Item 1. Financial Statements
ITEM 1. Financial Statements
Lockheed Martin Corporation
Consolidated Statements of Earnings
(unaudited; in millions, except per share data)
Quarters Ended Nine Months Ended
September 29,
2024 September 24,
2023 September 29,
2024 September 24,
2023
Net sales
Products $ 14,472 $ 14,014 $ 43,777 $ 40,298
Services 2,632 2,864 8,644 8,399
Total net sales 17,104 16,878 52,421 48,697
Cost of sales
Products ( 12,964 ) ( 12,571 ) ( 39,368 ) ( 35,960 )
Services ( 2,272 ) ( 2,510 ) ( 7,457 ) ( 7,436 )
Impairment and severance charges — — ( 87 ) —
Other unallocated, net 249 251 731 883
Total cost of sales ( 14,987 ) ( 14,830 ) ( 46,181 ) ( 42,513 )
Gross profit 2,117 2,048 6,240 6,184
Other income (expense), net 23 ( 6 ) 77 30
Operating profit 2,140 2,042 6,317 6,214
Interest expense ( 256 ) ( 237 ) ( 772 ) ( 662 )
Non-service FAS pension income 16 111 47 332
Other non-operating income, net 18 37 109 69
Earnings before income taxes 1,918 1,953 5,701 5,953
Income tax expense ( 295 ) ( 269 ) ( 892 ) ( 899 )
Net earnings $ 1,623 $ 1,684 $ 4,809 $ 5,054
Earnings per common share
Basic $ 6.83 $ 6.75 $ 20.12 $ 20.04
Diluted $ 6.80 $ 6.73 $ 20.05 $ 19.97
Cash dividends paid per common share $ 3.15 $ 3.00 $ 9.45 $ 9.00
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Lockheed Martin Corporation
Consolidated Statements of Comprehensive Income
(unaudited; in millions)
Quarters Ended Nine Months Ended
September 29,
2024 September 24,
2023 September 29,
2024 September 24,
2023
Net earnings $ 1,623 $ 1,684 $ 4,809 $ 5,054
Other comprehensive income, net of tax
Postretirement benefit plans
Amortization of actuarial losses and prior service credits, net of tax expense of $ 6 million and $ 16 million in 2024 and $ 10 million and $ 30 million in 2023
19 ( 37 ) 57 ( 111 )
Other, net, net of tax benefits of $ 3 million and expense of $ 5 million in 2024 and expense of $ 5 million and $ 4 million in 2023
57 ( 30 ) 53 ( 12 )
Other comprehensive income (loss), net of tax 76 ( 67 ) 110 ( 123 )
Comprehensive income $ 1,699 $ 1,617 $ 4,919 $ 4,931
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Lockheed Martin Corporation
Consolidated Balance Sheets
(in millions, except par value)
September 29,
2024 December 31,
2023
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 3,151 $ 1,442
Receivables, net 2,141 2,132
Contract assets 14,224 13,183
Inventories 3,234 3,132
Other current assets 461 632
Total current assets 23,211 20,521
Property, plant and equipment, net 8,454 8,370
Goodwill 10,800 10,799
Intangible assets, net 1,979 2,212
Deferred income taxes 3,105 2,953
Other noncurrent assets 7,971 7,601
Total assets $ 55,520 $ 52,456
Liabilities and equity
Current liabilities
Accounts payable $ 3,221 $ 2,312
Salaries, benefits and payroll taxes 3,076 3,133
Contract liabilities 9,051 9,190
Current maturities of long-term debt 142 168
Other current liabilities 2,320 2,134
Total current liabilities 17,810 16,937
Long-term debt, net 19,179 17,291
Accrued pension liabilities 6,077 6,162
Other noncurrent liabilities 5,254 5,231
Total liabilities 48,320 45,621
Stockholders’ equity
Common stock, $ 1 par value per share
236 240
Additional paid-in capital — —
Retained earnings 15,657 15,398
Accumulated other comprehensive loss ( 8,693 ) ( 8,803 )
Total stockholders’ equity 7,200 6,835
Total liabilities and equity $ 55,520 $ 52,456
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Lockheed Martin Corporation
Consolidated Statements of Cash Flows
(unaudited; in millions)
Nine Months Ended
September 29,
2024 September 24,
2023
Operating activities
Net earnings $ 4,809 $ 5,054
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization 1,100 1,009
Stock-based compensation 229 221
Deferred income taxes ( 174 ) ( 395 )
Impairment and severance charges 87 —
Changes in assets and liabilities
Receivables, net ( 9 ) 100
Contract assets ( 1,041 ) ( 1,287 )
Inventories ( 102 ) ( 224 )
Accounts payable 970 1,731
Contract liabilities ( 139 ) ( 552 )
Income taxes 66 ( 81 )
Qualified defined benefit pension plans ( 2 ) ( 283 )
Other, net 155 262
Net cash provided by operating activities 5,949 5,555
Investing activities
Capital expenditures ( 1,103 ) ( 987 )
Other, net 149 ( 4 )
Net cash used for investing activities ( 954 ) ( 991 )
Financing activities
Issuance of long-term debt, net of related costs 1,980 1,975
Repayments of long-term debt ( 168 ) ( 115 )
Repurchases of common stock ( 2,700 ) ( 3,000 )
Dividends paid ( 2,281 ) ( 2,289 )
Other, net ( 117 ) ( 131 )
Net cash used for financing activities ( 3,286 ) ( 3,560 )
Net change in cash and cash equivalents 1,709 1,004
Cash and cash equivalents at beginning of period 1,442 2,547
Cash and cash equivalents at end of period $ 3,151 $ 3,551
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Lockheed Martin Corporation
Consolidated Statements of Equity
For the Quarters Ended September 29, 2024 and September 24, 2023
(unaudited; in millions)
Common
Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Loss Total
Equity
Balance at June 30, 2024 $ 237 $ — $ 14,707 $ ( 8,769 ) $ 6,175
Net earnings — — 1,623 — 1,623
Other comprehensive income, net of tax — — — 76 76
Dividends declared — — 4 — 4
Repurchases of common stock ( 2 ) ( 171 ) ( 677 ) — ( 850 )
Stock-based awards, ESOP activity and other 1 171 — — 172
Balance at September 29, 2024 $ 236 $ — $ 15,657 $ ( 8,693 ) $ 7,200
Balance at June 25, 2023 $ 251 $ — $ 17,068 $ ( 8,079 ) $ 9,240
Net earnings — — 1,684 — 1,684
Other comprehensive loss, net of tax — — — ( 67 ) ( 67 )
Dividends declared — — 11 — 11
Repurchases of common stock ( 4 ) ( 49 ) ( 1,697 ) — ( 1,750 )
Stock-based awards, ESOP activity and other — 156 — — 156
Balance at September 24, 2023 $ 247 $ 107 $ 17,066 $ ( 8,146 ) $ 9,274
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Lockheed Martin Corporation
Consolidated Statements of Equity
For the Nine Months Ended September 29, 2024 and September 24, 2023
(unaudited; in millions)
Common
Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Loss Total
Equity
Balance at December 31, 2023 $ 240 $ — $ 15,398 $ ( 8,803 ) $ 6,835
Net earnings — — 4,809 — 4,809
Other comprehensive income, net of tax
— — — 110 110
Dividends declared — — ( 2,273 ) — ( 2,273 )
Repurchases of common stock ( 6 ) ( 417 ) ( 2,277 ) — ( 2,700 )
Stock-based awards, ESOP activity and other
2 417 — — 419
Balance at September 29 2024 $ 236 $ — $ 15,657 $ ( 8,693 ) $ 7,200
Balance at December 31, 2022 $ 254 $ 92 $ 16,943 $ ( 8,023 ) $ 9,266
Net earnings — — 5,054 — 5,054
Other comprehensive loss, net of tax — — — ( 123 ) ( 123 )
Dividends declared — — ( 2,280 ) — ( 2,280 )
Repurchases of common stock ( 8 ) ( 341 ) ( 2,651 ) — ( 3,000 )
Stock-based awards, ESOP activity and other
1 356 — — 357
Balance at September 24, 2023 $ 247 $ 107 $ 17,066 $ ( 8,146 ) $ 9,274
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited)
NOTE 1 - BASIS OF PRESENTATION
We prepared these consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information, the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission (SEC) Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.
