FINANCIAL HIGHLIGHTS
In millions, except per share data
Net Sales
Consolidated Operating Profit
Segment Operating Profit
Net Earnings
Diluted Earnings Per Common Share
Net Earnings
Cash Dividends Per Common Share
Average Diluted Common Shares Outstanding
Cash and Cash Equivalents
Total Assets
Total Debt, net
Total Equity
Common Shares Outstanding at Year-End
Net Cash Provided by Operating Activities
Capital Expenditures
Free Cash Flow
2023
2021
$ 67,571 $ 65,984 $ 67,044
2022
8,507
7,389
6,920
27.55
12.15
251
8,348
9,123
7,467
7,664
5,732
6,315
21.66
22.76
11.40
10.60
265
277
$ 1,442 $ 2,547 $ 3,604
52,456
52,880
50,873
17,459
15,547
11,676
6,835
9,266
10,959
240
254
271
$ 7,920 $ 7,802 $ 9,221
(1,522)
(1,670)
$ 6,229 $ 6,132 $ 7,699
(1,691)
NOTE: For additional information regarding the amounts presented above, see the Form 10-K portion of this Annual
Report. A reconciliation of Segment Operating Profit to Consolidated Operating Profit is included on the page preceding
the back cover of this Annual Report.
Fellow Shareholders:
In 2023, Lockheed Martin’s 122,000 employees teamed
together to further advance the boundaries of scientific
discovery in support of our national defense and space
exploration. We are the premier engineering and defense
tech company across many disciplines from metallurgy to
artificial intelligence, and the importance of our customers’
mission continued to be our driving force this year.
Through our 21st Century Security vision, Lockheed Martin
is leading the pursuit of harnessing digital technologies
like 5G, AI, autonomy and distributed cloud computing
for the national defense enterprise. By building strategic
collaborations with industry leaders in these fields, both
large and small, and adopting commercially developed
technologies for defense applications, we can deliver more
advanced capabilities faster and with greater value.
James D. Taiclet
Chairman, President and Chief Executive Officer
To ensure that our internal operations fully incorporate the benefits of advanced digital technologies,
we also continue to forge ahead with our One Lockheed Martin Transformation (1LMX), which is
modernizing all of our core business processes and systems to increase our speed, agility and
competitiveness. Together, 21st Century Security and 1LMX are moving Lockheed Martin forward,
and our progress is serving as a catalyst for broader transformation and innovation within the
defense industrial base.
In 2023, we returned to growth a year ahead of plan, and we continued our disciplined and dynamic
capital allocation strategy to maximize shareholder value:
2023 Financial Results
$6.2
billion
Free
Cash Flow*
$6.9
billion
Net Earnings
$67.6
billion
Sales
$27.55
dollars
Earnings
Per Share
$7.4
billion
Segment
Operating Profit*
10.9
percent
Segment
Operating Margin*
$160.6
billion
Year-End
Backlog
I
2023 Annual Report Progressing Our Customers’ Missions With 21st Century Innovation
Our company’s strong performance reflects close collaboration with our
customers, who recognize that geopolitical risk is elevated, technology
is advancing faster than at any time in history, and that it is essential to
maintain an effective deterrent to armed conflict and the capability to win, if
necessary. In 2023, Lockheed Martin’s technologies and solutions advanced
key missions for the U.S. and our allies.
Our team’s 2023
accomplishments
Advancing Air Superiority | Lockheed Martin further cemented its role as the preeminent
provider of air superiority and security in 2023. The F-35 continues to be the most
advanced, survivable and connected fighter in the world. It is the clear aircraft of choice
for our international allies. This past year, Canada announced its purchase of 88 F-35s,
we delivered the first four F-35s to Denmark, and Israel and South Korea announced
they are each expanding their F-35 fleets by 25 additional aircraft. The F-16 similarly
experienced global growth and interest. We delivered the first Greenville-built F-16 Block
70 aircraft to Bahrain, unveiled the first F-16 Block 70 aircraft for the Slovak Republic, and
in partnership with Romania and the Netherlands, we opened a European F-16 training
center in Romania. We’re also continuing to lead groundbreaking aircraft innovation – the
X-59 experimental supersonic aircraft, built by Skunk Works® and NASA, was selected as
one of TIME’s “Top Inventions of 2023” in the Transportation category.
Modernizing Air and Missile Defense and Precision Strike Capabilities | International demand
for our integrated air and missile defense systems remains strong. This year, Switzerland
and Romania each signed Letters of Offer and Acceptance for PAC-3 Missile Segment
Enhancement, marking 15 partner nations for the program. We also delivered PAC-3
MSE to Poland, further strengthening NATO deterrence. Domestically, we delivered the
800th Terminal High Altitude Area Defense interceptor to the U.S. government. And to
advance the U.S. Army’s modernization efforts for precision strike, we delivered the first
Precision Strike Missile and conducted System Qualification Tests for Extended-Range
Guided Multiple Launch Rocket System, advancing the rocket toward operational testing.
