U.S.

will enact legislation to adopt Pillar 2, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar 2.

While it is uncertain whether the United States will enact legislation to adopt Pillar 2, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar 2.

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

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.

We reported net earnings of $1.6 billion ($6.80 per share) and $4.8 billion ($20.05 per share) during the quarter and nine months ended September 29, 2024, compared to $1.7 billion ($6.73 per share) and $5.1 billion ($19.97 per share) during the quarter and nine months ended September 24, 2023.

Net earnings and earnings per share for the quarter and nine months ended September 29, 2024 were affected by the factors mentioned above.

Earnings per share also benefited from a net decrease of approximately 11.6 million and 13.2 million weighted average common shares outstanding during the quarter and nine months ended September 29, 2024, compared to the same periods in 2023.

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

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

Quarters Ended Six Months Ended

2024 June 25,

2023 June 30,

2024 June 25,

Quarters Ended Nine Months Ended

September 29,

2024 September 24,

2023 September 29,

2024 September 24,

Aeronautics $ 6,487 $ 6,717 $ 20,609 $ 19,861

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Impairment and severance charges (a)

(87) — (87) —

Intangible asset amortization expense (61) (61) (183) (185)

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(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.

Government Cost Accounting Standards (CAS), which we refer to as CAS pension cost.

Our business segments’ results of operations include pension expense only as calculated under CAS, which we refer to as CAS pension cost.

We recover CAS pension and other postretirement benefit plan cost through the pricing of our products and services on U.S.

Government contracts and, therefore, recognize CAS pension cost in each of our business segment’s net sales and cost of sales.

Government contracts and, therefore, recognize CAS pension cost in each of our business segments’ net sales and cost of sales.

Our consolidated financial statements must present pension and other postretirement benefit plan income calculated in accordance with Financial Accounting Standards (FAS) requirements under U.S.

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

Quarters Ended Six Months Ended

2024 June 25,

2023 June 30,

2024 June 25,

Quarters Ended Nine Months Ended

September 29,

2024 September 24,

2023 September 29,

2024 September 24,

Total FAS income and CAS cost

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and losses on sales of certain assets.

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.

Our consolidated net profit booking rate adjustments increased segment operating profit by approximately $375 million and $990 million during the quarter and nine months ended September 29, 2024 and $335 million and $1.1 billion during the quarter and nine months ended September 24, 2023.

The impact to the quarter ended September 29, 2024 segment operating profit includes losses of $80 million on a classified program at our Aeronautics business segment resulting in total losses of $145 million on this classified program for the nine months ended September 29, 2024.

The impact to the nine months ended September 29, 2024 segment operating profit also includes a reach-forward loss of $100 million recognized in the first quarter of 2024 on a classified program at our MFC business segment.

The impact to the nine months ended September 24, 2023 included an unfavorable profit adjustment of $100 million on CMHP and a $65 million favorable profit adjustment as a result of a positive resolution of a contractual matter on an international surveillance and control program at our RMS business segment.

See the discussions under “Contract Estimates” in “Note 10 - Other” included in our Notes to Consolidated Financial Statements (pages 24-25).

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

Quarters Ended Six Months Ended

2024 June 25,

2023 June 30,

2024 June 25,

Quarters Ended Nine Months Ended

September 29,

2024 September 24,

2023 September 29,

2024 September 24,

Net sales $ 6,487 $ 6,717 $ 20,609 $ 19,861

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Operating margin 10.2 % 10.0 % 10.1 % 10.4 %

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;

Aeronautics’ net sales during the quarter ended September 29, 2024 decreased $230 million , or 3% , compared to the same period in 2023.

The decrease was primarily attributable to lower net sales of $480 million on the F-35 program due to lower volume on production contracts as a result of delays in receiving additional contractual authorization and funding under the Lots 18-19 contract.

This decrease was partially offset by higher net sales of $120 million on the C-130 program primarily due to higher volume on production and sustainment contracts;

and $85 million on the F-16 program due to the ramp up on production.

Aeronautics’ operating profit during the quarter ended 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.

Aeronautics’ operating profit during the quarter ended September 29, 2024 decreased $12 million, or 2%, compared to the same period in 2023.

