What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-01-28 compared with 2024-01-23 · 265 added, 275 removed, 519 unchanged (51% of the section changed)

5 unchanged sentences

Business Overview

We are a global security and aerospace company principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services.

We are a global aerospace and defense company principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services.

We also provide a broad range of management, engineering, technical, scientific, logistics, system integration and cybersecurity services.

9 unchanged sentences

We organize our business segments based on the nature of the products and services offered.

We operate in a complex and evolving global security environment.

Our strategy consists of the design and development of platforms and systems that meet the current needs of our customers and the future requirements of 21st Century Security.

Our vision for 21st Century Security is to accelerate the adoption of advanced networking and leading-edge technologies into our national defense enterprise, while enhancing the performance and value of our platforms and products for our customers.

The aim of 21st Century Security is to integrate new and existing systems across all domains with advanced, open-architecture networking and operational technologies to make defense forces more agile, adaptive and unpredictable.

Twenty-first Century Security is an overarching vision that guides our investment and strategy.

We are also focused on four elements for potential growth in the near to mid-term:

current programs of record, classified programs, hypersonics and new awards.

We have multiple programs of record from each business segment that are entering growth stages, including the F-35 sustainment activity (Aeronautics);

Our 21st Century Security ® vision is to accelerate the adoption of advanced networking and other leading-edge technologies into the American defense enterprise, while enhancing the performance and value of our platforms and products for our customers.

The aim of 21st Century Security is to integrate and continuously upgrade new and existing systems across all domains with advanced, open-architecture networking and operational technologies that make defense forces more agile, adaptive and unpredictable, enabling overmatch and strengthening deterrence today and into the future.

21st Century Security guides our strategy and investments.

As our growth pillars continue to evolve, we are focusing on advancing all-domain mission solutions through investments in digital technologies such as Artificial Intelligence (AI)/Machine Learning (ML), Autonomy and Crewed/Uncrewed Teaming, Generative Design and other technologies and capabilities enabling Combined Joint All-Domain Command and Control (CJADC2).

Innovations in these areas will expand capability, improve interoperability, increase demand for our multi-domain solutions and drive efficient conversion of backlog into growth across our portfolio.

We have well established programs across our business segments that continue to experience growth, including F-35 sustainment activity (Aeronautics);

increased Patriot Advanced Capability-3 (PAC-3) production rates and increased demand for High Mobility Artillery Rocket System (HIMARS ® ) and Guided Multiple Launch Rocket Systems (GMLRS) (Missiles and Fire Control);

radar surveillance systems and CH-53K King Stallion heavy lift helicopter (Rotary and Mission Systems);

and the modernization and enhancements to the Trident II D5 Fleet Ballistic Missile (FBM) (Space).

We are engaged in significant classified development programs and pending successful achievement of the objectives within those programs, we expect to begin the transition from development to production over the next few years.

We are currently performing on multiple hypersonics programs and following the successful completion of ongoing testing and evaluation activity, multiple programs are expected to enter early production phases through 2026.

Finally, we are always in pursuit of new program awards to develop future platforms that enable us to continue to place security capability into the market and expand our global reach.

Key to enabling success of our strategy is developing differentiating technologies, forging strategic partnerships, including with commercial companies, executing on our multi-year business transformation initiative to enhance our digital infrastructure and increase efficiencies and collaboration throughout our business and maintaining fiscal discipline.

and the modernization of and enhancements to the Trident II D5 Fleet Ballistic Missile (FBM) (Space).

Additionally, our teams continue to transform our products and rapidly innovate for the future, developing 6th generation air dominance technologies within Skunk Works ® , demonstrating autonomous capabilities with the X-62A (F-16) and optionally piloted BLACK HAWK ® , creating new Joint All-Domain Operating systems with Defense of Guam and AIR 6500 in Australia, establishing small-to-medium satellite capabilities to support proliferated space constellations and advancing hypersonic capabilities.

Finally, we are always in pursuit of new program awards to develop future platforms that enable us to continue to strengthen our national defense and advance deterrence and global security.

Keys to enabling success of our strategy include developing and investing in differentiating technologies, forging strategic partnerships, including with commercial companies, executing on our multi-year business transformation initiative to enhance our digital infrastructure and increase efficiencies and collaboration throughout our business and maintaining fiscal discipline.

Underpinning our ability to execute our strategy is our talent and culture.

7 unchanged sentences

In pursuing our business strategy, we routinely conduct discussions, evaluate targets and enter into agreements regarding possible acquisitions, divestitures, joint ventures and equity investments.

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 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.

On October 30, 2024, we closed our acquisition of Terran Orbital Corporation (Terran Orbital) for a purchase consideration of $314 million, which will be included in our Space business segment.

Terran Orbital’s product and service offerings include satellite design, production, launch planning, mission operations, and on-orbit support for the aerospace and defense industries.

We believe this acquisition will enable us to broaden our capabilities and offerings, provide additional innovative solutions to meet our customers’ emerging requirements, and provide expanded opportunities for our combined employees.

The financial results of Terran Orbital have been included within our operating results in the period post-acquisition.

See Note 1 to the consolidated financial statements for further information regarding the acquisition of Terran Orbital.

Budget Environment

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

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

Government, U.S.

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

The President’s Fiscal Year (FY) 2024 budget request was submitted to Congress on March 9, 2023, initiating the FY 2024 defense authorization and appropriations legislative process.

The request included $886 billion for National Defense, of which $842 billion is for the Department of Defense (DoD) base budget.

On June 3, 2023, the President signed H.R.

3746 “The Fiscal Responsibility Act” (FRA) into law.

The legislation suspended the debt ceiling until January 1, 2025, and, among other provisions, capped national defense spending at $886 billion for FY 2024 (President’s Budget Request level) and $895 billion for FY 2025.

Supplemental funding legislation is not subject to the budget caps.

If a continuing resolution is enacted and still in effect and Congress does not pass all twelve defense and non-defense discretionary appropriations bills by April 30, 2024, the FRA will result in a decrease in government spending for FY 2024 by one percent from FY 2023 enacted levels.

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

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.

The request included $895 billion for National Defense, of which $850 billion is for the DoD base budget, in keeping with the limit established by the FRA.

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

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

munitions capacity.

Supplemental funding legislation is not subject to the FRA limits.

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

On December 22, 2023, the President signed the FY 2024 National Defense Authorization Act (NDAA) into law.

The NDAA authorizes funding at the FRA cap of $886 billion for National Defense.

On January 19, 2024, the President signed a continuing resolution that extends funding of four appropriations bills to March 1, 2024 and the remaining eight to March 8, 2024.

This will provide Congress additional time to enact all twelve FY 2024 appropriations bills based on the overarching U.S.

Government spending agreement reached by House and Senate leaders on January 7, 2024 which comports with the FRA cap of $886 billion for National Defense in FY 2024.

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

However, the logistical and political challenges, especially in the U.S.

House of Representatives, are complex and add funding risk.

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

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

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

On October 20, 2023, the President submitted a $106 billion supplemental funding request to Congress for assistance to Ukraine, Israel and the Indo-Pacific;

restock of capacity transfers to Ukraine and Israel;

border security.

Congress has not yet acted on this request, which is part of the broader debate on FY 2024 U.S.

Government funding and border security policy.

Supplemental and emergency funding are not subject to the FRA cap.

If enacted, this would provide a partial relief valve for DoD funding limits under the FRA or other limiting scenarios such as a prolonged continuing resolution.

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

Government will enter a whole or partial shutdown.

The impact of any government shutdown is uncertain.

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

Further, if any one of the 12 appropriations bills is under a continuing resolution as of April 30, 2024, USG funding levels will reset to FY 2023 enacted levels minus 1% for the remainder of FY 2024 or until all 12 appropriations are enacted.