In the opinion of management, these consolidated financial statements reflect all adjustments that are of a normal recurring nature necessary for a fair presentation of our results of operations, financial condition, and cash flows for the interim periods presented. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base these estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially from these estimates. Significant estimates inherent in the preparation of our consolidated financial statements include, but are not limited to, accounting for sales and cost recognition; postretirement benefit plans; environmental liabilities and assets for the portion of environmental costs that are probable of future recovery; evaluation of goodwill, intangible assets, investments and other assets for impairment; income taxes including deferred tax assets; fair value measurements; and contingencies. The consolidated financial statements include the accounts of subsidiaries we control and variable interest entities if we are the primary beneficiary. We eliminate intercompany balances and transactions in consolidation.
We close our books and records on the last Sunday of each interim calendar quarter, which was on September 29 for the third quarter of 2024 and September 24 for the third quarter of 2023, to align our financial closing with our business processes. The consolidated financial statements and tables of financial information included herein are labeled based on that convention. This practice only affects interim periods; our fiscal year ends on December 31.
The results of operations for the interim periods presented are not necessarily indicative of results to be expected for the full year or future periods. Unless otherwise noted, we present all per share amounts cited in these consolidated financial statements on a “per diluted share” basis. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023 (2023 Form 10-K).
NOTE 2 - EARNINGS PER COMMON SHARE
The weighted average number of shares outstanding used to compute earnings per common share were as follows (in millions):
Quarters Ended Nine Months Ended
September 29,
2024 September 24,
2023 September 29,
2024 September 24,
2023
Weighted average common shares outstanding for basic computations 237.5 249.3 239.0 252.2
Weighted average dilutive effect of equity awards
1.1 0.9 0.9 0.9
Weighted average common shares outstanding for diluted computations
238.6 250.2 239.9 253.1
We compute basic and diluted earnings per common share by dividing net earnings by the respective weighted average number of common shares outstanding for the periods presented. Our calculation of diluted earnings per common share also includes the dilutive effects for the assumed vesting of outstanding restricted stock units (RSUs) and performance stock units (PSUs) based on the treasury stock method. There were no significant anti-dilutive equity awards during the quarters and nine months ended September 29, 2024 and September 24, 2023. Basic and diluted weighted average common shares outstanding decreased in 2024 compared to 2023 due to share repurchases. See “Note 9 - Stockholders’ Equity” for more information.
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
NOTE 3 - INFORMATION ON BUSINESS SEGMENTS
Overview
We operate in four business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space. We organize our business segments based on the nature of products and services offered.
Selected Financial Data by Business Segment
Net sales and operating profit of our business segments exclude intersegment sales, cost of sales and profit as these activities are eliminated in consolidation and thus are not included in management’s evaluation of performance of each segment. Business segment operating profit includes our share of earnings or losses from equity method investees as the operating activities of the equity method investees are closely aligned with the operations of our business segments.
Summary operating results for each of our business segments were as follows (in millions):
Quarters Ended Nine Months Ended
September 29,
2024 September 24,
2023 September 29,
2024 September 24,
2023
Net sales
Aeronautics $ 6,487 $ 6,717 $ 20,609 $ 19,861
Missiles and Fire Control 3,175 2,939 9,270 8,082
Rotary and Mission Systems 4,367 4,121 13,003 11,528
Space 3,075 3,101 9,539 9,226
Total net sales $ 17,104 $ 16,878 $ 52,421 $ 48,697
Operating profit
Aeronautics $ 659 $ 671 $ 2,089 $ 2,064
Missiles and Fire Control 456 398 1,217 1,146
Rotary and Mission Systems 483 482 1,408 1,286
Space 272 259 943 851
Total business segment operating profit 1,870 1,810 5,657 5,347
Unallocated items
FAS/CAS pension operating adjustment 406 414 1,218 1,245
Impairment and severance charges (a)
— — ( 87 ) —
Intangible asset amortization expense ( 61 ) ( 61 ) ( 183 ) ( 185 )
Other, net
( 75 ) ( 121 ) ( 288 ) ( 193 )
Total unallocated items 270 232 660 867
Total consolidated operating profit $ 2,140 $ 2,042 $ 6,317 $ 6,214
Intersegment sales
Aeronautics $ 125 $ 62 $ 262 $ 186
Missiles and Fire Control 210 177 616 482
Rotary and Mission Systems 569 518 1,729 1,512
Space 94 97 300 275
Total intersegment sales $ 998 $ 854 $ 2,907 $ 2,455
(a) Impairment and severance charges of $ 87 million ($ 69 million, or $ 0.29 per share, after-tax) include trademark and fixed asset impairments as well as severance c osts recorded in the second quarter of 2024. See “Note 10 - Other” below for additional information.
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
Unallocated Items
Business segment operating profit excludes the FAS/CAS pension operating adjustment discussed below, a portion of corporate costs not considered allowable or allocable to contracts with the U.S. Government under the applicable U.S. Government Cost Accounting Standards (CAS) or Federal Acquisition Regulations (FAR), and other items not considered part of management’s evaluation of segment operating performance such as a portion of management and administration costs, legal fees and settlements, stock-based compensation expense, changes in the fair value of assets and liabilities for deferred compensation plans, retiree benefits, significant severance charges, significant asset impairments, gains or losses from divestitures, intangible asset amortization expense, and other miscellaneous corporate activities. Excluded items are included in the reconciling item “Unallocated items” between operating profit from our business segments and our consolidated operating profit. See “Note 10 - Other” for a discussion related to certain factors that may impact the comparability of net sales and operating profit of our business segments.
FAS/CAS Pension Operating Adjustment
Our business segments’ results of operations include pension expense only as calculated under 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 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. GAAP. 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 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.