Lockheed Martin was also awarded contracts for Conventional Prompt Strike, the nation’s
first surface-launched, sea-based hypersonic strike capability, and for MK21A, a new
reentry vehicle.
Enabling Joint All-Domain Operations | As part of the U.S. Indo-Pacific
Command’s Joint Fires Network at Northern Edge 2023, we demonstrated
true joint force synchronization at scale by successfully integrating third-
party platforms and aircraft, and performing command and control functions
across all services, levels of operation and multiple domains. Internationally,
the Australian Department of Defence selected Lockheed Martin for AIR6500
Phase 1. By connecting Australian systems and platforms that operate
across space, air, sea, land and cyber, the AIR6500 project series will set the
blueprint for future military operations across the globe.
Realizing Combined
Joint All-Domain
Command & Control
II
Lockheed Martin Corporation Pioneering Scientific Discovery in Space | We continued to develop breakthrough
technologies for human advancement and technological innovation in space. The
Lockheed Martin-built OSIRIS-Rex return capsule successfully landed after a seven-year
mission, during which the spacecraft tagged up with asteroid Bennu. OSIRIS-REx is the
first U.S. mission to return samples from an asteroid to Earth and the largest samples
from anywhere beyond the Moon.
Reaching New Heights in 2024
Turning to 2024, we continue to focus on advancing and broadening the
defense industry through 21st Century Security, while also increasing
capacity in our production lines to meet sustained, increased demand for our
time-tested programs of record. 1LMX will be key to this effort as we look to
adopt advanced manufacturing practices, digital tools and other cutting-edge
technologies to streamline our internal operations and realize efficiencies.
Our work to come
in 2024
As a result, we anticipate the return to growth we experienced in 2023 to continue in 2024
and the years ahead. By keeping our programs of record sold, winning new business, and
capitalizing on emerging opportunities, we have a strategy in place to responsibly grow the
business and continue delivering shareholder value.
Our growth would not be possible, however, without your continued support as our
shareholders and without the remarkable work and dedication of our Lockheed Martin
team – thank you. Armed conflict happening around the world serves as a stark reminder
of the value of Lockheed Martin’s solutions. We look forward to continuing to partner with
the U.S. and our allies to enable a more safe and secure world in 2024 and beyond.
James D. Taiclet
Chairman, President and
Chief Executive Officer
*This letter includes references to free cash flow, segment operating profit and segment operating margin, which are
non-GAAP financial measures. For reconciliations between our non-GAAP measures and the nearest GAAP measures,
please refer to the page preceding the back cover of this Annual Report. As non-GAAP financial measures are not
intended to be considered in isolation or as a substitute for GAAP financial measures, you should carefully read the Form
10-K included in this Annual Report, which includes our consolidated financial statements prepared in accordance with
GAAP. Additionally, this letter includes statements that, to the extent they are not recitations of historical fact, constitute
forward-looking statements within the meaning of the federal securities laws, and are based on Lockheed Martin’s
current expectations and assumptions. For a discussion identifying important factors that could cause actual results to
differ materially from those anticipated in the forward-looking statements, see the company’s filings with the Securities
and Exchange Commission, including “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and “Risk Factors” in the Form 10-K portion of this Annual Report.
III
2023 Annual Report
CORPORATE DIRECTORY
As of March 1, 2024
BOARD OF DIRECTORS
James D. Taiclet
Chairman, President and
Chief Executive Officer
Lockheed Martin Corporation
Daniel F. Akerson
Retired Chairman and
Chief Executive Officer
General Motors Company
David B. Burritt
President and
Chief Executive Officer
United States Steel Corporation
Bruce A. Carlson
Retired General
United States Air Force
John M. Donovan
Retired Chief Executive Officer
AT&T Communications, LLC
Joseph F. Dunford, Jr.
Senior Managing Director
and Partner Liberty Strategic Capital
and Retired General
United States Marine Corps
Vicki A. Hollub
President and
Chief Executive Officer
Occidental Petroleum Corporation
James O. Ellis, Jr.
Retired President and
Chief Executive Officer
Institute of Nuclear Power
Operations
Thomas J. Falk
Retired Chairman and
Chief Executive Officer
Kimberly-Clark Corporation
Ilene S. Gordon
Retired Chairman and
Chief Executive Officer
Ingredion Incorporated
Jeh C. Johnson
Partner Paul, Weiss, Rifkind,
Wharton & Garrison LLP and
Former Secretary of Homeland Security
Debra L. Reed-Klages
Retired Chairman, President
and Chief Executive Officer
Sempra Energy
Patricia E. Yarrington
Retired Chief Financial Officer
Chevron Corporation
EXECUTIVE OFFICERS
James D. Taiclet
Chairman, President and
Chief Executive Officer
Timothy S. Cahill
President, Missiles and
Fire Control
Stephanie C. Hill
President, Rotary and
Mission Systems
Maryanne R. Lavan
Senior Vice President,
General Counsel and
Corporate Secretary
Robert M. Lightfoot
President, Space
Jesus Malave
Chief Financial Officer
IV
H. Edward Paul
Vice President and Controller
Maria A. Ricciardone
Vice President, Treasurer
and Investor Relations
Frank A. St. John
Chief Operating Officer
Gregory M. Ulmer
President, Aeronautics
Lockheed Martin Corporation UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 1-11437
LOCKHEED MARTIN CORPORATION
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
6801 Rockledge Drive,
Bethesda,
Maryland
(Address of principal executive offices)
52-1893632
(I.R.S. Employer Identification No.)