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

The National Defense Authorization Act for Fiscal Year 2025, signed by the President on December 24, 2024, is consistent with the FY 2025 President’s Budget Request (PBR) and Congressionally mandated budget caps established by the FRA with a topline of $849.8 billion.

The House Appropriations Committee also marked its bill at this same level.

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

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

Congress still needs 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 process to conclude.

A second Continuing Resolution (CR) for FY 2025 passed the House and Senate on December 20, 2024, and was signed by the President on December 21, 2024.

The bill funds U.S.

Government operations through March 14, 2025.

In addition to the Continuing Resolution, the President also signed the Disaster Relief Supplemental Appropriations Act on December 21, 2024, which includes more than $100 billion in supplemental funding.

Of note, the final version of the bill did

not address the debt ceiling, which is set to expire mid-January 2025 and is expected to cause challenges at the start of the 119th Congressional negotiations.

Once the debt ceiling is reached, Treasury may have to use extraordinary measures to prevent default.

Treasury’s available cash and any extraordinary measures taken should delay the risk of default for at least several months after the end of the first quarter of 2025.

In the upcoming months, the new Congress will return to the task of funding the U.S.

Government for the balance of 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, the new Administration and Congress, the global security environment, inflationary pressures, and macroeconomic conditions.

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

Geopolitical and Economic Environment

We operate in a complex and evolving global security environment and our business is affected by geopolitical issues.

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

interest for certain of our products and services as countries seek to improve their security posture.

We operate in a complex and evolving global security environment and our business is affected by geopolitical and security issues.

Russia’s invasion of Ukraine, conflicts in the Middle East and heightened tension in the Pacific region have elevated global security concerns resulting in increased interest for our products and services as countries seek to improve their security posture.

In this context, the U.S.

Government, our largest customer, continues to align its budget with the defense priorities set forth in the 2022 National Defense Strategy.

In addition, security assistance provided by the U.S.

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

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

Government and allied demand to replenish U.S.

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

Although we received new orders in 2023 attributable to a response to the conflict and continue to expect to receive them over the next several years, given the long-cycle nature of our business and current industry capacity, the orders did not result in a significant increase in 2023 sales.

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

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

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

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

We continue to work with the U.S.

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

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

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

Supply chain disruptions persist, and we continue to experience supply chain challenges, including supplier shortages and performance issues, which have delayed certain customer deliveries and adversely impacted our performance and our 2023 financial results.

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

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

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

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

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

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

We continue to experience supply chain challenges, including supplier shortages and performance issues.

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 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 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.

Inflation and higher interest rates can also constrain the overall purchasing power of our customers for our products and services potentially impacting future orders, especially in a budget constrained environment.

We remain committed to our ongoing efforts to increase the efficiency of our operations and improve the cost competitiveness and affordability of our products and services, which may, in part, offset cost increases from inflation.

2 unchanged sentences

To accomplish this growth, we continue to focus on strengthening our relationships internationally through partnerships and joint technology efforts.

Our international business is conducted either by foreign military sales (FMS) contracted through the U.S.

Our international business is conducted either by FMS contracted through the U.S.

Government or by direct commercial sales (DCS) to international customers.

5 unchanged sentences

There continues to be strong international interest in the F-35 program, which includes commitments from the U.S.

Government and seven international partner countries and nine FMS customers, as well as expressions of interest from other countries.

Government and seven international partner countries and twelve FMS customers, as well as expressions of interest from other countries.

Government and the partner countries continue to work together on the design, testing, production and sustainment of the F-35 program.

Other areas of international expansion at our Aeronautics business segment include the F-16 and C-130J programs, which continue to draw interest from international customers for new aircraft.

Other areas of

international expansion at our Aeronautics business segment include the F-16 and C-130J programs, which continue to draw interest from international customers for new aircraft.

In 2024, international customers accounted for 29% of MFC’s net sales.

Our MFC business segment continues to generate significant international interest, most notably in the air and missile defense product line, which produces the PAC-3 and Terminal High Altitude Area Defense (THAAD) systems.

Fifteen nations have chosen PAC-3 Cost Reduction Initiative (CRI) and PAC-3 Missile Segment Enhancement (MSE) to provide missile defense capabilities.

Additionally, we continue to see international demand for our tactical and strike missile products, where we received orders for precision fires systems from Germany and Taiwan and for Long Range Anti-Ship Missiles (LRASM) from Australia.

Seventeen nations have chosen PAC-3 Cost Reduction Initiative (CRI) and PAC-3 Missile Segment Enhancement (MSE) to provide missile defense capabilities.

Additionally, we continue to see international demand for our tactical and strike missile products, where we received orders from Poland for precision fire systems and for Joint Air-to-Surface Standoff Missile (JASSM).

In 2024, international customers accounted for 32% of RMS’ net sales.

Our RMS business segment continues to experience international interest in the Aegis Ballistic Missile Defense System (Aegis) for which we perform activities in the development, production, modernization, ship integration, test and lifetime support for ships of international customers such as Japan, Spain, Republic of Korea and Australia.

We have ongoing combat systems programs associated with different classes of surface combatant ships for customers in Canada, Chile and New Zealand.

1 unchanged sentence

In our training and logistics solutions portfolio, we have active programs and pursuits in the United Kingdom, the Kingdom of Saudi Arabia, Canada, Singapore, Australia, Germany and France.

We have active development, production and sustainment support of the S-70 Black Hawk and MH-60 Seahawk helicopters to international customers, including India, Philippines, Australia, Republic of Korea, Thailand, the Kingdom of Saudi Arabia and Greece.

Additionally, in December 2021, the Israeli Ministry of Defense signed a Letter of Offer and Acceptance (LOA) to procure 12 CH-53K King Stallion heavy lift helicopters, with the first four awarded in 2022 and the remaining awarded in 2023.

We have active development, production and sustainment support of the S-70 Black Hawk and MH-60 Seahawk helicopters to international customers, including India, Philippines, Australia, the Republic of Korea, Thailand, the Kingdom of Saudi Arabia and Greece.

Commercial aircraft are sold to international customers to support search and rescue missions as well as VIP and offshore oil and gas transportation.

2 unchanged sentences

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

Government’s current inventory 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 nine Foreign Military Sales (FMS) customers;

as well as interest from other countries.

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

The Government of Canada announced in January 2023 its commitment to purchase 88 F-35 aircraft.

In February 2023, the Government of Singapore announced its intent to exercise an option to purchase an additional eight F-35 aircraft, increasing its total quantity to 12.

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

Also in September 2023, the U.S.

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

In November 2023, the Government of Romania submitted an official letter of request for a Letter of Offer and Acceptance to the U.S.

Government for 32 F-35 aircraft.

During 2023, we delivered 98 aircraft and had a backlog of 373 aircraft.

Since program inception through the end of 2023, we delivered 992 production F-35 aircraft to U.S.

and international customers, including 710 F-35A variants, 197 F-35B variants, and 85 F-35C variants, demonstrating the F-35 program’s continued progress and longevity.

Regarding the F-35 Technology Refresh 3 (TR-3) status, a second quarter 2024 customer acceptance of delivery software remains our target;

however, we believe the third quarter 2024 may be a more likely scenario for TR-3 software acceptance.

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

Given the size and complexity of the F-35 program, we anticipate that there will be continual reviews related to aircraft performance, program, and delivery schedule, cost, and requirements as part of the DoD, Congressional, and international countries’ oversight, and budgeting processes.

Areas of focus include our and our suppliers’ performance, software development (including, in particular, software maturation related to the TR-3 configuration), execution of future flight tests and findings resulting from testing and operating the aircraft, the level of cost associated with life cycle operations, sustainment and potential contractual obligations, inflation-related cost pressures, and the ability to improve affordability.

We also have commitments from seven international partner countries and twelve 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.

In November 2024, Romania signed an LOA to procure 32 aircraft, becoming the 20th nation to join the F-35 program.