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
Disaggregation of Net Sales
Net sales by products and services, contract type, customer, and geographic region were as follows (in millions):
Quarter Ended September 29, 2024
Aeronautics MFC RMS Space Total
Net sales
Products $ 5,550 $ 2,811 $ 3,554 $ 2,557 $ 14,472
Services 937 364 813 518 2,632
Total net sales $ 6,487 $ 3,175 $ 4,367 $ 3,075 $ 17,104
Net sales by contract type
Fixed-price $ 4,276 $ 2,211 $ 2,691 $ 865 $ 10,043
Cost-reimbursable 2,211 964 1,676 2,210 7,061
Total net sales $ 6,487 $ 3,175 $ 4,367 $ 3,075 $ 17,104
Net sales by customer
U.S. Government $ 4,465 $ 2,272 $ 2,867 $ 3,081 $ 12,685
International (a)
1,973 901 1,403 61 4,338
U.S. commercial and other 49 2 97 ( 67 ) 81
Total net sales $ 6,487 $ 3,175 $ 4,367 $ 3,075 $ 17,104
Net sales by geographic region
United States $ 4,514 $ 2,274 $ 2,964 $ 3,014 $ 12,766
Europe 1,047 334 309 18 1,708
Asia Pacific 612 216 632 43 1,503
Middle East 206 333 190 — 729
Other 108 18 272 — 398
Total net sales $ 6,487 $ 3,175 $ 4,367 $ 3,075 $ 17,104
Nine Months Ended September 29, 2024
Aeronautics MFC RMS Space Total
Net sales
Products $ 17,113 $ 8,217 $ 10,500 $ 7,947 $ 43,777
Services 3,496 1,053 2,503 1,592 8,644
Total net sales $ 20,609 $ 9,270 $ 13,003 $ 9,539 $ 52,421
Net sales by contract type
Fixed-price $ 13,805 $ 6,331 $ 7,980 $ 2,690 $ 30,806
Cost-reimbursable 6,804 2,939 5,023 6,849 21,615
Total net sales $ 20,609 $ 9,270 $ 13,003 $ 9,539 $ 52,421
Net sales by customer
U.S. Government $ 14,072 $ 6,680 $ 8,706 $ 9,350 $ 38,808
International (a)
6,422 2,581 4,035 174 13,212
U.S. commercial and other 115 9 262 15 401
Total net sales $ 20,609 $ 9,270 $ 13,003 $ 9,539 $ 52,421
Net sales by geographic region
United States $ 14,187 $ 6,689 $ 8,968 $ 9,365 $ 39,209
Europe 3,528 788 860 55 5,231
Asia Pacific 1,933 583 1,922 114 4,552
Middle East 603 1,153 552 5 2,313
Other 358 57 701 — 1,116
Total net sales $ 20,609 $ 9,270 $ 13,003 $ 9,539 $ 52,421
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
Quarter Ended September 24, 2023
Aeronautics MFC RMS Space Total
Net sales
Products $ 5,538 $ 2,609 $ 3,249 $ 2,618 $ 14,014
Services 1,179 330 872 483 2,864
Total net sales $ 6,717 $ 2,939 $ 4,121 $ 3,101 $ 16,878
Net sales by contract type
Fixed-price $ 4,495 $ 2,017 $ 2,602 $ 796 $ 9,910
Cost-reimbursable 2,222 922 1,519 2,305 6,968
Total net sales $ 6,717 $ 2,939 $ 4,121 $ 3,101 $ 16,878
Net sales by customer
U.S. Government $ 4,547 $ 2,061 $ 2,796 $ 3,055 $ 12,459
International (a)
2,170 875 1,254 24 4,323
U.S. commercial and other — 3 71 22 96
Total net sales $ 6,717 $ 2,939 $ 4,121 $ 3,101 $ 16,878
Net sales by geographic region
United States $ 4,547 $ 2,064 $ 2,867 $ 3,077 $ 12,555
Europe 1,190 197 269 1 1,657
Asia Pacific 693 155 601 22 1,471
Middle East 220 474 185 1 880
Other 67 49 199 — 315
Total net sales $ 6,717 $ 2,939 $ 4,121 $ 3,101 $ 16,878
Nine Months Ended September 24, 2023
Aeronautics MFC RMS Space Total
Net sales
Products $ 16,339 $ 7,110 $ 9,082 $ 7,767 $ 40,298
Services 3,522 972 2,446 1,459 8,399
Total net sales $ 19,861 $ 8,082 $ 11,528 $ 9,226 $ 48,697
Net sales by contract type
Fixed-price $ 13,463 $ 5,498 $ 7,261 $ 2,359 $ 28,581
Cost-reimbursable 6,398 2,584 4,267 6,867 20,116
Total net sales $ 19,861 $ 8,082 $ 11,528 $ 9,226 $ 48,697
Net sales by customer
U.S. Government $ 13,285 $ 5,553 $ 7,973 $ 9,084 $ 35,895
International (a)
6,453 2,521 3,349 110 12,433
U.S. commercial and other 123 8 206 32 369
Total net sales $ 19,861 $ 8,082 $ 11,528 $ 9,226 $ 48,697
Net sales by geographic region
United States $ 13,408 $ 5,561 $ 8,179 $ 9,116 $ 36,264
Europe 3,466 582 706 48 4,802
Asia Pacific 2,058 472 1,593 60 4,183
Middle East 671 1,340 526 2 2,539
Other 258 127 524 — 909
Total net sales $ 19,861 $ 8,082 $ 11,528 $ 9,226 $ 48,697
(a) International sales include foreign military sales (FMS) contracted through the U.S. Government and direct commercial sales to international governments and other international customers.
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
Our Aeronautics business segment includes our largest program, the F-35 Lightning II, an international multi-role, multi-variant, stealth fighter aircraft. Net sales for the F-35 program represented approximately 22 % and 24 % of our total consolidated net sales for the quarter and nine months ended September 29, 2024 and 26 % of our total consolidated net sales for both the quarter and nine months ended September 24, 2023.
Assets
Total assets for each of our business segments were as follows (in millions):
September 29,
2024 December 31,
2023
Assets
Aeronautics $ 13,987 $ 13,167
Missiles and Fire Control 5,853 5,703
Rotary and Mission Systems 17,313 17,521
Space 6,652 6,560
Total business segment assets 43,805 42,951
Corporate assets (a)
11,715 9,505
Total assets $ 55,520 $ 52,456
(a) Corporate assets primarily include cash and cash equivalents, deferred income taxes, assets for the portion of environmental costs that are probable of future recovery, property, plant and equipment used in our corporate operations, assets held in a trust for deferred compensation plans, and investments in early-stage companies.
NOTE 4 - CONTRACT ASSETS AND LIABILITIES
Contract assets include unbilled amounts typically resulting from sales under contracts when the percentage-of-completion cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. Contract liabilities include advance payments and billings in excess of revenue recognized. Contract assets and contract liabilities were as follows (in millions):
September 29,
2024 December 31,
2023
Contract assets $ 14,224 $ 13,183
Contract liabilities 9,051 9,190
Contract assets increased $ 1.0 billion during the nine months ended September 29, 2024, due to the recognition of revenue related to the satisfaction or partial satisfaction of performance obligations during the nine months ended September 29, 2024 for which we have not yet billed our customers. There were no significant credit or impairment losses related to our contract assets during the quarters and nine months ended September 29, 2024 and September 24, 2023.
Contract liabilities decreased $ 139 million during the nine months ended September 29, 2024, primarily due to revenue recognized in excess of payments received on performance obligations. During the quarter and nine months ended September 29, 2024, we recognized $ 866 million and $ 4.9 billion of our contract liabilities at December 31, 2023 as revenue. During the quarter and nine months ended September 24, 2023, we recognized $ 916 million and $ 4.2 billion of our contract liabilities at December 31, 2022 as revenue.
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
NOTE 5 - INVENTORIES
Inventories consisted of the following (in millions):
September 29,
2024 December 31,
2023
Materials, spares and supplies $ 616 $ 606
Work-in-process
2,430 2,338
Finished goods 188 188
Total inventories $ 3,234 $ 3,132
Costs incurred to fulfill a contract in advance of the contract being awarded are included in inventories as work-in-process if we determine that those costs relate directly to a contract or to an anticipated contract that we can specifically identify and determine that contract award is probable, the costs generate or enhance resources that will be used in satisfying performance obligations, and the costs are recoverable (referred to as pre-contract costs). These advanced procurement costs are generally incurred in order to enhance our ability to achieve schedule and certain customer milestones. Pre-contract costs that are initially capitalized in inventory are generally recognized as cost of sales consistent with the transfer of products and services to the customer upon the receipt of the anticipated contract. All other pre-contract costs, including start-up costs, are expensed as incurred. As of September 29, 2024 and December 31, 2023, $ 1.9 billion and $ 989 million of pre-contract costs (primarily the F-35 program and classified contracts at our Aeronautics business segment) were included in inventories. The increase in pre-contract costs as of September 29, 2024 is primarily driven by the F-35 program, specifically delays in receiving additional contractual authorization and funding for the Lots 18-19 contract.