20817
(Zip Code)
(301) 897-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $1 par value
Trading Symbol(s)
LMT
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non–accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued
its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant computed by reference to the last sales price of
such stock, as of the last business day of the registrant’s most recently completed second fiscal quarter, which was June 23, 2023, was approximately
$115.2 billion.
There were 241,643,304 shares of our common stock, $1 par value per share, outstanding as of January 19, 2024.
Portions of Lockheed Martin Corporation’s 2024 Definitive Proxy Statement are incorporated by reference into Part III of this Form 10-K. The 2024
Definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report
relates.
DOCUMENTS INCORPORATED BY REFERENCE
Lockheed Martin Corporation
Form 10-K
For the Year Ended December 31, 2023
Table of Contents
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 1C.
ITEM 2.
ITEM 3.
ITEM 4.
Business .................................................................................................................................................
Risk Factors............................................................................................................................................
Unresolved Staff Comments ..................................................................................................................
Cybersecurity .........................................................................................................................................
Properties ...............................................................................................................................................
Legal Proceedings ..................................................................................................................................
Mine Safety Disclosures ........................................................................................................................
ITEM 4(a).
Information about our Executive Officers .............................................................................................
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 9C.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities ....................................................................................................................................
[Reserved] ..............................................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations ................
Quantitative and Qualitative Disclosures About Market Risk...............................................................
Financial Statements and Supplementary Data......................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................
Controls and Procedures ........................................................................................................................
Other Information...................................................................................................................................
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections ..............................................
Directors, Executive Officers and Corporate Governance.....................................................................
Executive Compensation........................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters ...................................................................................................................................................
Certain Relationships and Related Transactions, and Director Independence.......................................
Principal Accounting Fees and Services ................................................................................................
ITEM 15.
ITEM 16.
Exhibits and Financial Statement Schedules..........................................................................................
Form 10-K Summary .............................................................................................................................
SIGNATURES ....................................................................................................................................................................
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ITEM 1.
Business
General
PART I
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 also provide a broad range of
management, engineering, technical, scientific, logistics, system integration and cybersecurity services. Our main areas of focus
are in defense, space, intelligence, homeland security and information technology, including cybersecurity. We serve both U.S.
and international customers with products and services that have defense, civil and commercial applications, with our principal
customers being agencies of the U.S. Government.
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); 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. Underpinning our ability
to execute our strategy is our talent and culture. We invest substantially in our people to ensure that our workforce has the
technical skills necessary to succeed, and we expect to continue to invest internally in innovative technologies that address
rapidly evolving mission requirements for our customers. We also will continue to evaluate our portfolio and will make
strategic acquisitions or divestitures, as appropriate, while deepening our connection to commercial industry through
cooperative partnerships, joint ventures and equity investments.
Business Segments
We operate in four business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS)
and Space. We organize our business segments based on the nature of the products and services offered.
Aeronautics
Aeronautics 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.
Aeronautics also has contracts with the U.S. Government for various classified programs. Aeronautics’ major programs include:
•
•
•
•
F-35 Lightning II - international multi-role, multi-variant, fifth generation stealth fighter;
C-130 Hercules - international tactical airlifter;
F-16 Fighting Falcon - combat-proven, international multi-role fighter; and
F-22 Raptor - air dominance and multi-role fifth generation stealth fighter.
The F-35 program is our largest program, generating 26% of our total consolidated net sales, as well as 64% of
Aeronautics’ net sales in 2023. The F-35 program consists of multiple development, production and sustainment contracts.
Development is focused on modernization of F-35’s capability and addressing emerging threats. Sustainment provides logistics
3
and training support for the aircraft delivered to F-35 customers. For additional information on the F-35 program, see “Status of
the F-35 Program” in Management’s Discussion and Analysis of Financial Condition and Results of Operations. See also Item
1A - Risk Factors for a discussion of risks related to the F-35 program.
In addition to the aircraft programs above, Aeronautics is involved in advanced development programs incorporating
innovative design and rapid prototype applications. Our Advanced Development Programs (ADP) organization, also known as
Skunk Works®, is focused on future systems, including unmanned and manned aerial systems and next generation capabilities
for air dominance, hypersonics, intelligence, surveillance, reconnaissance, situational awareness and air mobility. We continue
to explore technology advancement and insertion into our existing aircraft. We also are involved in numerous network-enabled
activities that allow separate systems to work together to increase effectiveness and we continue to invest in new technologies
to maintain and enhance competitiveness in military aircraft design, development and production.