The decrease in operating profit was attributable to $25 million from lower volume described above and $20 million from unfavorable contract mix, partially offset by $30 million of higher profit booking rate adjustments.

The increase in profit booking rate adjustments included an $85 million favorable profit rate adjustment for a claim associated with a contract to modernize and install new engines in C-5 Galaxy aircraft, partially offset by $80 million of unfavorable profit rate adjustments on a classified program due to higher than anticipated costs to achieve program objectives .

Aeronautics’ net sales during the nine months ended September 29, 2024 increased $748 million, or 4%, compared to the same period in 2023.

The increase was primarily attributable to higher net sales of $250 million on the F-16 program due to the ramp up on production;

$185 million on classified programs driven by higher volume;

and $160 million on the F-35 program due to higher volume on development and sustainment contracts.

These increases were partially offset by lower volume on production contracts as a result of delays in receiving additional contractual authorization and funding under the Lots 18-19 contract.

Aeronautics’ operating profit during the nine months ended September 29, 2024 increased $25 million , or 1%, compared to the same period in 2023.

The increase in operating profit was attributable to $70 million from higher volume and program ramp up described above, partially offset by $35 million of lower profit booking rate adjustments.

The decrease in profit booking rate adjustments was due to 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.

The decrease in profit booking rate adjustments was due to $145 million of unfavorable profit rate adjustments on a classified program because of higher than anticipated costs to achieve program objectives, partially offset by an $85 million favorable profit rate adjustment for a claim associated with a C-5 Galaxy contract as described above.

Missiles and Fire Control

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

Quarters Ended Six Months Ended

2024 June 25,

2023 June 30,

2024 June 25,

Quarters Ended Nine Months Ended

September 29,

2024 September 24,

2023 September 29,

2024 September 24,

Net sales $ 3,175 $ 2,939 $ 9,270 $ 8,082

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Operating margin 14.4 % 13.5 % 13.1 % 14.2 %

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

MFC’s net sales during the quarter ended September 29, 2024 increased $236 million , or 8% , compared to the same period in 2023.

The increase was primarily attributable to higher net sales of $285 million for tactical and strike missile programs due to production ramp up on Guided Multiple Launch Rocket Systems (GMLRS) and Long Range Anti-Ship Missile (LRASM) programs.

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.

This increase was partially offset by lower net sales of $90 million for integrated air and missile defense programs due to lower volume on Patriot Advanced Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD).

MFC’s operating profit during the quarter ended September 29, 2024 increased $58 million, or 15%, compared to the same period in 2023.

The increase in operating profit was attributable to $35 million of higher profit booking rate adjustments and $20 million from volume described above.

The increase in profit booking rate adjustments was primarily due to higher favorable profit rate adjustments on PAC-3 as a result of better than anticipated cost performance.

MFC’s net sales during the nine months ended September 29, 2024 increased $1.2 billion, or 15%, compared to the same period in 2023.

The increase was primarily attributable to higher net sales of $1.1 billion for tactical and strike missile programs due to production ramp up on GMLRS, LRASM and Javelin programs.

MFC’s operating profit during the nine months ended September 29, 2024 increased $71 million, or 6%, compared to the same period in 2023.

The increase in operating profit was attributable to $130 million from the production ramp up described above, partially offset by $55 million related to unfavorable contract mix .

P rofit booking rate adjustments were comparable as a $100 million reach-forward loss recognized in the first quarter of 2024 for an option on a classified program was offset by higher favorable profit rate adjustments, primarily on PAC-3 and multiple sensors and global sustainment programs due to better than anticipated cost performance.

Rotary and Mission Systems

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

Quarters Ended Six Months Ended

2024 June 25,

2023 June 30,

2024 June 25,

Quarters Ended Nine Months Ended

September 29,

2024 September 24,

2023 September 29,

2024 September 24,

Net sales $ 4,367 $ 4,121 $ 13,003 $ 11,528

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Operating margin 11.1 % 11.7 % 10.8 % 11.2 %

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.

RMS’ net sales during the quarter ended September 29, 2024 increased $246 million, or 6%, compared to the same period in 2023.