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
NOTE 6 - POSTRETIREMENT BENEFIT PLANS
FAS income
The pretax FAS income related to our qualified defined benefit pension plans and retiree medical and life insurance plans consisted of the following (in millions):
Quarters Ended Nine Months Ended
September 29,
2024 September 24,
2023 September 29,
2024 September 24,
2023
Qualified defined benefit pension plans
Operating:
Service cost $ ( 15 ) $ ( 17 ) $ ( 45 ) $ ( 49 )
Non-operating:
Interest cost ( 349 ) ( 364 ) ( 1,048 ) ( 1,094 )
Expected return on plan assets 393 430 1,179 1,291
Amortization of actuarial losses ( 64 ) ( 42 ) ( 194 ) ( 126 )
Amortization of prior service credits 36 87 110 261
Non-service FAS pension income 16 111 47 332
Total FAS pension income $ 1 $ 94 $ 2 $ 283
Retiree medical and life insurance plans
Operating:
Service cost $ ( 2 ) $ ( 1 ) $ ( 4 ) $ ( 4 )
Non-operating:
Interest cost ( 15 ) ( 17 ) ( 47 ) ( 51 )
Expected return on plan assets 27 25 81 77
Amortization of actuarial gains 8 7 26 23
Amortization of prior service costs ( 1 ) ( 2 ) ( 3 ) ( 7 )
Non-service FAS retiree medical and life income 19 13 57 42
Total FAS retiree medical and life income $ 17 $ 12 $ 53 $ 38
We record the service cost component of FAS income for our qualified defined benefit pension plans and retiree medical and life insurance plans in the cost of sales accounts; the non-service components of our FAS income for our qualified defined benefit pension plans in the non-service FAS pension income account; and the non-service components of our FAS income for our retiree medical and life insurance plans as part of the other non-operating income, net account on our consolidated statements of earnings.
The amortization of net actuarial losses or gains and prior service credits or costs in the table above, along with similar costs related to our other postretirement benefit plans were reclassified from accumulated other comprehensive loss (AOCL) and recorded as a component of FAS income for the periods presented. These costs totaled $ 25 million ($ 19 million, net of tax) and $ 73 million ($ 57 million, net of tax) during the quarter and nine months ended September 29, 2024, and $( 47 ) million ($( 37 ) million, net of tax) and $( 141 ) million ($( 111 ) million, net of tax) during the quarter and nine months ended September 24, 2023.
Funding Requirements
The required funding of our qualified defined benefit pension plans is determined in accordance with the Employee Retirement Income Security Act of 1974 (ERISA), as amended, along with consideration of CAS and Internal Revenue Code rules. We made no contributions to our qualified defined benefit pension plans during the quarters and nine months ended September 29, 2024 and September 24, 2023.
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
NOTE 7 - LEGAL PROCEEDINGS AND CONTINGENCIES
Legal Proceedings
We are a party to litigation and other proceedings that arise in the ordinary course of our business, including matters arising under provisions relating to the protection of the environment, and are subject to contingencies related to certain businesses we previously owned. These types of matters could result in fines, penalties, cost reimbursements or contributions, compensatory or treble damages or non-monetary sanctions or relief. We believe the probability is remote that the outcome of each of these matters, including the legal proceedings described below, will have a material adverse effect on the company as a whole, notwithstanding that the unfavorable resolution of any matter may have a material effect on our net earnings and cash flows in the period in which it is recognized. Among the factors that we consider in this assessment are the nature of existing legal proceedings and claims, the asserted or possible damages or loss contingency (if estimable), the progress of the case, existing law and precedent, the opinions or views of legal counsel and other advisers, our experience in similar cases and the experience of other companies, the facts available to us at the time of assessment and how we intend to respond to the proceeding or claim. Our assessment of these factors may change over time as individual proceedings or claims progress.
Although we cannot predict the outcome of legal or other proceedings with certainty, where there is at least a reasonable possibility that a loss may have been incurred, GAAP requires us to disclose an estimate of the reasonably possible loss or range of loss or make a statement that such an estimate cannot be made. We follow a thorough process in which we seek to estimate the reasonably possible loss or range of loss, and only if we are unable to make such an estimate do we conclude and disclose that an estimate cannot be made. Accordingly, unless otherwise indicated below in our discussion of legal proceedings, a reasonably possible loss or range of loss associated with any individual legal proceeding cannot be estimated.
Lockheed Martin v. Metropolitan Transportation Authority
On April 24, 2009, we filed a declaratory judgment action against the New York Metropolitan Transportation Authority and its Capital Construction Company (collectively, the MTA) asking the U.S. District Court for the Southern District of New York to find that the MTA is in material breach of our agreement based on the MTA’s failure to provide access to sites where work must be performed and the customer-furnished equipment necessary to complete the contract. The MTA filed an answer and counterclaim alleging that we breached the contract and subsequently terminated the contract for alleged default. The primary damages sought by the MTA are the costs to complete the contract and potential re-procurement costs. While we are unable to estimate the cost of another contractor to complete the contract and the costs of re-procurement, we note that our contract with the MTA had a total value of $ 323 million, of which $ 241 million was paid to us, and that the MTA is seeking damages of approximately $ 190 million. We dispute the MTA’s allegations and are defending against them. Additionally, following an investigation, our sureties on a performance bond related to this matter, who were represented by independent counsel, concluded that the MTA’s termination of the contract was improper. Finally, our declaratory judgment action was later amended to include claims for monetary damages against the MTA of approximately $ 95 million. This matter was taken under submission by the District Court in December 2014, after a five-week bench trial and the filing of post-trial pleadings by the parties. We continue to await a decision from the District Court. Although this matter relates to our former Information Systems & Global Solutions business (IS&GS), we retained responsibility for the litigation when we divested IS&GS in 2016.
Environmental Matters
We are involved in proceedings and potential proceedings relating to soil, sediment, surface water, and groundwater contamination, disposal of hazardous substances, and other environmental matters at several of our current or former facilities, facilities for which we may have contractual responsibility, and at third-party sites where we have been designated as a potentially responsible party (PRP). A substantial portion of environmental costs will be included in our net sales and cost of sales in future periods pursuant to U.S. Government regulations. At the time a liability is recorded for future environmental costs, we record assets for estimated future recovery considered probable through the pricing of products and services to agencies of the U.S. Government, regardless of the contract form (e.g., cost-reimbursable, fixed-price). We continually evaluate the recoverability of our assets for the portion of environmental costs that are probable of future recovery by assessing, among other factors, U.S. Government regulations, our U.S. Government business base and contract mix, and our history of receiving reimbursement of such costs. We include the portions of those
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Notes to Consolidated Financial Statements (unaudited) (continued)
environmental costs expected to be allocated to our non-U.S. Government contracts, or determined not to be recoverable under U.S. Government contracts, in our cost of sales at the time the liability is established or adjusted.
At September 29, 2024 and December 31, 2023, the aggregate amount of liabilities recorded relative to environmental matters was $ 697 million and $ 680 million, most of which are recorded in other noncurrent liabilities on our consolidated balance sheets. We have recorded assets for the portion of environmental costs that are probable of future recovery totaling $ 628 million and $ 613 million at September 29, 2024 and December 31, 2023, most of which are recorded in other noncurrent assets on our consolidated balance sheets.