Missiles and Fire Control
MFC provides air and missile defense systems; tactical missiles and air-to-ground precision strike weapon systems;
logistics; fire control systems; mission operations support, readiness, engineering support and integration services; manned and
unmanned ground vehicles; and energy management solutions. MFC also has contracts with the U.S. Government for various
classified programs. MFC’s major programs include:
•
•
•
•
•
•
The Patriot Advanced Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD) air and missile defense
programs. PAC-3 is an advanced defensive missile for the U.S. Army and international customers designed to intercept and
eliminate incoming airborne threats using kinetic energy. THAAD is a transportable defensive missile system for the U.S.
Government and international customers designed to engage targets both within and outside of the Earth’s atmosphere.
The Multiple Launch Rocket System (MLRS), Precision Strike Missile (PrSM), Joint Air-to-Surface Standoff Missile
(JASSM), Long Range Anti-Ship Missile (LRASM), and Hellfire tactical and strike missile programs. MLRS is a highly
mobile, automatic system that fires surface-to-surface rockets and missiles from the M270 and High Mobility Artillery
Rocket System (HIMARS) platforms produced for the U.S. Army and international customers and PrSM is the next
generation of precision strike surface-to-surface weapon systems that is compatible with the MLRS family of launchers in
support of the U.S. Army. JASSM is an air-to-ground missile launched from fixed-wing aircraft, which is produced for the
U.S. Air Force and international customers. LRASM is a precision guided anti-ship missile derived from JASSM and
designed to interdict a variety of surface threats at very long range and produced for the U.S. Air Force, U.S. Navy, and
international customers. Hellfire is an air-to-ground missile used on rotary and fixed-wing aircraft, which is produced for
the U.S. Army, Navy, Marine Corps and international customers.
The Apache fire control system, Sniper Advanced Targeting Pod (SNIPER®) and Infrared Search and Track (IRST21®)
sensors and global sustainment programs. The Apache fire control system provides weapons-targeting capability for the
Apache helicopter for the U.S. Army and international customers. SNIPER is a targeting system for several fixed-wing
aircraft and is produced for the U.S. Air Force and international customers. IRST21 provides long-range infrared detection
and tracking of airborne threats and is used on several fixed-wing aircraft. IRST21 is produced for the U.S. Air Force, the
U.S. Navy, the National Guard and international customers.
The Special Operations Forces Global Logistics Support Services (SOF GLSS) program, which provides logistics support
services to the special operations forces of the U.S. military.
Hypersonics programs, which include several programs with the U.S. Air Force and U.S. Army to design, develop and
build hypersonic strike weapons.
The Javelin program, which is a one-person portable and platform-employable anti-tank and multi-target precision weapon
system. Javelin was developed and is currently produced for the U.S. Army and U.S. Marine Corps by a joint venture
between Lockheed Martin and RTX Corporation.
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 also has contracts with the U.S.
Government for various classified programs. RMS’ major programs include:
•
•
Sikorsky helicopter programs such as those related to the BLACK HAWK®, Seahawk® and CH-53K King Stallion heavy
lift helicopters which are in service with U.S. and foreign governments, the Combat Rescue Helicopter (CRH) utilized by
the U.S. Air Force, and the VH-92A helicopter for the U.S. Marine One transport mission.
Integrated warfare systems and sensors (IWSS) programs such as Aegis Combat System (Aegis) programs that serve as an
air and missile defense system for the U.S. Navy and international customers and is also a sea and land-based element of
the U.S. missile defense system, and the Littoral Combat Ship (LCS) and Multi-Mission Surface Combatant (MMSC)
4
programs to provide surface combatant ships for the U.S. Navy and international customers that are designed to operate in
shallow waters and the open ocean.
Command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance
(C6ISR) programs such as the Command, Control, Battle Management and Communications (C2BMC) program to provide
an air operations center for the Ballistic Missile Defense System for the U.S. Government, undersea combat systems
programs largely serving the U.S. Navy, and Australia's Joint Air Battle Management System (AIR 6500).
Training and logistics solutions (TLS) programs such as those providing sustainment services and programs that provide
simulators and associated training to U.S. military and foreign government customers.
•
•
Space
Space is engaged in the research and design, development, engineering and production of satellites, space transportation
systems, and strategic, advanced strike, and defensive systems. Space provides network-enabled situational awareness and
integrates complex space and ground global systems to help our customers gather, analyze and securely distribute critical
intelligence data. Space is also responsible for various classified systems and services in support of vital national security
systems. Space’s major programs include:
•
•
•
The Next Generation Overhead Persistent Infrared (Next Gen OPIR) system, which provides the U.S. Space Force with
enhanced worldwide missile warning capabilities.
The Trident II D5 Fleet Ballistic Missile (FBM), a program with the U.S. Navy for the only submarine-launched
intercontinental ballistic missile currently in production in the U.S.