The increase was primarily attributable to higher net sales of $185 million on integrated warfare systems and sensors (IWSS) programs due to higher volume on radar programs and the Canadian Surface Combatant (CSC) program;

and $50 million for Sikorsky helicopter programs due to higher production volume on CH-53K, Seahawk and Black Hawk programs.

RMS’ operating profit during the quarter ended September 29, 2024 was comparable to the same period in 2023 as a $25 million increase due to the higher volume described above was offset by $25 million of lower profit booking rate adjustments.

The decrease in profit booking rate adjustments was primarily due to a reach-forward loss recognized on a radar program as a result of additional quantity ordering risk identified on fixed-price options.

RMS’ net sales during the nine months ended September 29, 2024 increased $1.5 billion, or 13%, compared to the same period in 2023.

The increase was primarily attributable to higher net sales of $900 million on IWSS programs due to higher volume on radar programs and the CSC program, and new program ramp up within the laser systems portfolio;

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and $250 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.

RMS’ operating profit during the nine months ended September 29, 2024 increased $122 million, or 9%, compared to the same period in 2023.

The increase in operating profit was attributable to $145 million from higher volume and program ramp up described above and $10 million from favorable contract mix, partially offset by $75 million of lower profit booking rate adjustments.

The decrease in profit booking rate adjustments was due to unfavorable profit 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.

The decrease in profit booking rate adjustments was due to unfavorable profit rate adjustments on Seahawk and Black Hawk production programs, partially offset by the net impact in 2023 of both a $100 million unfavorable profit rate adjustment on CMHP and a $65 million favorable profit rate adjustment on an international surveillance and control program that did not recur in 2024.

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

Quarters Ended Six Months Ended

2024 June 25,

2023 June 30,

2024 June 25,

Quarters Ended Nine Months Ended

September 29,

2024 September 24,

2023 September 29,

2024 September 24,

Net sales $ 3,075 $ 3,101 $ 9,539 $ 9,226

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Operating margin 8.8 % 8.4 % 9.9 % 9.2 %

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.

Space’s net sales during the quarter ended September 29, 2024 decreased $26 million, or 1%, compared to the same period in 2023.

The decrease was primarily attributable to lower net sales of $50 million for commercial civil space due to lower volume on the Orion program, partially offset by higher volume on other space exploration programs.

This decrease was partially offset by higher net sales of $25 million for strategic and missile defense programs due to higher volume on reentry programs.

Space’s operating profit during the quarter ended September 29, 2024 increased $13 million, or 5%, compared to the same period in 2023.

The increase in operating profit was attributable to $25 million related to favorable contract mix across the portfolio, partially offset by $10 million of lower equity earnings driven by lower launch volume from our investment in United Launch Alliance (ULA).

P rofit booking rate adjustments were comparable .

Space’s net sales during the nine months ended September 29, 2024 increased $313 million , or 3%, compared to the same period in 2023.

The increase was primarily attributable to higher net sales of $270 million for strategic and missile defense programs due to higher volume on the hypersonics and FBM programs;

and higher net sales of $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.

and higher net sales of $35 million for national security space programs due to higher volume on Transport Layer programs and ramp up on the Tracking Layer program, partially offset by lower volume on classified programs.

These increases were partially offset by lower net sales of $70 million for commercial civil space due to lower volume and the impact of lower favorable profit adjustments on the Orion program, partially offset by higher volume on other space exploration programs.

Space’s operating profit during the nine months ended September 29, 2024 increased $92 million, or 11%, compared to the same period in 2023.

The increase was primarily attributable to $70 million related to favorable contract mix across the portfolio and $25 million from higher volume and program ramp up described above.

Additionally, profit booking rate adjustments were $10 million lower due to lower net favorable profit adjustments on the Orion program.

Total equity earnings (ULA) represented approximately $5 million, or 2%, and $30 million, or 3%, of Space's operating profit during the quarter and nine months ended September 29, 2024, compared to approximately $15 million, or 6%, and $20 million, or 2% for the same periods in 2023.

FINANCIAL CONDITION

Liquidity and Capital Resources

At 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.

At September 29, 2024, we had cash and cash equivalents of $3.2 billion that was generally available to fund ordinary business operations without significant legal, regulatory or other restrictions.