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

From program inception through December 31, 2024, we have delivered 1,102 production F-35 aircraft, including 797 F-35A variants, 203 F-35B variants and 102 F-35C variants, and our backlog as of that date was 408 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 106 Technology Refresh 3 (TR-3) configured aircraft and four TR-2 configured aircraft in 2024.

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

In December 2024, Lockheed Martin and the Joint Program Office (JPO) reached an agreement for an undefinitized contract action for Lot 18 F-35 Air Vehicle Production Contract for 145 aircraft.

The scope includes aircraft for the U.S.

Air Force, Navy, and Marines and the International Partners and Foreign Military Sales (FMS) customers, in addition to the required infrastructure for the international Final Assembly and Checkout Facilities (FACOs) and other equipment.

While we continue to engage with the U.S.

Government to definitize the contract, this agreement allowed us to recognize approximately $700 million of sales and associated operating profit deferred from the third quarter of 2024 into the fourth quarter of 2024.

We were also able to invoice and collect cash of approximately $1.3 billion in the fourth quarter for costs incurred.

Lot 19 was negotiated concurrently with Lot 18, and both Lots are expected to be fully awarded in 2025.

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.

At December 31, 2024, our backlog was $176.0 billion compared with $160.6 billion at December 31, 2023.

Backlog is converted into sales in future periods as work is performed or deliveries are made.

We expect to recognize approximately 36% of our backlog over the next 12 months and approximately 62% over the next 24 months as revenue, with the remainder recognized thereafter.

We expect to recognize approximately 35%

of our backlog over the next 12 months and approximately 60% over the next 24 months as revenue, with the remainder recognized thereafter.

Our backlog includes both funded (firm orders for our products and services for which funding has been both authorized and appropriated by the customer) and unfunded (firm orders for which funding has not been appropriated) amounts.

22 unchanged sentences

Diluted earnings per common share $ 22.31 $ 27.55 $ 21.66

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

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

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

11 unchanged sentences

Product Sales

Product sales increased $799 million, or 1%, in 2023 as compared to 2022.

The increase was primarily attributable to higher product sales of approximately $940 million at Space mostly due to ramp up in the Next Generation Interceptor (NGI) development program and higher volume in the Fleet Ballistic Missile (FBM) program.

Product sales increased $3.0 billion, or 5%, in 2024 as compared to 2023.

The increase was primarily attributable to higher product sales of approximately $1.4 billion at MFC, $1.1 billion at RMS and $840 million at Aeronautics.

Higher product sales at MFC were due to production ramp up on GMLRS, HIMARS, JASSM and LRASM programs.

Higher product sales at RMS were primarily due to higher volume on radar programs, new program ramp up within the laser systems portfolio and higher production volume on CH-53K program, partially offset by lower volume on the VH-92A program.

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

Service Sales

Service sales increased $460 million, or 4%, in 2024 as compared to 2023.

The increase in service sales was primarily due to higher sales of approximately $600 million at Aeronautics due to higher volume on F-35 sustainment contracts.

The increase in service sales was primarily due to higher sales of approximately $305 million at Aeronautics and $150 million at Space.

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

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

Cost of Sales

1 unchanged sentence

For each of our contracts, we monitor the nature and amount of costs at the contract level, which form the basis for estimating our total costs to complete the contract.

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

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

2024 2023 2022

Cost of sales – products $ (54,852) $ (50,206) $ (49,357)

5 unchanged sentences

Total cost of sales $ (64,113) $ (59,092) $ (57,697)

(a) Effective January 1, 2023, we reclassified intangible asset amortization expense out of the business segment operating profit and into the unallocated items line item to better align with how management views and manages the business.

See “Note 1 – Organization and Significant Accounting Policies” included in our Notes to Consolidated Financial Statements for further information regarding the impact of this change on our current and prior period segment operating profit.

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.

1 unchanged sentence

Product Costs

Product costs increased approximately $849 million, or 2%, in 2023 as compared to 2022.

The increase was primarily attributable to higher product costs of $815 million at Space due to ramp up in the Next Generation Interceptor (NGI) development program and higher volume in the Fleet Ballistic Missile (FBM) program.

Product costs increased approximately $4.6 billion, or 9%, in 2024 as compared to 2023.

The increase was primarily attributable to higher product costs of $2.5 billion at MFC, $1.2 billion at Aeronautics and $1.1 billion at RMS.

Higher product costs at MFC were due to $1.4 billion in reach-forward losses on a classified program and production ramp up as described above in “Product Sales”.

Higher product costs at Aeronautics were due to higher volume and production ramp up as described above in “Product Sales” and $555 million of losses recognized on a classified contract.

See “Note 1 – Organization and Significant Accounting Policies” included in our Notes to Consolidated Financial Statements for further details about classified program losses incurred at MFC and Aeronautics.

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

Service Costs

Service costs increased approximately $775 million, or 8%, in 2023 compared to 2022.

The increase was primarily attributable to higher service costs of approximately $570 million at Aeronautics due to higher volume on F-35 sustainment contracts.

Severance and other charges

During the fourth quarter of 2023, we recorded severance and other charges of $92 million ($73 million, or $0.30 per share, after-tax) associated with s everance costs for the planned reduction of certain positions across the corporation and asset impairment charges .

Upon separation, terminated employees will receive lump-sum severance payments primarily based on years of service, the majority of which are expected to be paid over the next several quarters.

This action resulted from a review of our business segments and corporate functions and is intended to improve the efficiency of our operations.

During the fourth quarter of 2022, we recorded severance and other charges totaling $100 million ($79 million, or $0.31 per share, after-tax) related to actions at our RMS business segment, which include severance costs for reduction of positions and asset impairment charges.

After a strategic review of RMS, these actions improved the efficiency of our operations and better aligned the organization and cost structure with changing economic conditions and changes in program lifecycles.

We generally can recover a portion of severance costs through the pricing of our products and services to the U.S.

Government and other customers in future periods, which will be included in our operating results.

Service costs increased approximately $190 million, or 2%, in 2024 as compared to 2023.

The increase was primarily attributable to higher service costs of approximately $235 million at Aeronautics due to higher volume as described above in “Service Sales”.

Impairment and Severance Charges

We recorded charges totaling $87 million ($69 million, or $0.29 per share, after-tax) in 2024 and $92 million ( $73 million , or $0.30 per share, after-tax) in 2023.

See “Note 16 – Impairment and Severance Charges” included in our Notes to Consolidated Financial Statements for additional information.

Other Unallocated, Net

Other unallocated, net primarily includes the FAS/CAS pension operating adjustment (which represents the difference between total CAS pension cost recorded in our business segments’ results of operations and the service cost component of Financial Accounting Standards (FAS) pension expense), stock-based compensation expense, changes in the fair value of assets and liabilities for deferred compensation plans, intangible asset amortization expense and other corporate costs.

Other unallocated, net primarily includes the FAS/CAS pension operating adjustment (which represents the difference between total CAS pension cost recorded in our business segments’ results of operations and the service cost component of Financial Accounting Standards (FAS) pension income (expense)), stock-based compensation expense, changes in the fair value of assets and liabilities for deferred compensation plans, intangible asset amortization expense and other corporate costs.

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 $1.0 billion in 2024, compared to $1.2 billion in 2023.

There were lower losses from the changes in the fair value of assets and liabilities related to deferred compensation plans in 2023 compared to in 2022.

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 in 2024 compared to 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 in 2024 was $83 million, compared to $28 million in 2023.

Other income, net in 2023 includes lower earnings generated by our equity method investment in United Launch Alliance (ULA) due to lower launch volume and an increase in new product development costs.

Other income, 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.

The increase in other income, net in 2024 resulted primarily from the favorable settlement of an intellectual property related matter and higher earnings generated by equity method investees.

Interest Expense

Interest expense in 2023 was $916 million, compared to $623 million in 2022.

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

Interest expense in 2024 was $1.0 billion, compared to $916 million in 2023.