The Orion Multi-Purpose Crew Vehicle (Orion), a spacecraft for NASA utilizing new technology for human exploration
missions beyond low earth orbit.
• Next Generation Interceptor (NGI), a program with the Missile Defense Agency (MDA) utilizing next generation
propulsion and sensors to provide homeland missile defense.
• Global Positioning System (GPS) III, a program to modernize the GPS satellite system for the U.S. Space Force.
• Hypersonics programs, which include several programs with the U.S. Army and U.S. Navy to design, develop and build
•
hypersonic strike weapons.
The Transport Layer program, a small satellite program designed to support resilient space communications for the Space
Development Agency.
Intellectual Property
We routinely apply for and own a substantial number of U.S. and foreign patents and trademarks related to the products
and services we provide. We also develop and own other intellectual property, including copyrights, trade secrets and research,
development and engineering know-how, that contributes significantly to our business. In addition, we license intellectual
property to and from third parties. The Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation
Supplement (DFARS) provide the U.S. Government certain rights in intellectual property, including patents, developed by us
and our subcontractors and suppliers in performance of government contracts or with government funding. The U.S.
Government may use or authorize others, including competitors, to use such intellectual property. See the discussion of matters
related to our intellectual property in Item 1A - Risk Factors. Non-U.S. governments also may have certain rights in patents and
other intellectual property developed in performance of our contracts for them. Although our intellectual property rights in the
aggregate are important to the operation of our business, we do not believe that any existing patent, license or other intellectual
property right is of such importance that its loss or termination would have a material adverse effect on our business taken as a
whole.
Research and Development
We conduct research and development (R&D) activities using our own funds (referred to as company-funded R&D or
independent research and development (IR&D)) and under contractual arrangements with our customers (referred to as
customer-funded R&D) to enhance existing products and services and to develop future technologies. R&D costs include basic
research, applied research, concept formulation studies, design, development, and related test activities. See “Note 1 –
Organization and Significant Accounting Policies” (under the caption “Research and development and similar costs”) included
in our Notes to Consolidated Financial Statements.
Raw Materials, Suppliers and Seasonality
Some of our products require relatively scarce raw materials, such as rare earth minerals. Other important materials and
components, on which certain of our products rely, include aluminum, titanium, carbon fiber and advanced microelectronics,
such as semiconductors. We rely on other companies to provide materials, components and products and to perform a portion of
5
the services that are provided to our customers under the terms of most of our contracts. Although long-term agreements have
historically helped enable a continued supply of these materials, the lingering effects of the COVID-19 pandemic, supply chain
challenges, supplier disputes, regulatory restrictions, and inflationary pressures have caused certain parts’ shortages, extended
lead times and pricing escalations affecting certain sources of supply. We continue working to minimize the impact of supply
chain challenges on us but many of the challenges are industry wide or caused by geopolitical events and general economic
conditions that are outside of our control. These supplier disruptions have resulted in delays and increased costs and have
adversely affected our program performance and operating results. These dynamics are expected to continue in 2024. For more
information on the risks related to our suppliers and raw materials, see Item 1A - Risk Factors.
No material portion of our business is considered to be seasonal. Various factors, however, can affect the distribution of
our sales between accounting periods, including the timing of government awards, the availability of government funding,
product deliveries and customer acceptance.
Human Capital Resources
Due to the specialized nature of our business, our performance depends on identifying, attracting, developing, motivating
and retaining a highly skilled workforce with the requisite skills and, in many cases, security clearances, in multiple areas,
including engineering, science, manufacturing, information technology, cybersecurity, business development and strategy and
management. Our human capital management strategy, which we refer to as our people strategy, is tightly aligned with our
business needs and technology strategy. During 2023, our human capital efforts were focused on continuing to accelerate the
transformation of our technology for workforce management through investments in upgraded systems and processes. We also
focused on increasing our ability to meet the quickly changing needs of the business, all while maintaining a respectful,
supportive and inclusive working environment and culture. We use a variety of human capital measures in managing our
business, including: workforce demographics and metrics in relation to representation, attrition, hiring, promotions and
leadership; and talent management metrics, including retention rates of top talent.
Workforce Demographics
As of December 31, 2023, we had a highly skilled workforce made up of approximately 122,000 employees, including
approximately 65,000 engineers, scientists and information technology professionals. As of December 31, 2023, approximately
93% of our workforce was located in the U.S. and approximately 19% of our employees were covered by collective bargaining
agreements with various unions. A number of our existing collective bargaining agreements expire in any given year.
Historically, we have been successful in renegotiating expiring agreements without any material disruption of operating
activities, and management considers employee and union relations to be good. This has continued to be the case in 2023.