Environmental remediation activities usually span many years, which makes estimating liabilities a matter of judgment because of uncertainties with respect to assessing the extent of the contamination as well as such factors as changing remediation technologies and changing regulatory environmental standards. We are monitoring or investigating a number of former and present operating facilities for potential future remediation. We perform quarterly reviews of the status of our environmental remediation sites and the related liabilities and receivables. Additionally, in our quarterly reviews, we consider these and other factors in estimating the timing and amount of any future costs that may be required for remediation activities, and we record a liability when it is probable that a loss has occurred or will occur for a particular site and the loss can be reasonably estimated. The amount of liability recorded is based on our estimate of the costs to be incurred for remediation for that site. We do not discount the recorded liabilities, as the amount and timing of future cash payments are not fixed or cannot be reliably determined. We cannot reasonably determine the extent of our financial exposure in all cases as, although a loss may be probable or reasonably possible, in some cases it is not possible at this time to estimate the reasonably possible loss or range of loss. We project costs and recovery of costs over approximately 20 years.
We also pursue claims for recovery of costs incurred or for contribution to site remediation costs against other PRPs, including the U.S. Government, and are conducting remediation activities under various consent decrees, orders, and agreements relating to soil, groundwater, sediment, or surface water contamination at certain sites of former or current operations. Under agreements related to certain sites in California, New York, United States Virgin Islands and Washington, the U.S. Government and/or a private party reimburses us an amount equal to a percentage, specific to each site, of expenditures for certain remediation activities in their capacity as PRPs under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).
In addition to the proceedings and potential proceedings discussed above, potential new regulations concerning perchlorate and hexavalent chromium at the federal and state level could increase our cleanup costs. If substantially lower cleanup standards are adopted for perchlorate or hexavalent chromium, we expect a material increase in both our estimates for environmental liabilities and the related assets for the portion of costs that are probable of future recovery. The amount that would be allocable to our non-U.S. Government contracts or that is determined not to be recoverable under U.S. Government contracts would be expensed, which may have a material effect on our earnings in any particular interim reporting period.
We also are evaluating the potential impact of new, existing, and contemplated requirements addressing a class of chemicals known generally as per- and polyfluoroalkyl substances (PFAS). PFAS are common and appear in products such as fire-fighting foams and stain- and stick-resistant products (e.g., Teflon, stain-resistant fabrics) and have been used in manufacturing processes. Regulations requiring very low PFAS contaminant levels in drinking water could eventually lead to increased cleanup costs at a number of our environmental remediation sites.
Letters of Credit, Surety Bonds and Third-Party Guarantees
We have entered into standby letters of credit and surety bonds issued on our behalf by financial institutions, and we have directly issued guarantees to third parties primarily relating to advances received from customers and the guarantee of future performance on certain contracts. Letters of credit and surety bonds generally are available for draw down in the event we do not perform. We had total outstanding letters of credit and surety bonds aggregating $ 2.7 billion and $ 2.9 billion at September 29, 2024 and December 31, 2023.
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Notes to Consolidated Financial Statements (unaudited) (continued)
Additionally, we may guarantee the contractual performance of third parties such as joint venture partners. At September 29, 2024 and December 31, 2023, third-party guarantees totaled $ 313 million and $ 1.0 billion, of which approximately 21 % and 75 % related to guarantees of contractual performance of joint ventures to which we currently are or previously were a party. These amounts represent our estimate of the maximum amounts we would expect to incur upon the contractual non-performance of the joint venture, joint venture partners or divested businesses. Generally, we also have cross-indemnities in place that may enable us to recover amounts that may be paid on behalf of a joint venture partner. Third-party guarantees do not include guarantees issued on behalf of subsidiaries and other consolidated entities.
In determining our exposures, we evaluate the reputation, performance on contractual obligations, technical capabilities and credit quality of our current and former joint venture partners and the transferee under novation agreements all of which include a guarantee as required by the FAR. At September 29, 2024 and December 31, 2023, there were no material amounts recorded in our financial statements related to third-party guarantees or novation agreements.
Other Contingencies
On April 22, 2024, the Armed Services Board of Contract Appeals (ASBCA) sustained our claim associated with a contract to modernize and install new engines in C-5 Galaxy aircraft. The ASBCA ruled that we are entitled to $ 132 million for impacts due to excessive “over and above” work performed under the contract plus interest on the amount since the date of our claim in October 2018. On August 27, 2024, the Department of Justice filed a notice of appeal of the ASBCA’s decision with the U.S. Court of Appeals for the Federal Circuit. On the anticipated basis of the Government’s appeal, we have recognized approximately $ 85 million of sales and operating profit during the quarter ended September 29, 2024, which we believe is probable of collection and subject to change based on developments during the pending appeal process in Federal Circuit Court and as interest accrues.
Independent of this matter and as a U.S. Government contractor, we are subject to various audits and investigations by the U.S. Government to determine whether our operations are being conducted in accordance with applicable regulatory requirements. U.S. Government investigations of us, whether relating to Government contracts or conducted for other reasons, could result in administrative, civil, or criminal liabilities, including repayments, fines or penalties being imposed upon us, suspension, proposed debarment, debarment from eligibility for future U.S. Government contracting, or suspension of export privileges. Suspension or debarment could have a material adverse effect on us because of our dependence on contracts with the U.S. Government. U.S. Government investigations often take years to complete and many result in no adverse action against us. We also provide products and services to customers outside of the United States, which are subject to U.S. and foreign laws and regulations and foreign procurement policies and practices. Our compliance with local regulations or applicable U.S. Government regulations also may be audited or investigated.
Additionally, in the normal course of business, we provide warranties to our customers associated with certain product sales. We record estimated warranty costs in the period in which the related products are delivered. The warranty liability is generally based on the number of months of warranty coverage remaining for the products delivered and the average historical monthly warranty payments. Warranty obligations incurred in connection with long-term production contracts are accounted for within the contract estimates at completion.
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Notes to Consolidated Financial Statements (unaudited) (continued)
NOTE 8 - FAIR VALUE MEASUREMENTS
Assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following (in millions):
September 29, 2024 December 31, 2023
Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Assets
Mutual funds $ 1,026 $ 1,026 $ — $ — $ 1,025 $ 1,025 $ — $ —
U.S. Government securities 105 — 105 — 119 — 119 —
Other securities 730 353 334 43 679 333 301 45
Derivatives 46 — 46 — 32 — 32 —
Liabilities
Derivatives 176 — 176 — 200 — 200 —
Substantially all assets measured at fair value, other than derivatives, represent assets held in a trust to fund certain of our non-qualified deferred compensation plans and are recorded in other noncurrent assets on our consolidated balance sheets. The fair values of mutual funds and certain other securities are determined by reference to the quoted market price per unit in active markets multiplied by the number of units held without consideration of transaction costs. The fair values of U.S. Government and certain other securities are determined using pricing models that use observable inputs (e.g., interest rates and yield curves observable at commonly quoted intervals), bids provided by brokers or dealers or quoted prices of securities with similar characteristics. The fair values of derivative instruments, which consist of foreign currency forward contracts, including embedded derivatives, and interest rate swap contracts, are primarily determined based on the present value of future cash flows using model-derived valuations that use observable inputs such as interest rates, credit spreads and foreign currency exchange rates.
We also make investments in early-stage companies that we believe are advancing or developing new technologies applicable to our business. Investments that have quoted market prices in active markets (Level 1) are recorded at fair value and reflected in other securities while certain investments are categorized as Level 3 when valuations using observable inputs are unavailable. See “Note 10 - Other - Investments” for more information.