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

See “Capital Structure, Resources and Other” included within the “Liquidity and Cash Flows” discussion below and “Note 10 – Debt” included in our Notes to Consolidated Financial Statements for a discussion of our debt.

Non-Service FAS Pension Income (Expense)

Non-service FAS pension income was $443 million in 2023, compared to non-service FAS pension expense of $971 million in 2022.

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

See “Note 11 – Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements for additional information.

Non-Service FAS Pension Income

Non-service FAS pension income in 2024 was $62 million, compared to $443 million in 2023.

The decrease was primarily due to a lower prior service credit amortization and a reduced asset base as detailed in “Note 11 – 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 (expense), net primarily includes gains or losses related to changes in the fair value of early-stage company investments or gains or losses upon the sale of these investments.

Other non-operating income, net in 2024 was $181 million, compared to $64 million in 2023.

See “Note 1 – Organization and Significant Accounting Policies” included in our Notes to Consolidated Financial Statements for additional information.

Other non-operating income, net in 2023 was $64 million, compared to other non-operating expense, net of $74 million in 2022.

Other non-operating income (expense), net in 2023 includes higher interest income as a result of the higher rate environment we are seeing on a macro-economic scale and lower losses related to fair value adjustments of early-stage company investments.

Income Tax Expense

Our effective income tax rate was 14.2% for 2024 and 14.5% for 2023.

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

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

Changes in U.S.

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

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

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

On September 8, 2023, the IRS released Notice 2023-63 providing interim guidance on research and development capitalization.

Based on our analysis, the Notice confirms that certain expenditures incurred in the performance of cost-type contracts are not required to be capitalized.

As a result, there has been a decrease to our uncertain tax position.

IRS indicated in the Notice that it intends to issue proposed regulations consistent with the guidance set forth in the Notice.

For the 2023 tax year, research and development capitalization resulted in a cash tax liability of approximately $560 million and our net deferred tax assets increased by a similar amount.

While the largest impact of this provision was to the 2022

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

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

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

The Organization 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.

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.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years for tax purposes.

In 2024, research and development capitalization resulted in a cash tax liability of approximately $370 million and our net deferred tax assets increased by a similar amount.

While the largest impact of this provision was to the 2022 cash tax liability, the impact will continue over the five-year amortization period, but will decrease over the period and be immaterial by 2027.

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

The final resolution of tax audits and any related administrative reviews or litigation could result in unanticipated increases in our tax expense and changes to the timing of required tax payments, which could affect profitability and cash flows for any particular reporting period.

These increases or changes could have a material impact on financial condition and results of operations in such period.

The Organisation for Economic Co-operation and Development (OECD) has a framework to implement a global minimum corporate tax of 15% applied on a country-by-country basis 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 the United States has not enacted legislation to adopt Pillar 2 and it is uncertain if it will do so in the future, certain countries in which we operate have enacted such legislation, and other countries are in the process of doing so.

We do not expect Pillar 2 to have a material impact on our effective tax rate or our financial condition and results of operation.

We reported net earnings of $5.3 billion ($22.31 per share) in 2024 and $6.9 billion ($27.55 per share) in 2023.

1 unchanged sentence

Earnings per share also benefited from a net decrease of approximately 12.0 million weighted average common shares outstanding in 2024 compared to 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.

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

Business Segment Results of Operations

6 unchanged sentences

Government under the applicable U.S.

Government cost accounting standards (CAS) or federal acquisition regulations (FAR), and other items not considered part of management’s evaluation of segment operating performance.

Government Cost Accounting Standards (CAS) or portions of the Federal Acquisition Regulation (FAR), and other items not considered part of management’s evaluation of segment operating performance.

See “Note 1 – Organization and Significant Accounting Policies” for a discussion related to certain factors that may impact the comparability of net sales and operating profit of our business segments.

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

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

2024 2023 2022

4 unchanged sentences

Total net sales $ 71,043 $ 67,571 $ 65,984

Cost of sales

Aeronautics $ 26,093 $ 24,649 $ 24,110

Missiles and Fire Control 12,277 9,712 9,676

Rotary and Mission Systems 15,391 14,399 14,258

Space 11,308 11,473 10,565

Total cost of sales $ 65,069 $ 60,233 $ 58,609

Operating profit

7 unchanged sentences

Intangible asset amortization expense (247) (247) (248)

Severance and other charges (a)

Impairment and severance charges (a)

(87) (92) (100)

3 unchanged sentences

(a) See “Consolidated Results of Operations – Severance and Other Charges” discussion above for information on charges related to certain severance and other actions across our organization.

Effective January 1, 2023, we no longer consider amortization expense related to purchased intangible assets when evaluating the operating performance of our business segments.

This change has been applied to the accompanying amounts above, including the amounts for 2022 and 2021.

We also included supplemental tables under the caption Pro Forma Business Segment Summary Operating Results in our earnings release included as exhibit 99.1 to our Current Report on Form 8-K filed January 24, 2023, which provide unaudited pro forma financial information reflecting the impact of the change in presentation as-if it had been applicable for the quarters and year to date periods in 2022 and 2021.

The supplemental tables, the earnings release and the Current Report on Form 8-K are not, and shall not be deemed to be, incorporated by reference herein.

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.

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

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

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

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

12 unchanged sentences

The total FAS/CAS pension adjustment in 2022 reflects a noncash, non-operating pension settlement charge of $1.5 billion ($1.2 billion, or $4.33 per share, after-tax) recognized in connection with the transfer of $4.3 billion of our gross defined benefit pension obligations and related plan assets to an insurance company in the second quarter of 2022.

The total FAS/CAS pension adjustment in 2021 reflects a noncash, non-operating pension settlement charge of $1.7 billion ($1.3 billion, or $4.72 per share, after-tax) recognized in connection with the transfer of $4.9 billion of our gross defined benefit pension obligations and related plan assets to an insurance company in the third quarter of 2021.

See “Note 11 – Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements.

The following segment discussions also include information relating to backlog for each segment.

Backlog was approximately $160.6 billion and $150.0 billion at December 31, 2023 and 2022.

These amounts included both funded backlog (firm orders for which funding has been both authorized and appropriated by the customer) and unfunded backlog (firm orders for which funding has not yet been appropriated).

Backlog does not include unexercised options or task orders to be issued under indefinite-delivery, indefinite-quantity contracts.

Funded backlog was approximately $107.4 billion at December 31, 2023, as compared to $95.5 billion at December 31, 2022.

If any of our contracts with firm orders were to be terminated, our backlog would be reduced by the expected value of the unfilled orders of such contracts.

The following segment discussions include information relating to backlog for each segment.

Also see “Backlog” discussion above.

Management evaluates performance on our contracts by focusing on net sales and operating profit and not by type or amount of operating expense.

9 unchanged sentences

We also may enter into long-term supply contracts for certain materials or components to coincide with the production schedule of certain products and to ensure their availability at known unit prices.

Many of our contracts span several years and include highly complex technical requirements.

At the outset of a contract, we identify and monitor risks to the achievement of the technical, schedule and cost aspects of the contract and assess the effects of those risks on our estimates of 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 and the estimated costs to fulfill our industrial cooperation agreements, sometimes referred to as offset 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 and variable considerations.

Profit booking rates may increase during the performance of the contract if we successfully retire risks related to the technical,

schedule and cost aspects of the contract, which decreases the estimated total costs to complete the contract.

Conversely, our profit booking rates may decrease if the estimated total costs to complete the contract increase.

All of the estimates are subject to change during the performance of the contract and may affect the profit booking rate.

For further discussion on fixed-price contracts, see “Note 1 – Organization and Significant Accounting Policies” included in our Notes to Consolidated Financial Statements.

We have a number of programs that are designated as classified by the U.S.

Government which cannot be specifically described.

The operating results of these classified programs are included in our consolidated and business segment results and are subjected to the same oversight and internal controls as our other programs.

Government, and that cannot be specifically described.