Diversity and Inclusion
Diversity and inclusion is a business imperative for us, as we believe that it is key to our future success. We have focused
our diversity and inclusion initiatives on employee recruitment, including active engagement and outreach with minority-
serving institutions, employee training and development, such as efforts focused on expanding the diverse talent pipeline, and
employee engagement, including through participation in our Business Resource Groups. Our Business Resource Groups are
voluntary, employee-led groups that are open to all employees while being aligned to demographic categories that we annually
report on to the U.S. Government, including race/ethnicity, gender, disability and veteran status. The categories have been
expanded to gain a deeper understanding of our workforce to include military service, sexual-orientation and gender identity
which are not part of our annual government submission. The Business Resource Groups foster a diverse and inclusive
workplace aligned with our organizational mission, values, goals and business practices and drive awareness and change within
our organization. Through these and other focused efforts, including workforce availability, we have improved the diversity of
our overall U.S. workforce and within leadership positions, specifically in the representation of women, people of color and
people with disabilities. Additionally, veteran representation in our workforce remains outstanding, at almost four times the
current annual national percentage of veterans in the civilian workforce.
Employee Profile (as of December 31, 2023):
Overall
Executives(b)
Women(a)
23%
25%
People of Color(a)
32%
17%
Veterans(a)
21%
21%
People with Disabilities(a)
12%
13%
(a) Based on employees who self-identify. Includes only U.S. employees and expatriates except for data relating to women, which also
includes local country nationals. Excludes casual workers, interns/co-ops and employees of certain subsidiaries and joint ventures.
(b)
Executive is defined as director-level (one level below vice president) or higher.
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Talent Acquisition, Retention and Development
We strive to hire, develop and retain the top talent in the industry. During 2023, we hired nearly 15,000 employees. An
integral part of our people strategy is early career hiring through college and intern pipelines, particularly in technical fields and
critical skills areas. During the 2022-2023 academic year, we hired a record 6,000 college hires and interns. In addition to
efforts focused on recruitment, we also monitor employee attrition across a broad array of categories and segments of the
population, including with respect to diversity and top talent. Critical to attracting and retaining top talent is employee
satisfaction, and we regularly conduct employee engagement surveys to gauge employee satisfaction and to understand the
effectiveness of our people strategy and assess employee’s intent to stay. We attract and reward our employees by providing
market competitive compensation and benefits, including incentives and recognition plans that extend to non-represented
employees of all levels in our organization and encourage excellence through our pay-for-performance philosophy. We have a
hybrid workforce model that encourages flexible working arrangements for employees and teams who can meet our customer
commitments remotely, which has helped recruit and retain talent. In addition, we invest in the development of our employees
through training, apprenticeship programs, security clearance sponsorship, leadership development plans and offering tuition
assistance programs for continuing education or industry certifications. We believe this employee development makes us more
competitive and also assists with leadership succession planning throughout the corporation.
Employee Safety and Health
Through our safety and health program we seek to optimize our operations with targeted safety, health and wellness
opportunities designed to provide safe work conditions, and a healthy work environment, promote workforce resiliency and
enhance business value. As part of this program, we track employee health and safety measures, including quarterly and yearly
targets related to the number of injury and illness incidents that occur at work, those incidents that result in days lost, and the
number of days lost due to workplace injuries and illness.
For information on the risks related to our human capital resources, see Item 1A - Risk Factors.
Competition
We compete with many different companies in the defense and aerospace industry. The Boeing Company, General
Dynamics, L3Harris Technologies, Northrop Grumman, and RTX Corporation are some of our primary competitors. Key
characteristics of our industry include long operating cycles and intense competition, which is evident through the number of
competitors bidding on program opportunities and the existence of bid protests (competitor protests of U.S. Government
procurement awards).
We often collaborate with our competitors through teaming arrangements in efforts to provide our customers with the best
mix of capabilities to address specific requirements. Additionally, a company competing to be a prime contractor may, upon
ultimate award of the contract to another competitor, serve as a subcontractor to the ultimate prime contracting company. It is
not unusual to compete for a contract award with a peer company and, simultaneously, perform as a supplier to or a customer of
that same competitor on other contracts.
Our broad portfolio of products and services competes domestically and internationally against products and services of the
companies listed above, numerous smaller competitors and startups, and increasingly, non-traditional and non-U.S. defense
contractors. In some areas of our business, customer requirements are changing to encourage or facilitate expanded competition.
Principal factors of competition include: the technical excellence, reliability, safety and cost competitiveness of our products
and services to the customer; technical and management capability; the ability to innovate and develop new products and
technologies that improve mission performance and adapt to dynamic threats; successful program execution and on-time
delivery of complex, integrated systems; the reputation and customer confidence derived from past performance; our
demonstrated ability to execute and perform against contract requirements and successfully manage customer relationships; and
our global footprint and accessibility to customers.
The competition for international sales for most of our products and services is subject to U.S. Government stipulations
(e.g., export restrictions, market access, technology transfer, industrial cooperation and contracting practices). We compete
against U.S. and non-U.S. companies (or teams) for contract awards by international governments. International competitions
are also subject to different laws or contracting practices of international governments, which affects how we structure our bid
for the procurement. In many international procurements, the purchasing government’s relationship with the U.S. and its
industrial cooperation programs designed to enhance local industry are important factors in determining the outcome of a
competition. It is common for international customers to require contractors to comply with their industrial cooperation
regulations, sometimes referred to as offset requirements, and we have entered into foreign offset agreements as part of securing
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some international business. For more information concerning our international business, see “International Business” in
Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 1A - Risk Factors.