We use derivative instruments principally to reduce our exposure to market risks from changes in foreign currency exchange rates and interest rates. We transact business globally and are subject to risks associated with changing foreign currency exchange rates. We do not enter into or hold derivative instruments for speculative trading purposes. These contracts hedge forecasted foreign currency transactions in order to minimize fluctuations in our earnings and cash flows associated with changes in foreign currency exchange rates. We designate foreign currency hedges as cash flow hedges. We enter into foreign currency hedges such as forward and option contracts that change in value as foreign currency exchange rates change. Our most significant foreign currency exposures relate to the British pound sterling, the euro, the Canadian dollar, the Australian dollar, the Norwegian kroner and the Polish zloty. We also are exposed to the impact of interest rate changes primarily through our borrowing activities. For fixed rate borrowings, we may use variable interest rate swaps, effectively converting fixed rate borrowings to variable rate borrowings in order to hedge changes in the fair value of the debt. These swaps are designated as fair value hedges. For variable rate borrowings, we may use fixed interest rate swaps, effectively converting variable rate borrowings to fixed rate borrowings in order to minimize the impact of interest rate changes on earnings. These swaps are designated as cash flow hedges. We also may enter into derivative instruments that are not designated as hedges and do not qualify for hedge accounting, which are intended to minimize certain economic exposures.
The aggregate notional amount of our outstanding interest rate swaps was $ 1.3 billion at both September 29, 2024 and December 31, 2023. The aggregate notional amount of our outstanding foreign currency hedges was $ 6.3 billion and $ 6.5 billion at September 29, 2024 and December 31, 2023. The fair values of our outstanding interest rate swaps and foreign currency hedges at September 29, 2024 and December 31, 2023 were not significant. Derivative instruments did not have a material impact on net earnings and comprehensive income during the quarters and nine months ended September 29, 2024 and September 24, 2023. The impact of derivative instruments on our consolidated statements of cash flows is included in net cash provided by operating activities. Substantially all of our derivatives are designated for hedge accounting.
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Notes to Consolidated Financial Statements (unaudited) (continued)
In addition to the financial instruments listed in the table above, we hold other financial instruments, including cash and cash equivalents, receivables, accounts payable and debt. The carrying amounts for cash and cash equivalents, receivables and accounts payable approximated their fair values. The estimated fair value of our outstanding debt was $ 20.4 billion and $ 18.5 billion at September 29, 2024 and December 31, 2023. The outstanding principal amount of debt, including short-term and long-term debt, was $ 20.6 billion and $ 18.7 billion at September 29, 2024 and December 31, 2023, excluding approximately $ 1.3 billion of unamortized discounts and issuance costs at both September 29, 2024 and December 31, 2023. The estimated fair values of our outstanding debt were determined based on the present value of future cash flows using model-derived valuations that use observable inputs such as interest rates and credit spreads (Level 2).
NOTE 9 - STOCKHOLDERS’ EQUITY
Repurchases of Common Stock
During the nine months ended September 29, 2024, we repurchased 5.7 million shares of our common stock in open market purchases for $ 2.7 billion.
The total remaining authorization for future common stock repurchases under our share repurchase program was $ 7.3 billion as of September 29, 2024. In October 2024, subsequent to our third quarter, our Board of Directors authorized an increase of $ 3.0 billion to our share repurchase program, increasing our total authorization of the current program to $ 10.3 billion for future purchases. As we repurchase our common shares, we reduce common stock for the $ 1 of par value of the shares repurchased, with the excess purchase price over par value recorded as a reduction of additional paid-in capital. If additional paid-in capital is reduced to zero, we record the remainder of the excess purchase price over par value as a reduction of retained earnings.
Dividends
We paid cash dividends of $ 2.3 billion ($ 9.45 per share) during the nine months ended September 29, 2024. In October 2024, subsequent to our third quarter, we authorized a fourth quarter 2024 dividend payment of $ 3.30 per share, an increase of $ 0.15 per share over our third quarter 2024 dividend of $ 3.15 per share.
The total amount of dividends declared may differ from the total amount of dividends paid during a period due to the timing of dividend-equivalents paid on RSUs and PSUs. These dividend-equivalents are accrued during the vesting period and are paid upon the vesting of the RSUs and PSUs, which primarily occurs in the first quarter each year.
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Notes to Consolidated Financial Statements (unaudited) (continued)
Accumulated Other Comprehensive Loss
Changes in the balance of AOCL, net of tax, consisted of the following (in millions):
Postretirement
Benefit Plans Other, net AOCL
Balance at December 31, 2023 $ ( 8,704 ) $ ( 99 ) $ ( 8,803 )
Other comprehensive income (loss) before reclassifications — 23 23
Amounts reclassified from AOCL
Amortization of net actuarial losses (a)
141 — 141
Amortization of net prior service credits (a)
( 84 ) — ( 84 )
Other — 30 30
Total reclassified from AOCL 57 30 87
Total other comprehensive income (loss) 57 53 110
Balance at September 29, 2024 $ ( 8,647 ) $ ( 46 ) $ ( 8,693 )
Balance at December 31, 2022 $ ( 7,866 ) $ ( 157 ) $ ( 8,023 )
Other comprehensive income (loss) before reclassifications — ( 41 ) ( 41 )
Amounts reclassified from AOCL
Amortization of net actuarial losses (a)
88 — 88
Amortization of net prior service credits (a)
( 199 ) — ( 199 )
Other — 29 29
Total reclassified from AOCL ( 111 ) 29 ( 82 )
Total other comprehensive income (loss) ( 111 ) ( 12 ) ( 123 )
Balance at September 24, 2023 $ ( 7,977 ) $ ( 169 ) $ ( 8,146 )
(a) Reclassifications from AOCL related to postretirement benefit plans were recorded as a component of FAS income for each period presented. These amounts include $ 19 million and $( 37 ) million, net of tax, for the quarters ended September 29, 2024 and September 24, 2023, which are comprised of the amortization of net actuarial losses of $ 47 million and $ 30 million for the quarters ended September 29, 2024 and September 24, 2023, and the amortization of net prior service credits of $ 28 million and $ 67 million for the quarters ended September 29, 2024 and September 24, 2023. See “Note 6 - Postretirement Benefit Plans”.
NOTE 10 - OTHER
Contract Estimates
Significant estimates and assumptions are made in estimating contract sales, costs, and profit. We estimate profit as the difference between estimated revenues and total estimated costs to complete the contract. At the outset of a long-term contract, we identify and monitor risks to the achievement of the technical, schedule and cost aspects of the contract, as well as our ability to earn variable consideration, and assess the effects of those risks on our estimates of sales and total costs to complete the contract. The estimates consider the technical requirements (e.g., a newly developed product versus a mature product), the schedule and associated tasks (e.g., the number and type of milestone events) and costs (e.g., material, labor, subcontractor, overhead, general and administrative and the estimated costs to fulfill our industrial cooperation agreements, sometimes referred to as offset or localization agreements, required under certain contracts with international customers). The initial profit booking rate of each contract considers risks surrounding the ability to achieve the technical requirements, schedule and costs in the initial estimated total costs to complete the contract. Profit booking rates may increase during the performance of the contract if we successfully retire risks related to technical, schedule and cost aspects of the contract, which decreases the estimated total costs to complete the contract or may increase the variable consideration we expect to receive on the contract. Conversely, our profit booking rates may decrease if the estimated total costs to complete the contract increase or our estimates of variable consideration we expect to receive decrease. All of the estimates are subject to change during the performance of the contract and may affect the profit booking rate. When estimates of total costs to be incurred on a contract exceed total estimates of the transaction price, a
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Notes to Consolidated Financial Statements (unaudited) (continued)
provision for the entire loss is determined at the contract level and is recorded in the period in which the loss is evident, which we refer to as a reach-forward loss.