The operating results of these classified programs are included in our consolidated and business segment results and are subject to the same oversight and internal controls as our other programs.

Our net sales are primarily derived from long-term contracts for products and services provided to the U.S.

3 unchanged sentences

For performance obligations in which control does not continuously transfer to the customer, we recognize revenue at the point in time in which each performance obligation is fully satisfied.

Changes in net sales and operating profit generally are expressed in terms of volume.

Many of our contracts span several years and include highly complex technical requirements.

At the outset of a contract accounted for under the percentage-of-completion cost-to-cost method, we identify and monitor risks to the achievement of the technical, schedule and cost aspects of the contract and assess the effects of those risks on our estimates of sales and total costs to complete the contract, as well as our ability to earn variable consideration.

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 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).

Profit booking rates may increase during the performance of the contract if we successfully retire risks related to the 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.

The profit booking rate may also be adjusted if the total estimated value of the contract changes or there is a contract modification.

All of the estimates are subject to change during the performance of the contract and may affect the profit booking rate.

For further discussion on fixed-price contracts, see “Note 1 – Organization and Significant Accounting Policies” included in our Notes to Consolidated Financial Statements.

Changes in net sales and operating profit generally are expressed in terms of volume, contract mix, and/or performance (referred to as profit booking rate adjustments).

Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts.

Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract.

Contract mix primarily refers to changes in the ratio of contract type or life cycle (e.g., cost-type, fixed-price, development, production and/or sustainment) and other cost recoveries.

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 adjustments, usually relate to revisions in the estimated total costs to fulfill the performance obligations that reflect improved conditions on a particular contract.

Conversely, conditions on a particular contract may deteriorate, resulting in an increase in the estimated total costs to fulfill the performance obligations and a reduction in the profit booking rate and are typically referred to as unfavorable profit adjustments.

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 may also be impacted favorably or unfavorably by other items, which may or may not impact sales.

Favorable items may include the positive resolution of contractual matters, cost recoveries on severance and restructuring, insurance recoveries and gains on sales of assets.

Unfavorable items may 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 segment operating profit by approximately $1.6 billion in 2023 and $1.8 billion in 2022.

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

For further discussions, see “Note 1 – Organization and Significant Accounting Policies” included in our Notes to Consolidated Financial Statements for more information.

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.

Increases or decreases in profit booking rates are recognized in the period they are determined and reflect the inception-to-date effect of such changes.

Segment operating profit and margin 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 decreased segment operating profit by approximately $180 million in 2024 and increased segment operating profit by $1.6 billion in 2023.

The impact in 2024 includes losses of $555 million recognized on a classified program at our Aeronautics business segment, reach-forward losses of $1.4 billion recognized on a classified program at our MFC business segment and $155 million of favorable profit rate adjustments following the resolution of a long-standing claim associated with a completed C-5 Galaxy aircraft contract.

The impact in 2023 included an unfavorable profit adjustment of $100 million on the Canadian Maritime Helicopte r Program (CMHP) and a $65 million favorable profit adjustment as a result of a positive resolution of a contractual matter on an international surveillance and control program at our RMS business segment.

See the discussions under “Revenue Recognition” in “Note 1 – Organization and Significant Accounting Policies” included in our Notes to Consolidated Financial Statements for more information.

Our Aeronautics business segment is engaged in the research, design, development, manufacture, integration, sustainment, support and upgrade of advanced military aircraft, including combat and air mobility aircraft, unmanned air vehicles and related technologies.

6 unchanged sentences

Backlog at year-end $ 62,763 $ 60,156 $ 56,630

Aeronautics’ net sales in 2023 increased $487 million, or 2%, compared to 2022.

Net sales increased by approximately $540 million for the ramp up on classified programs and $230 million on the F-16 program related to the ramp up in

These increases were partially offset by lower net sales of $400 million on the F-35 program due to lower volume on production contracts partially offset by higher volume on sustainment and development contracts.

Aeronautics’ net sales in 2024 increased $1.1 billion, or 4%, compared to 2023.

The increase was primarily attributable to higher net sales of $1.0 billion on the F-35 program due to higher volume on sustainment, production and development contracts;

and $210 million on the F-16 program due to the ramp up on production;

partially offset by $200 million on

classified programs primarily driven by the sales impact of recognizing losses on one contract (s ee “Note 1 – Organization and Significant Accounting Policies”) , partially offset by higher volume across the classified programs portfolio.

Aeronautics’ operating profit in 2024 decreased $302 million, or 11%, compared to 2023.

The decrease was primarily attributable to lower operating profit of $100 million on the F-22 program due to lower net favorable profit adjustments and $95 million on the F-35 program due to lower net favorable profit adjustments on production contracts.

These decreases were partially offset by higher operating profit of $115 million on classified programs due to higher net favorable profit adjustments and the impact of the higher sales as discussed above.

Total net profit booking rate adjustments were $180 million lower in 2023 compared to 2022.

Backlog increased in 2023 compared to 2022 primarily due to higher orders on classified and C-130 programs.

The decrease in operating profit was attributable to $375 million of lower profit booking rate adjustments, partially offset by $120 million from higher volume and program ramp up described above.

The decrease in profit booking rate adjustments was primarily due to $555 million of losses recognized on a classified contract (s ee “Note 1 – Organization and Significant Accounting Policies”) ;

partially offset by $155 million of favorable profit rate adjustments following the resolution of a long-standing claim associated with a completed C-5 Galaxy aircraft contract.

Backlog increased in 2024 compared to 2023 primarily due to higher orders on the F-35 program.

Missiles and Fire Control

Our MFC business segment provides air and missile defense systems;

tactical missiles and air-to-ground precision strike weapon systems;

tactical missiles and precision strike weapon systems;

fire control systems;

9 unchanged sentences

Backlog at year-end $ 38,783 $ 32,229 $ 28,735

MFC’s net sales in 2023 decreased $64 million, or 1% compared to 2022.

Net sales decreased $165 million for integrated air and missile defense programs due primarily to supplier cost timing on PAC-3 and $115 million for sensors and global sustainment programs due primarily to the absence in 2023 of the impact of a favorable profit adjustment on an international program in 2022.

These decreases were partially offset by higher net sales of $145 million for tactical and strike missile programs primarily due to production ramp up on JASSM, LRASM, and precision fires programs.

MFC’s operating profit in 2023 decreased $96 million, or 6%, compared to 2022.

The decrease was primarily attributable to lower operating profit for tactical and strike missile programs due to $45 million of losses recognized on a classified program.

Total net profit booking rate adjustments were $95 million lower in 2023 compared to 2022.

Backlog increased in 2023 compared to 2022 primarily due to higher orders on PAC-3, LRASM, JASSM and Guided Multiple Launch Rocket Systems (GMLRS) programs.

MFC’s net sales in 2024 increased $1.4 billion, or 13%, compared to 2023.

The increase was primarily attributable to higher net sales of $1.2 billion for tactical and strike missile programs due to production ramp up on GMLRS, LRASM and JASSM;

and $145 million for integrated air and missile defense programs due to production ramp up on PAC-3.

MFC’s operating profit in 2024 decreased $1.1 billion, or 73%, compared to 2023.

The decrease in operating profit was attributable to $1.2 billion of lower profit booking rate adjustments, which includes $1.4 billion in losses on a classified program (s ee “Note 1 – Organization and Significant Accounting Policies”) , partially offset by the production ramp up described above.

Backlog increased in 2024 compared to 2023 primarily due to higher orders on PAC-3, JASSM and GMLRS programs.

Rotary and Mission Systems

RMS designs, manufactures, services and supports various military and commercial helicopters, surface ships, sea and land-based missile defense systems, radar systems, laser systems, sea and air-based mission and combat systems, command and control mission solutions, cyber solutions, and simulation and training solutions.