Technological advances in such areas as additive manufacturing, data analytics, digital engineering, artificial intelligence,
advanced materials, autonomy and robotics, and new business models such as commercial access to space, are enabling new
factors of competition for both traditional and non-traditional competitors.
Regulatory Matters
Our business is heavily regulated. We contract with numerous U.S. Government agencies and entities, principally all
branches of the U.S. military and NASA. We also contract with similar government authorities in other countries, either under
the foreign military sales (FMS) program, contracted through the U.S. Government, or as a direct sale with the foreign
government authority, which regulates these sales in a manner similar to the U.S. Government.
Government Contracts
We must comply with, and are affected by, laws and regulations relating to the formation, administration and performance
of U.S. Government and other governments’ contracts, including foreign governments. These laws and regulations, among
other things:
•
•
•
•
•
•
•
require certification and disclosure of all cost or pricing data in connection with certain types of contract negotiations;
impose specific and unique cost accounting practices that may differ from U.S. generally accepted accounting principles
(GAAP);
impose acquisition regulations, which may change or be replaced over time, that define which costs can be charged to the
U.S. Government, how and when costs can be charged, and otherwise govern our right to reimbursement under certain U.S.
Government and foreign contracts;
require specific security controls to protect U.S. Government controlled unclassified information and that our suppliers that
have access to this type of information comply with cyber security regulations;
restrict the use and dissemination of information classified for national security purposes and the export of certain products,
services and technical data;
prohibit the acquisition from or use by contractors of materials, products or services procured from certain countries or
entities located outside the United States (e.g., the prohibition on the acquisition of sensitive materials from non-allied
foreign nations and prohibition on the acquisition and use of certain telecommunications and video surveillance services or
equipment); and
require the review and approval of contractor business systems, including accounting systems, estimating systems, earned
value management systems for managing cost and schedule performance on certain complex programs, purchasing
systems, material management and accounting systems for planning, controlling and accounting for the acquisition, use,
issuing and disposition of material, and property management systems.
The U.S. Government and in limited cases certain other governments may terminate any of our government contracts and
subcontracts either at their convenience or for default based on our performance. If a contract is terminated for convenience, we
generally are protected by provisions covering reimbursement for costs incurred on the contract and profit on those costs. If a
contract is terminated for default, we generally are entitled to payment for our work that has been accepted by the U.S.
Government or other governments; however, the U.S. Government and other governments could make claims to reduce our
recovery or recoup its procurement costs and could assess other special penalties. For more information regarding the U.S.
Government’s and other governments’ right to terminate our contracts and the risks of doing work internationally, see Item 1A -
Risk Factors. For more information regarding government contracting laws and regulations, see Item 1A - Risk Factors as well
as “Critical Accounting Policies - Contract Accounting / Sales Recognition” in Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
Additionally, our programs for the U.S. Government often operate for periods of time under undefinitized contract actions
(UCAs), which means that we begin performing our obligations before the terms, specifications or price are finally agreed to
between the parties. Although in most cases we historically have reached mutual agreement to definitize our UCAs, the U.S.
Government has the ability to unilaterally definitize contracts and has done so in the past. Absent a successful appeal of such
action, the unilateral definitization of the contract obligates us to perform under terms and conditions imposed by the U.S.
Government. The U.S. Government’s power to unilaterally definitize a contract can affect our ability to negotiate mutually
agreeable contract terms and, if a contract is unilaterally imposed upon us, it may negatively affect our expected profit and cash
flows on a program or impose burdensome terms.
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Classified Contracts
A portion of our business is classified by the U.S. Government and cannot be specifically described. The operating results
of classified contracts are included in our consolidated financial statements. The business risks and capital requirements
associated with classified contracts historically have not differed materially from those of our other U.S. Government contracts.
However, under certain classified fixed price development and production contracts, we are unable to insure risk of loss to
government property because of the classified nature of the contracts and the inability to disclose classified information
necessary for underwriting and claims to commercial insurers. Our internal controls addressing the financial reporting of
classified contracts are consistent with our internal controls for our non-classified contracts.
Commercial Aircraft
Our commercial aircraft products are required to comply with U.S. and international regulations governing production and
quality systems, airworthiness and installation approvals, repair procedures and continuing operational safety.
Environmental
Our operations are subject to and affected by various federal, state, local and foreign environmental protection laws and
regulations regarding the discharge of materials into the environment or otherwise regulating the protection of the environment.
As a result of these environmental protection laws, we are involved in environmental remediation at some of our current and
former facilities and at third-party-owned sites where we have been designated a potentially responsible party as a result of our
prior activities and those of our predecessor companies. Although the extent of our financial exposure cannot in all cases be
reasonably estimated, the costs of environmental compliance have not had, and we do not expect that these costs will have, a
material adverse effect on our earnings, financial position and cash flow, primarily because substantially all of our
environmental costs are allowable in establishing the price of our products and services under our contracts with the U.S.