Our principal source of liquidity is our cash from operations.

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

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

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.

This access includes our $3.0 billion revolving credit facility or the ability to issue commercial paper (see “Note 10 - Other” included in our Notes to Consolidated Financial Statements for additional information).

There were no borrowings outstanding under the revolving credit facility and commercial paper at both September 29, 2024 and December 31, 2023.

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

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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 30, 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 nine months ended September 29, 2024, as we are authorized to bill as the costs are incurred.

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

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

Government has indicated that it would consider progress payments as the baseline for negotiating payment terms on fixed-price contracts, rather than performance-based payments.

In contrast to negotiated performance-based payment terms, progress payment provisions correspond to a percentage of the amount of costs incurred during the performance of the contract and are invoiced regularly as costs are incurred.

Our cash flows may be affected if the U.S.

Government changes its payment policies.

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

In October 2024, the Board of Directors authorized a fourth quarter dividend payment of $3.30 per share, representing an increase of $0.15 per share over the prior quarterly dividend payment.

The Board of Directors also authorized an increase of $3.0 billion to our share repurchase program in addition to the $7.3 billion remaining authorization under our program as of September 29, 2024.

The stock repurchase program does not have an expiration date and may be amended or terminated by the Board of Directors at any time.

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Future pension risk transfer transactions could be significant and result in us making additional contributions to the pension trust.

The required funding of our qualified defined benefit pension plans is determined in accordance with the Employee Retirement Income Security Act of 1974 (ERISA), as amended, and Cost Accounting Standards (CAS).

The required funding of our qualified defined benefit pension plans is determined in accordance with the Employee Retirement Income Security Act of 1974 (ERISA), as amended, and CAS.

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

We may also make additional contributions at our discretion.

There were no material changes during the quarter or 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.

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

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

On August 15, 2024, we entered into an agreement to acquire all of the outstanding shares of Terran Orbital Corporation (Terran).

Under the terms of the agreement, we expect to pay approximately $300 million, net of cash acquired, to close the transaction.

The transaction is expected to close in the fourth quarter of 2024 and is subject to the satisfaction of customary closing conditions, including regulatory and Terran stockholder approvals.

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

Six Months Ended

2024 June 25,

Nine Months Ended

September 29,

2024 September 24,

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

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Operating Activities

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).

Net cash provided by operating activities during the nine months ended September 29, 2024 increased $394 million compared to the same period in 2023.

The increase was primarily due to lower federal tax payments, partially offset by a decrease in working capital (defined as receivables, contract assets, and inventories less accounts payable and contract liabilities), which includes the cash impacts for the lack of additional contractual authorization and funding from the U.S.

Government prior to the end of the third quarter of 2024 on the Lot 18-19 contract of the F-35 program.

Non-GAAP Financial Measure - Free Cash Flow

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

Six Months Ended

2024 June 25,

Nine Months Ended

September 29,

2024 September 24,

Cash from operations $ 5,949 $ 5,555

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Investing Activities

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.

Net cash used for investing activities during the nine months ended September 29, 2024 decreased $37 million compared to the same period in 2023, primarily due to proceeds from the sale of our Commercial Engine Solutions (CES) business.

Capital expenditures totaled $1.1 billion and $987 million during the nine months ended September 29, 2024 and September 24, 2023.

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

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Financing Activities

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.

Net cash used for financing activities during the nine months ended September 29, 2024 increased $274 million compared to the same period in 2023 .

During the nine months ended September 29, 2024 and September 24, 2023, we paid dividends totaling $2.3 billion ($9.45 per share) and $2.3 billion ($9.00 per share).

During the nine months ended September 29, 2024, we paid $2.7 billion to repurchase 5.7 million shares of our common stock.

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

During the 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.

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

During the nine months ended September 29, 2024 and September 24, 2023, we received net proceeds of $2.0 billion from issuance of senior unsecured notes.

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

During the 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.

During the nine months ended September 29, 2024, we repaid $168 million of long-term notes with a fixed interest rate of 8.375% according to their scheduled maturities.

OTHER MATTERS

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Production of the aircraft is expected to continue for many years given the U.S.

Government’s objective of 2,456 aircraft for the U.S.