RMS’ major programs include Aegis Combat System, Littoral Combat Ship (LCS), Multi-Mission Surface Combatant (MMSC), Black Hawk and Seahawk helicopters,

CH-53K King Stallion heavy lift helicopter, Combat Rescue Helicopter (CRH), VH-92A helicopter, and the C2BMC program.

RMS’ major programs include Aegis Combat System, Littoral Combat Ship (LCS), Multi-Mission Surface Combatant (MMSC), Canadian Surface Combatant (CSC), Black Hawk and Seahawk helicopters, CH-53K King Stallion heavy lift helicopter, Combat Rescue Helicopter (CRH), VH-92A helicopter, and the C2BMC program.

RMS’ operating results included the following (in millions):

4 unchanged sentences

Backlog at year-end $ 38,117 $ 37,726 $ 34,949

RMS’ net sales in 2023 increased $91 million, or 1%, compared to 2022.

Higher net sales of $265 million on IWSS programs due to higher volume on the Aegis program and new program ramp ups within the radar and laser systems portfolios were partially offset by lower net sales of $55 million for Sikorsky helicopter programs due to lower Black Hawk production volume.

RMS’ operating profit in 2023 decreased $41 million, or 2%, compared to 2022.

The decrease was primarily attributable to lower operating profit for Sikorsky helicopter programs primarily due to an unfavorable profit adjustment of $100 million in the second quarter of 2023 on the Canadian Maritime Helicopter Program (CMHP) and lower Black Hawk production volume.

This decrease was partially offset by higher operating profit for IWSS programs primarily due to a favorable profit adjustment of $65 million in the second quarter of 2023 on an international surveillance and control program, along with higher volume on the Aegis program.

Total net profit booking rate adjustments were $100 million lower in 2023 compared to 2022.

Backlog increased in 2023 compared to 2022 primarily due to higher orders on Sikorsky programs.

RMS’ net sales in 2024 increased $1.0 billion, or 6%, compared to the same period in 2023.

The increase was primarily attributable to higher net sales of $750 million on IWSS programs due to higher volume on radar programs, the CSC program and new program ramp up within the laser systems portfolio;

$175 million for various C6ISR programs due to higher volume;

and $140 million for Sikorsky helicopter programs due to higher production volume on the CH-53K program, partially offset by lower volume on the VH-92A program.

RMS’ operating profit in 2024 increased $56 million, or 3%, compared to the same period in 2023.

The increase in operating profit was attributable to $115 million from higher volume described above and $85 million from favorable contract mix and cost recoveries, partially offset by $155 million of lower profit booking rate adjustments.

The decrease in profit booking rate adjustments was due to unfavorable profit rate adjustments on the Seahawk production program, 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.

Backlog increased in 2024 compared to 2023 primarily due to higher orders on IWSS and C6ISR programs.

Our Space business segment is engaged in the research and design, development, engineering and production of satellites, space transportation systems, and strategic, advanced strike and defensive systems.

2 unchanged sentences

Space’s major programs include the Trident II D5 Fleet Ballistic Missile (FBM), Orion Multi-Purpose Crew Vehicle (Orion), Next Generation Overhead Persistent Infrared (Next Gen OPIR) system, Global Positioning System (GPS) III, hypersonics and transport layer programs and Next Generation Interceptor (NGI).

Operating profit for our Space business segment includes our share of earnings for our investment in ULA, which provides expendable launch services to the U.S.

Operating profit for our Space business segment includes our share of earnings for our investment in United Launch Alliance (ULA), which provides expendable launch services to the U.S.

Government and commercial customers.

5 unchanged sentences

Backlog at year-end $ 36,377 $ 30,456 $ 29,684

Space’s net sales in 2023 increased $1.1 billion, or 9%, compared to 2022.

The increase was primarily attributable to higher net sales of $620 million for strategic and missile defense programs due to ramp up in the NGI development program and higher volume in the FBM program;

and higher net sales of $225 million for national security space programs due to development ramp up on Transport Layer and classified programs.

Space’s operating profit in 2023 increased $101 million, or 10%, compared to 2022.

The increase was primarily attributable to higher operating profit of $140 million for national security space programs due to the absence of unfavorable profit adjustments in 2023 on a ground solutions program and higher net favorable profit adjustments in classified programs.

This increase was partially offset by $80 million of lower equity earnings resulting from lower launch volume and an increase in new product development costs at ULA.

Total net profit booking rate adjustments were $150 million higher in 2023 compared to 2022.

Space’s net sales in 2024 decreased $126 million, or 1%, compared to the same period in 2023.

The decrease was primarily attributable to lower net sales of $320 million for national security space programs due to lower volume on classified programs and $145 million for commercial civil space due to lower volume on the Orion program, partially offset by higher volume on other space exploration programs.

These decreases were partially offset by higher net sales of $255 million for strategic and missile defense programs due to higher volume on FBM and reentry programs.

Space’s operating profit in 2024 increased $68 million, or 6%, compared to the same period in 2023.

The increase was primarily attributable to $100 million related to favorable contract mix and cost recoveries across the portfolio, partially offset by $55 million of lower profit booking rate adjustments due to lower net favorable profit rate adjustments on the Orion program and $25 million of higher equity earnings driven by higher launch volume from our investment in ULA.

Equity earnings

Total equity earnings (primarily ULA) represented approximately $20 million and $100 million, or 2% and 9%, of Space’s operating profit during 2023 and 2022.

Backlog increased in 2023 compared to 2022 primarily due higher orders for strategic and missile defense programs for NGI development, hypersonics, and Mk21A, partially offset by reductions in the National Security Space portfolio for classified and Next Gen OPIR programs.

Total equity earnings (attributable to our investment in ULA) represented approximately $45 million and $20 million, or 4% and 2%, of Space’s operating profit during 2024 and 2023.

Backlog increased in 2024 compared to 2023 primarily due to higher orders for National Security Space for classified programs, Commercial Civil Space for GeoXO program, and Strategic and Missiles Defense for FBM Mk7 program.

Liquidity and Cash Flows

As of December 31, 2023, we had cash and cash equivalents of $1.4 billion.

As of December 31, 2024, we had cash and cash equivalents of $2.5 billion that was generally available to fund ordinary business operations without significant legal, regulatory or other restrictions.

Our principal source of liquidity is our cash from operations.

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

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

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

Cash received from customers, either from the payment of invoices for work performed or for advances from non-U.S.

government customers in excess of costs incurred, is our primary source of cash from operations.

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

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 (see “Note 10 – Debt” included in our Notes to Consolidated Financial Statements for additional information).

There were no borrowings outstanding under the revolving credit facility or commercial paper at year end for either 2024 or 2023.

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

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

3 unchanged sentences

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

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

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

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

7 unchanged sentences

We will continue to evaluate the use of accelerated payments on an as needed basis.

We have a balanced 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.

We seek to maintain 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.

1 unchanged sentence

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 $6.0 billion to our share repurchase program.

As of December 31, 2023, the total remaining authorization for future common share repurchases under our program was $10.0 billion.

We expect to fund these future repurchases through a combination of cash on hand and debt.

The Board of Directors also authorized an increase of $3.0 billion to our share repurchase program in October 2024.

The remaining authorization under our program was $9.3 billion as of December 31, 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.

1 unchanged sentence

We continue to actively manage our debt levels, including maturities and interest rates.

We seek to finance our business in a manner that preserves financial flexibility while minimizing borrowing costs to the extent practicable.

We review changes in financial market and economic conditions to manage the types, amounts and maturities of our indebtedness.

We may at times refinance existing indebtedness, vary our mix of variable-rate and fixed-rate debt or seek alternative financing sources for our cash and operational needs.

We also actively manage our pension obligations and expect to continue to opportunistically manage our pension liabilities through the purchase of group annuity contracts or other actions for portions of our outstanding defined benefit pension obligations using assets from the pension trust.

See “Note 11 – Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements for additional information.

Future pension risk transfer transactions could be significant and result in us making additional

contributions to the pension trust and/or require us to recognize noncash, non-operating pension settlement charges in earnings in the applicable reporting period.