Comparability of our segment sales, operating profit and operating margin may be impacted favorably or unfavorably by changes in profit booking rates on our contracts. Increases in the profit booking rates, typically referred to as favorable profit booking rate adjustments, usually relate to revisions in the estimated total costs to fulfill the performance obligations that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate, resulting in an increase in the estimated total costs to fulfill the performance obligations and a reduction in the profit booking rate and are typically referred to as unfavorable profit booking rate adjustments. Increases or decreases in profit booking rates are recognized in the current period they are determined and reflect the inception-to-date effect of such changes. Segment operating profit and margin can be impacted favorably or unfavorably by, for example, certain items listed below, which may or may not impact sales. Favorable items include the positive resolution of contractual matters, cost recoveries on severance and restructuring, insurance recoveries and gains on sales of assets. Unfavorable items include the adverse resolution of contractual matters; supply chain disruptions; restructuring charges (except for significant severance actions, which are excluded from segment operating results); reserves for disputes; certain asset impairments; and losses on sales of certain assets.
Our consolidated net profit booking rate adjustments increased sales by $ 358 million and $ 1.0 billion during the quarter and nine months ended September 29, 2024 and $ 231 million and $ 1.0 billion during the quarter and nine months ended September 24, 2023. These adjustments increased segment operating profit by approximately $ 375 million ($ 296 million, or $ 1.24 per share, after tax) and $ 990 million ($ 782 million, or $ 3.26 per share, after tax) during the quarter and nine months ended September 29, 2024, and $ 335 million ($ 265 million, or $ 1.06 per share, after tax) and $ 1.1 billion ($ 881 million, or $ 3.48 per share, after tax) during the quarter and nine months ended September 24, 2023. During the quarter ended September 29, 2024, we recognized losses of $ 80 million on a classified program at our Aeronautics business segment described below, resulting in total losses of $ 145 million on this classified program for the nine months ended September 29, 2024. Additionally, consolidated net profit booking rate adjustments during the nine months ended September 29, 2024 include a reach-forward loss of $ 100 million recognized in the first quarter of 2024 on a classified program at our MFC business segment described below. During the nine months ended September 24, 2023, we recognized a favorable profit adjustment of $ 65 million on an international surveillance and control program due to the positive resolution of a contractual matter, and a reach-forward loss of $ 100 million on the Canadian Maritime Helicopter Program (CMHP) as a result of increased costs and lower than planned revenues described below.
We have various development programs for new and upgraded products, services, and related technologies which have complex design and technical challenges. This development work is inherently uncertain and subject to significant variability in estimates of the cost and time required to complete the work by us and our suppliers. Many of these programs have cost-type contracting arrangements (e.g. cost-reimbursable or cost-plus-fee). In such cases, the associated financial risks are primarily in reduced fees, lower profit rates, or program cancellation if cost, schedule, or technical performance issues arise.
However, some of our existing development programs are contracted on a fixed-price basis or include cost-type contracting for the development phase with fixed-price production options and our customers still continue to implement procurement strategies such as these that shift risk to contractors. Competitively bid programs with fixed-price development work or fixed-price production options increase the risk of a reach-forward loss upon contract award and during the period of contract performance. Due to the complex and often experimental nature of development programs, we may experience (and have experienced in the past) technical and quality issues during the development of new products or technologies for a variety of reasons. Our development programs are ongoing, and while we believe the cost and fee estimates incorporated in the financial statements are appropriate, the technical complexity of these programs and fixed-price contract structure creates financial risk as estimated completion costs may exceed the current contract value, which could trigger earnings charges, termination provisions, or other financially significant exposures. These programs have risk for reach-forward losses if our estimated costs exceed our estimated contract revenues, and such losses could be significant to our financial results, cash flows, or financial condition in any period that they are recognized. Any such losses are recorded in the period in which the loss is evident.
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We have experienced performance issues on a classified fixed-price incentive fee contract at our Aeronautics business segment. Phases within the contract involve highly complex design and systems integration and we have periodically recognized reach-forward losses. During the third quarter of 2024, we recognized losses of $ 80 million due to higher than anticipated costs to achieve program objectives, bringing total losses for the nine months ended September 29, 2024, to $ 145 million. With the additional $ 80 million of losses in the third quarter, cumulative losses increased to approximately $ 415 million. We will continue to monitor the technical requirements and our performance, the remaining work and any future changes in scope or schedule, and estimated costs to complete the program, and we may have to record additional losses in future periods if we experience further performance issues, increases in scope, or cost growth, which could be material to our financial results. Additionally, we will continue to assess the likelihood of losses for future phases. We will be required to recognize additional losses for such phases if they are probable and such loss becomes evident. Last, we and our industry team will continue to incur advanced procurement costs (also referred to as pre-contract costs) to enhance our ability to achieve the schedule and certain milestones. We will monitor the recoverability of pre-contract costs, which could be impacted by the customer’s decision regarding future phases of the program.
We have contracted with the Canadian government for the CMHP at our RMS business segment that provides for design, development, and production of CH-148 aircraft (the Original Equipment contract), which is a military variant of the S-92 helicopter, and for logistical support to the fleet (the In Service Support contract) over an extended time period. The last of the 28 CH-148 aircraft is scheduled to be delivered in 2025. The program has experienced performance issues, including delays in the final aircraft deliveries from the original contract requirement, and the Royal Canadian Air Force’s flight hours have been significantly less than originally anticipated, which has impacted program revenues and the recovery of our costs under this program. We have incurred significant costs and recognized the related sales, of which about $ 970 million are currently included in contract assets on the balance sheet which could become at risk for future recovery. Such assets are recovered based on future flight hours, which are not entirely within our control and are dependent upon aircraft availability and performance and the availability of Canadian government resources. During the third quarter of 2024, we entered into a modification to the In Service Support contract to better align contract scope with the Canadian government’s needs. This modification mitigates, but does not eliminate the risk related to future sales and recovery of our costs. We continue to engage in discussions with the Canadian government to potentially restructure certain contractual terms and conditions that may be beneficial to both parties. However, any restructuring discussions may be prolonged or unsuccessful and are dependent upon Canadian government resources and priorities and other factors outside of our control. Under the contract terms as modified, future sales and recovery of costs are dependent upon the Royal Canadian Air Force’s flight hours and program costs and performance. As of September 29, 2024, cumulative losses remained at approximately $ 100 million. Future performance issues or changes in our estimates may affect our ability to recover our costs, including recovery of the contract assets recognized on the balance sheet and our assessment of the reach-forward loss, which could be material to our operating results.
We also have a number of contracts with Türkish industry for the Türkish Utility Helicopter Program (TUHP), which anticipates co-production with Türkish industry for production of T70 helicopters for use in Türkiye, as well as the related provision of Türkish goods and services under buy-back or offset obligations, to include the future sales of helicopters built in Türkiye for sale globally. In 2020, the U.S. Government imposed certain sanctions on Türkish entities and persons that have affected our ability to perform under the TUHP contracts. We have provided force majeure notices under the affected contracts, and have partially stopped work on TUHP effective October 5, 2024. We are currently in discussions regarding the path forward for the program in light of the continued impact of the sanctions on our ability to perform under the TUHP contracts and our decision to partially stop work. As of September 29, 2024, cumulative losses related to development work for the program remained insignificant and the program remains in a contract liability position on the balance sheet. The TUHP contracts may be negotiated to be restructured or terminated, either in whole or in part and as a result, we could be at risk of recording significant reach-forward losses in future periods. Additionally, we could elect to pursue other relief or remedies, which could result in a further reduction in sales, the imposition of penalties or assessment of damages, and increased unrecoverable costs, which could be material to our financial results.