Government’s objective of procuring 2,456 aircraft for the U.S.

Air Force, U.S.

Marine Corps, and U.S.

commitments from our seven international partner countries and ten Foreign Military Sales (FMS) customers;

as well as interest from other countries.

We continue to see strong international demand for the F-35.

In December 2023, the Republic of Korea announced it signed a follow-on Letter of offer and acceptance (LOA) for 20 additional F-35s, increasing its program of record from 40 to 60.

In January 2024, the Czech Republic signed a LOA to procure 24 F-35s and the U.S.

Department of State approved a potential Foreign Military Sale to Greece for up to 40 F-35s.

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 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 also have commitments from seven international partner countries and eleven Foreign Military Sales (FMS) customers.

We continue to see strong international demand for the F-35, with the Czech Republic signing an LOA in January 2024 to procure 24 F-35s, Singapore announcing in February 2024 its intent to purchase eight additional F-35s, and Greece signing an LOA in July 2024 to procure 20 F-35s, becoming the 19th nation to join the F-35 program.

We expect international interest to continue to expand in the coming years.

From program inception through September 29, 2024, we have delivered 1,040 production F-35 aircraft, including 748 F-35A variants, 197 F-35B variants and 95 F-35C variants, and our backlog as of that date was 325 aircraft, demonstrating the F-35 program’s continued progress and longevity.

We resumed F-35 deliveries in the third quarter of 2024, after delivering none in the first half of the year, and delivered 44 Technology Refresh 3 (“TR-3”) configured aircraft and four TR-2 configured aircraft in the quarter.

We anticipate delivering between 90 and 110 F-35 aircraft in 2024, inclusive of the aircraft delivered in the third quarter.

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

The F-35 program is significant and complex and we and our customers continually review aircraft performance, program and delivery schedule, cost and supply chain issues, and requirements as part of our internal program management efforts and the DoD, Congressional and international countries’ oversight and budgeting processes.

Areas of particular focus currently include Lockheed Martin’s and our suppliers’ performance, software maturation related to TR-3 capability and software development more generally, flight test execution, cost of life cycle operations, sustainment, inflation-related cost and supply chain-related cost and schedule pressures, and efforts to increase affordability.

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.

Areas of focus include Lockheed Martin’s and our suppliers’ performance, software development (including, in particular, software maturation related to TR-3 capability), and flight test execution and related findings.

Additional areas of focus include the level of cost associated with life cycle operations, sustainment and potential contractual obligations, inflation-related cost pressures, and the ability to increase affordability.

Government on the Lots 18-19 production contract.

Although negotiations for this contract are in process, we have been performing work on Lots 18-19 production under initial customer authorization and funding to begin work pursuant to an advance acquisition contract received in the fourth quarter of 2023.

We and our industry team continue work in an effort to meet our customer’s desired aircraft delivery dates for the Lots 18-19 aircraft.

Our costs began to exceed the advance acquisition contract value and related funding late in the third quarter of 2024.

Typically, we recognize revenue on the F-35 program as work is performed.

However, we are unable to recognize revenue in excess of the advance acquisition contract value (refer to our revenue recognition policy in our 2023 Form 10-K), which prevented the recognition of revenue and profit on approximately $400 million of costs incurred on the program in the third quarter of 2024, with at least an additional $300 million of impacts across the supply chain.

Additionally, we were prevented from invoicing and receiving cash of approximately $450 million through the third quarter of 2024.

At the end of the third quarter of 2024, we also had approximately $2 billion in potential termination liability exposure to third parties related to Lots 18-19 (some of which would be recoverable in the unlikely event of a termination).

Currently, we expect to receive contractual authorization and funding on the Lots 18-19 production contract with the U.S.

Government and resume invoicing costs incurred and recover sales, profit, and cash in the fourth quarter of 2024.

However, until a final agreement is reached, or the U.S.

Government otherwise provides additional contractual authorization and funding, our results of operations, cash flows, and financial condition will continue to be negatively impacted, and the impacts could be material.

Contingencies

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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.

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

Army announcement to cancel the Future Attack Reconnaissance Aircraft (FARA) program at the conclusion of fiscal year 2024 in our Form 10-Q for the quarter ended June 30, 2024.

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