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 CAS.

We could be required to make pension contributions earlier than and/or in excess of what was 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.

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

12 unchanged sentences

Operating Activities

Net cash provided by operating activities increased $118 million in 2023 compared to 2022.

The increase was primarily due to the timing of production and billing cycles impacting receivables (primarily the F-35 program at Aeronautics) and contract assets (primarily IWSS programs at RMS), partially offset by timing of cash payments for accounts payable across the company.

Net cash provided by operating activities decreased $948 million in 2024 compared to 2023.

The decrease was primarily due to a pension contribution of $990 million.

Our federal and foreign income tax payments, net of refunds, were $1.3 billion in 2024, compared to $1.8 billion in 2023.

2 unchanged sentences

Our capital expenditures are comprised of equipment and facilities infrastructure and information technology (inclusive of costs for the development or purchase of internal-use software that are capitalized).

We use free cash flow to evaluate our business performance and overall liquidity, as well as a performance goal in our annual and long-term incentive plans.

We use free cash flow to evaluate our business performance and overall liquidity, and is a performance goal in our annual and long-term incentive plans.

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

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

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

4 unchanged sentences

Free cash flow $ 5,287 $ 6,229 $ 6,132

Free cash flow decreased $942 million compared to 2023 primarily due to the decrease in cash provided by operating activities described above, partially offset by lower capital expenditures.

Investing Activities

2 unchanged sentences

incur capital expenditures for information technology to support programs and general enterprise information technology infrastructure, inclusive of costs for the development or purchase of internal-use software.

Net cash used for investing activities decreased $95 million in 2023 compared to 2022.

Net cash used for investing activities increased $98 million in 2024 compared to 2023, primarily due to a $231 million cash payment for the acquisition of Terran Orbital, partially offset by proceeds of $170 million from the sale of our Commercial Engine Solutions (CES) business.

Financing Activities

Net cash used for financing activities increased $261 million in 2023 compared to 2022, primarily due to lower proceeds from issuance of long-term debt, partially offset by lower repayments of long-term debt and decreased repurchases of common stock.

Net cash used for financing activities decreased $3.2 billion in 2024 compared to 2023.

We paid dividends totaling $3.1 billion ($12.75 per share) in 2024 and $3.1 billion ($12.15 per share) in 2023.

5 unchanged sentences

During 2024, we received net proceeds of $3.0 billion from issuance of senior unsecured notes.

In May 2022, we received net proceeds of $2.3 billion from issuance of senior unsecured notes and used the net proceeds from the offering to redeem all of the outstanding $500 million Notes due 2023, $750 million Notes due 2025 and used the remaining balance of the net proceeds to redeem $1.0 billion of our outstanding $2.0 billion Notes due 2026.

In October 2022, we received net proceeds of $3.9 billion from issuance of senior unsecured notes and used the net proceeds from the offering to enter into an accelerated share repurchase ( ASR) agreement to repurchase $4.0 billion of our common stock.

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

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

Additionally, we repaid $168 million of long-term notes with a fixed interest rate of 8.375% according to their scheduled maturities.

During 2023, we received net proceeds of $2.0 billion from issuance of senior unsecured notes and repaid $115 million of long-term notes with a fixed interest rate of 7.00% according to their scheduled maturities.

Capital Structure, Resources and Other

63 unchanged sentences

(a) Approximately $708 million of standby letters of credit in the “Less Than 1 Year” category are expected to renew for additional periods until completion of the contractual obligation.

At December 31, 2023, third-party guarantees totaled $1.0 billion, of which approximately 75% related to guarantees of contractual performance of joint ventures to which we currently are or previously were a party.

At December 31, 2024, third-party guarantees totaled $351 million, of which approximately 30% 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.

2 unchanged sentences

At December 31, 2024 and 2023, there were no material amounts recorded in our financial statements related to third-party guarantees or novation agreements.

Critical Accounting Policies

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in conformity with U.S.

10 unchanged sentences

Substantially all of our revenue is recognized over time as we perform under the contract because control of the work in process transfers continuously to the customer.

For performance obligations to deliver products with continuous control to the customer, revenue is recognized based on the extent of progress towards completion of the performance obligation, generally using the percentage of completion cost-to-cost measure of progress.

For performance obligations in which control transfers continuously to the customer, revenue is recognized based on the extent of progress towards completion of the performance obligation, generally using the percentage of completion cost-to-cost measure of progress.

Significant estimates and assumptions are made in estimating contract sales, costs, and profit.

7 unchanged sentences

Favorable items may include the positive resolution of contractual matters, cost recoveries on severance and restructuring, insurance recoveries and gains on sales of assets.

Unfavorable items may 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.

Unfavorable items may 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.

For the impacts of changes in estimates and assumptions on our consolidated financial statements, see “Note 1 – Organization and Significant Accounting Policies” included in our Notes to Consolidated Financial Statements.

18 unchanged sentences

The qualified defined benefit pension plans for salaried employees are fully frozen effective January 1, 2020 and our salaried employees participate in a defined contribution retirement savings plan.

Similar to recent years, we continue to take actions to mitigate the effect of our defined benefit pension plans on our financial results by reducing the size and volatility of our pension obligations.

From December 2018 and inclusive of the transactions described in “Note 11 – Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements, we, through our master retirement trust, have transferred approximately $15.9 billion related to our outstanding defined benefit pension obligations to third party insurance companies.

This has eliminated pension plan volatility for approximately 109,000 retirees and beneficiaries and reduced our annually required Pension Benefit Guarantee Corporation (PBGC) premiums by approximately $79 million per year.

We continue to take actions to reduce the size of our defined benefit pension plans.

From December 2018, through our master retirement trust, we have transferred outstanding defined benefit pension obligations to third party insurance companies;

reducing annually required Pension Benefit Guarantee Corporation (PBGC) premiums.

We expect to continue to look for opportunities to manage our pension liabilities through additional pension risk transfer transactions in future years.

11 unchanged sentences

As part of our evaluation, we calculate the approximate average yields on corporate bonds rated AA or better selected to match our projected postretirement benefit plan cash flows.

The decrease in the discount rate from December 31, 2022 to December 31, 2023 resulted in an increase in the projected benefit obligations of our qualified defined benefit pension plans of approximately $765 million at December 31, 2023.

The increase in the discount rate from December 31, 2023 to December 31, 2024 resulted in a decrease in the projected benefit obligations of our qualified defined benefit pension plans of approximately $1.8 billion at December 31, 2024.

We utilized an expected long-term rate of return on plan assets of 6.50% at both December 31, 2024 and December 31, 2023.

1 unchanged sentence

This assumption is based on several factors including historical market index returns, the anticipated long-term allocation of plan assets, the historical return data for the trust funds, plan expenses and the potential to outperform market index returns.

The difference between the long-term rate of return on plan assets assumption we select and the actual return on plan assets in any given year could be impacted by the timing of market returns, in addition to the timing of benefit payments and significant contributions.

Additionally, the difference between the expected and actual return affects both the funded status of our benefit plans and the calculation of FAS pension expense in subsequent periods.

The difference between the expected and actual return affects both the funded status of our benefit plans and the calculation of FAS pension expense in subsequent periods.

Although the actual return in any specific year likely will differ from the assumption, the average expected return over a long-term future horizon should be approximately equal to the assumption.

3 unchanged sentences

The actual investment return for our qualified defined benefit plans during 2024 was approximately 1%.

This resulted in an actual investment return on the plan assets during year 2024 of $288 million, versus the expected $1.6 billion based on our 6.50% long-term rate of return assumption.

Our stockholders’ equity has been reduced cumulatively by $8.3 billion from the annual year-end measurements of the funded status of postretirement benefit plans.

2 unchanged sentences

These cumulative actuarial losses will be amortized to expense using the corridor method, where gains and losses are recognized to the extent they exceed 10% of the greater of plan assets or benefit obligations, over an average period of approximately twenty years as of December 31, 2024.