Our MFC business segment was previously awarded a competitively bid classified contract, which includes a cost-reimbursable base contract for the initial phase of the program and multiple fixed price options for additional phases. The options for additional phases may be exercised over the next several years and if performed we expect they would each be at a loss. During the first quarter of 2024, we concluded it was probable that an option would be exercised based on progress made on the program and discussions with the customer. Accordingly, in the first quarter of 2024 we recognized a reach forward loss of approximately $ 100 million, bringing the cumulative losses recognized on the program to approximately $ 150 million, including charges for precontract costs recognized in prior periods. During the second and
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Notes to Consolidated Financial Statements (unaudited) (continued)
third quarters of 2024, there were no significant changes to the previously recognized losses. We will continue to assess the likelihood that additional options will be exercised, utilizing factors such as our performance, future requirements of the program, discussions with the customer and suppliers, customer funding, and experience with other customer programs, among other factors. We will be required to recognize additional losses for the remaining options if they become probable of being exercised. The potential total loss across the additional options is up to approximately $ 1.3 billion. The ultimate amount of additional loss recognized, if any, will depend on how many of the additional options are exercised or become probable of being exercised and performance on those options.
Backlog
Backlog (i.e., unfulfilled or remaining performance obligations) represents the sales we expect to recognize for our products and services for which control has not yet transferred to the customer. It is converted into sales in future periods as work is performed or deliveries are made. For our cost-reimbursable and fixed-priced-incentive contracts, the estimated consideration we expect to receive pursuant to the terms of the contract may exceed the contractual award amount. The estimated consideration is determined at the outset of the contract and is continuously reviewed throughout the contract period. In determining the estimated consideration, we consider the risks related to the technical, schedule and cost impacts to complete the contract and an estimate of any variable consideration. Periodically, we review these risks and may increase or decrease backlog accordingly. As the risks on such contracts are successfully retired, the estimated consideration from customers may be reduced, resulting in a reduction of backlog without a corresponding recognition of sales. As of September 29, 2024, our ending backlog was $ 165.7 billion. We expect to recognize approximately 35 % of our backlog over the next 12 months and approximately 59 % over the next 24 months as revenue with the remainder recognized thereafter.
Income Taxes
Our effective income tax 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.
Investments
We make investments in companies that we believe are advancing or developing new technologies applicable to our business. These investments are primarily in early-stage companies and may be in the form of common or preferred stock, warrants, convertible debt securities, investments in funds or equity method investments. Most of these investments are in equity securities without readily determinable fair values (privately held securities), which are measured initially at cost and are then adjusted to fair value only if there is an observable price change or reduced for impairment, if applicable. The carrying amounts of the investments were $ 603 million and $ 581 million at September 29, 2024 and December 31, 2023. Due to changes in fair value and/or sales of investments, we recorded net losses of $ 19 million ($ 14 million, or $ 0.06 per share, after-tax) and $ 5 million ($ 4 million, or $ 0.02 per share, after-tax) during the quarter and nine months ended September 29, 2024 and net losses of $ 13 million ($ 10 million, or $ 0.04 per share, after-tax) and $ 24 million ($ 18 million, or $ 0.07 per share, after-tax) during the quarter and nine months ended September 24, 2023. These gains or losses are reflected in the other non-operating income, net account on our consolidated statements of earnings.
Revolving Credit Facility
At September 29, 2024, we had a $ 3.0 billion Revolving Credit Facility with various banks, with the option to increase the commitments under the Revolving Credit Facility by an additional amount of up to $ 500 million (for an aggregate amount of up to $ 3.5 billion). Effective August 23, 2024, we amended the agreement for the Revolving Credit Facility (the “Revolving Credit Agreement”) to extend the expiration date of the Revolving Credit Agreement from August 24, 2028 to August 24, 2029 and removed the existing financial maintenance covenant. The Revolving Credit Agreement is available for any of our lawful corporate purposes, including supporting commercial paper borrowings. Borrowings under the Revolving Credit Agreement are unsecured and bear interest at rates set forth in the Revolving Credit Agreement. There were no borrowings under the Revolving Credit Agreement at September 29, 2024.
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
Debt Issuance
On January 29, 2024, we issued a total of $ 2.0 billion of senior unsecured notes, consisting of $ 650 million aggregate principal amount of 4.50 % Notes due 2029 (the 2029 Notes), $ 600 million aggregate principal amount of 4.80 % Notes due 2034 (the 2034 Notes) and $ 750 million aggregate principal amount of 5.20 % Notes due 2064 (the 2064 Notes and, together with the 2029 Notes and 2034 Notes, the Notes). Net proceeds of $ 1.98 billion were received from the offering after deducting pricing discounts and debt issuance costs, which are being amortized and recorded as interest expense over the term of the Notes. We may, at our option, redeem the Notes of any series in whole or in part at any time and from time to time at a redemption price equal to the greater of 100 % of the principal amount of the Notes to be redeemed or an applicable make-whole amount, plus accrued and unpaid interest to the date of redemption. The Notes rank equally in right of payment with all of our existing unsecured and unsubordinated indebtedness.
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) for trademark and fixed asset impairments as well as severance costs 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.
Sale of Commercial Engine Solutions
On September 9, 2024, we completed the sale of our Commercial Engine Solutions (CES) business, which was part of our Aeronautics business segment. We received $ 170 million in cash from the sale. Gains recognized from the sale in the quarter ended September 29, 2024 were not significant. The final gain is subject to certain post-closing adjustments, including final working capital, indemnification, and tax adjustments, which we expect to complete in 2025. This sale did not represent a strategic shift and the impacts to our consolidated results of operation, financial position, and cash were not significant. Accordingly, the operating results and cash flows for the CES business up to the divestiture date have not been reclassified to discontinued operations.
NOTE 11 - RECENT ACCOUNTING PRONOUNCEMENTS
In March 2024, the SEC issued a final rule under SEC Release Nos. 33-11275 and 34-99678, The Enhancement and Standardization of Climate-Related Disclosures for Investors, that will require us to provide climate-related disclosures in our annual reports and registration statements beginning with our annual report for the year ending December 31, 2025. The rule requires disclosure of material climate-related risks, our governance and risk management of climate-related risks and any material climate-related targets or goals, greenhouse gas emissions as well as disclosure of the financial statement effects, such as costs and losses resulting from severe weather events and other natural conditions. In April 2024, the SEC released an order staying this final rule pending judicial review of all the petitions challenging the rule. We are in the process of analyzing the impact of the rules on our disclosures.
In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Additionally, it requires a public entity to disclose the title and position of the Chief Operating Decision Maker (CODM). The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. A public entity should apply the amendments in this ASU retrospectively to all prior periods presented in the financial statements. We expect this ASU to impact only our disclosures with no impacts to our results of operations, cash flows and financial condition.
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Lockheed Martin Corporation
Notes to Consolidated Financial Statements (unaudited) (continued)
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which focuses on the rate reconciliation and income taxes paid. ASU No. 2023-09 requires a public business entity (PBE) to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. For PBEs, the new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. An entity may apply the amendments in this ASU prospectively by providing the revised disclosures for the period ending December 31, 2025 and continuing to provide the pre-ASU disclosures for the prior periods, or may apply the amendments retrospectively by providing the revised disclosures for all periods presented. We expect this ASU to impact only our disclosures with no impacts to our results of operations, cash flows, and financial condition.
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Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Lockheed Martin Corporation
Results of Review of Interim Financial Statements
We have reviewed the accompanying consolidated balance sheet of Lockheed Martin Corporation (the Company) as of September 29, 2024, the related consolidated statements of earnings, comprehensive income and equity for the quarters and nine months ended September 29, 2024 and September 24, 2023, and consolidated statements of cash flows for the nine months ended September 29, 2024 and September 24, 2023, and the related notes (collectively referred to as the “consolidated interim financial statements”) . Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2023, the related consolidated statements of earnings, comprehensive income, cash flows and equity for the year then ended, and the related notes (not presented herein); and in our report dated January 23, 2024, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2023, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Ernst & Young LLP
Tysons, Virginia
October 22, 2024
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.