During 2023, $149 million of these amounts, along with amortization of net prior service credit, were recognized as a component of postretirement benefit plan expense.

During 2024, $76 million of these amounts, inclusive of amortization of net prior service credit, were recognized as a component of postretirement benefit plan expense.

The discount rate and long-term rate of return on plan assets assumptions we select at the end of each year are based on our best estimates and judgment.

A change of plus or minus 25 basis points in the 5.625% discount rate assumption at December 31, 2024, with all other assumptions held constant, would have decreased or increased the amount of the qualified pension benefit obligation we recorded at the end of 2024 by approximately $725 million, which would result in an after-tax increase or decrease in stockholders’ equity at the end of the year of approximately $575 million.

If the 5.00% discount rate at December 31, 2023 that was used to compute the expected 2024 FAS pension income for our qualified defined benefit pension plans had been 25 basis points higher or lower, with all other assumptions held constant, the amount of FAS pension income projected for 2024 would change approximately $5 million.

If the 6.50% expected long-term rate of return on plan assets assumption at December 31, 2023 that was used to compute the expected 2024 FAS pension income for our qualified defined benefit pension plans had been 25 basis points higher or lower, with all other assumptions held constant, the amount of FAS

pension income projected for 2024 would be higher or lower by approximately $60 million.

Each year, differences between the actual and expected long-term rate of return on plan assets impacts the measurement of the following year’s FAS pension income.

Every 100 basis points increase (decrease) in return during 2023 between our actual rate of return of approximately 7.00% and our expected long-term rate of return increased (decreased) 2024 expected FAS pension income by approximately $10 million.

If the 5.625% discount rate at December 31, 2024 that was used to compute the expected 2025 FAS pension expense for our qualified defined benefit pension plans had been 25 basis points higher or lower, with all other assumptions held constant, the amount of FAS pension expense projected for 2025 would be lower or higher by approximately $5 million.

If the 6.50% expected long-term rate of return on plan assets assumption at December 31, 2024 that was used to compute the expected 2025 FAS pension expense for our qualified defined benefit pension plans had been 25 basis points higher or lower, with all other assumptions held constant, the amount of FAS pension expense projected for 2025 would be lower or higher by approximately $55 million.

Each year, differences between the actual and expected long-term rate of return on plan assets impacts the measurement of the following year’s FAS pension expense.

Every 100 basis points increase (decrease) in return during 2024 between our actual rate of return

of approximately 1% and our expected long-term rate of return decreased (increased) expected 2025 FAS pension expense by approximately $10 million.

Funding Considerations

We made no contributions in 2023 and 2022 to our qualified defined benefit pension plans.

Funding of our qualified defined benefit pension plans is determined in a manner consistent with CAS and 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 cash contributions to our qualified defined benefit pension plans of $990 million in 2024, and no contributions in 2023.

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 in a manner consistent with CAS and Internal Revenue Code rules.

The funded status under ERISA is calculated on a different basis than under GAAP.

Our goal has been to fund each of our qualified defined benefit pension plans to a level of at least 80% as determined in accordance with ERISA;

3 unchanged sentences

Government contracts, including FMS, and are recognized in our cost of sales and net sales.

CAS govern the extent to which our pension costs are allocable to and recoverable under contracts with the U.S.

CAS rules govern the extent to which our pension costs are allocable to and recoverable under contracts with the U.S.

Government, including FMS.

Pension cost recoveries under CAS occur in different periods from when pension contributions are made in accordance with ERISA.

We recovered $1.7 billion in 2023 and $1.8 billion in 2022 as CAS pension costs.

We recovered $1.7 billion in both 2024 and 2023 as CAS pension costs.

Amounts contributed in excess of the CAS pension costs recovered under U.S.

18 unchanged sentences

As a result, most of the expenditures we incur are included in our net sales and cost of sales according to U.S.

Government agreement or regulation, regardless of the contract form (e.g.

cost-reimbursable, fixed-price).

Government agreement or regulation, 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.

3 unchanged sentences

As disclosed above, we may record changes in the amount of environmental remediation liabilities as a result of our quarterly reviews of the status of our environmental remediation sites, which would result in a change to the corresponding amount that is probable of future recovery and a charge to earnings.

For example, if we were to determine that the liabilities

should be increased by $100 million, the corresponding amount that is probable of future recovery would be increased by approximately $89 million, with the remainder recorded as a charge to earnings.

For example, if we were to determine that the liabilities should be increased by $100 million, the corresponding amount that is probable of future recovery would be increased by

approximately $89 million, with the remainder recorded as a charge to earnings.

This allocation is determined annually, based upon our existing and projected business activities with the U.S.

15 unchanged sentences

Intangible assets from acquired businesses are recognized at fair value on the acquisition date and consist of customer programs, trademarks, customer relationships, technology and other intangible assets.

Customer programs include values assigned to major programs of acquired businesses and represent the aggregate value associated with the customer relationships, contracts, technology and trademarks underlying the associated program.

Intangible assets are amortized over a period of expected cash flows used to measure fair value, which typically ranges from five to 20 years.

Our goodwill balance was $10.8 billion at both December 31, 2023 and 2022.

Customer programs includes values assigned to major programs of acquired businesses and represents the aggregate value associated with the customer relationships, contracts, technology and trademarks underlying the associated program.

Intangible assets are amortized over a period of expected cash flows used to measure fair value, which typically ranges from three to 20 years.

Our goodwill balance was $11.1 billion and $10.8 billion at December 31, 2024 and 2023.

We perform an impairment test of our goodwill at least annually in the fourth quarter or more frequently whenever events or changes in circumstances indicate the carrying value of goodwill may be impaired.

19 unchanged sentences

The carrying value of each reporting unit includes the assets and liabilities employed in its operations, goodwill and allocations of amounts held at the business segment and corporate levels.

In the fourth quarter of 2023, we performed our annual goodwill impairment test for each of our reporting units.

Impairment assessments inherently involve management judgments regarding a number of assumptions such as those described above.

Due to the many variables inherent in the estimation of a reporting unit’s fair value and the relative size of our recorded goodwill, differences in assumptions could have a material effect on the estimated fair value of one or more of our reporting units and could result in a goodwill impairment charge in a future period.

Additionally, acquired intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment testing or more frequently if events or change in circumstance indicate that it is more likely than not that the asset is impaired.

Additionally, acquired intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment testing or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired.

This testing compares carrying value to fair value and, when appropriate, the carrying value of these assets is reduced to fair value.

In the fourth quarter of 2023, we performed our annual impairment tests, and the results of those tests indicated no impairment existed.

Finite-lived intangibles are amortized to expense over their applicable useful lives, ranging from five to 20 years, based on the nature of the asset and the underlying pattern of economic benefit as reflected by future net cash inflows.

In the fourth quarter of 2024, we performed our annual goodwill impairment test for each of our reporting units, and the results of those tests indicated no impairment existed.

Finite-lived intangibles are amortized to expense over their applicable useful lives, ranging from three to 20 years, based on the nature of the asset and the underlying pattern of economic benefit as reflected by future net cash inflows.

We perform an impairment test of finite-lived intangibles whenever events or changes in circumstances indicate their carrying value may be impaired.

If events or changes in circumstances indicate the carrying value of a finite-lived intangible may be impaired, the sum of the undiscounted future cash flows expected to result from the use of the asset group would be compared to the asset group’s carrying value.

If the asset group’s carrying amount exceed the sum of the undiscounted future cash flows, we would determine the fair value of the asset group and record an impairment loss in net earnings.

If the asset group’s carrying amount exceeded the sum of the undiscounted future cash flows, we would determine the fair value of the asset group and record an impairment loss in net earnings.

Recent Accounting Pronouncements

1 unchanged sentence

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-K

Item 7. Management’s Discussion and Analysis