Government. For information regarding these matters, including current estimates of the amounts that we believe are required
for remediation or cleanup to the extent that they are probable and estimable, see “Critical Accounting Policies - Environmental
Matters” in Management’s Discussion and Analysis of Financial Condition and Results of Operations and “Note 14 – Legal
Proceedings, Commitments and Contingencies” included in our Notes to Consolidated Financial Statements. See also the
discussion of environmental matters in Item 1A - Risk Factors.
Climate and Sustainability Reporting and Regulation
There is an increasing global regulatory focus on greenhouse gas (GHG) emissions and their potential impacts relating to
climate change. Various jurisdictions around the world in which we operate, including the U.S., the European Union, the United
Kingdom, Australia and certain U.S. States, have adopted or proposed laws related to climate and sustainability reporting.
These and future laws, regulations or policies in response to concerns over GHG emissions such as carbon taxes, mandatory
reporting and disclosure obligations, including environmental requirements for certain federal contractors and subcontractors
and the SEC’s proposed climate-related disclosure rule, and changes in procurement policies, including the use of
environmental goals in proposal evaluation, could significantly increase our operational and compliance burdens and costs. We
monitor developments in climate-change related regulation for their potential effect on us and also have a comprehensive
sustainability program that seeks to mitigate our impact on the environment, including targets to reduce our GHG emissions.
For more information on the risk of climate-change related regulation, see Item 1A - Risk Factors.
Other Applicable Regulations
Our businesses and operations are subject to both U.S. and non-U.S. government laws, regulations and procurement
policies and practices, including regulations relating to product testing, import-export controls, technology transfer restrictions,
foreign investment, tariffs, taxation, repatriation of earnings, sanctions, exchange controls, the Foreign Corrupt Practices Act
and other anti-corruption laws and anti-boycott provisions of the U.S. Export Control Reform Act of 2018.
Available Information
We are a Maryland corporation formed in 1995 by combining the businesses of Lockheed Corporation and Martin Marietta
Corporation. Our principal executive offices are located at 6801 Rockledge Drive, Bethesda, Maryland 20817. Our telephone
number is (301) 897-6000 and our website address is www.lockheedmartin.com.
We make our website content available for information purposes only. It should not be relied upon for investment
purposes, nor is it incorporated by reference into this Annual Report on Form 10-K (Form 10-K).
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Throughout this Form 10-K, we incorporate by reference information from parts of other documents filed with the U.S.
Securities and Exchange Commission (SEC). The SEC allows us to disclose important information by referring to it in this
manner.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements for our
annual stockholders’ meetings and amendments to those reports are available free of charge on our website,
www.lockheedmartin.com/investor, as soon as reasonably practical after we electronically file the material with, or furnish it to,
the SEC. In addition, copies of our annual report will be made available, free of charge, upon written request. The SEC also
maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding SEC registrants,
including Lockheed Martin Corporation.
Forward-Looking Statements
This Form 10-K contains statements that, to the extent they are not recitations of historical fact, constitute forward-looking
statements within the meaning of the federal securities laws and are based on our current expectations and assumptions. The
words “believe,” “estimate,” “anticipate,” “project,” “intend,” “expect,” “plan,” “outlook,” “scheduled,” “forecast” and similar
expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and
are subject to risks and uncertainties.
Statements and assumptions with respect to future sales, income and cash flows, growth, program performance, the
outcome of litigation, anticipated pension cost and funding, environmental remediation cost estimates, planned acquisitions or
dispositions of assets, or the anticipated consequences are examples of forward-looking statements. Numerous factors,
including the risk factors described in the following section, could cause our actual results to differ materially from those
expressed in our forward-looking statements.
Our actual financial results likely will be different from any projections due to the inherent nature of projections. Given
these uncertainties, forward-looking statements should not be relied on in making investment decisions. The forward-looking
statements contained in this Form 10-K speak only as of the date of its filing. Except where required by applicable law, we
expressly disclaim a duty to provide updates to forward-looking statements after the date of this Form 10-K to reflect
subsequent events, changed circumstances, changes in expectations, or the estimates and assumptions associated with them. The
forward-looking statements in this Form 10-K are intended to be subject to the safe harbor protection provided by the federal
securities laws.
ITEM 1A.
Risk Factors
An investment in our common stock or debt securities involves risks and uncertainties. While we seek to identify, manage
and mitigate risks to our business, risk and uncertainty cannot be eliminated or necessarily predicted. The outcome of one or
more of these risks could have a material effect on our operating results, financial position, or cash flows. You should carefully
consider the following factors, in addition to the other information contained in this Annual Report on Form 10-K, before
deciding to trade in our common stock or debt securities.
Risks Related to our Reliance on Government Contracts, our Industry and the Economy
We depend heavily on contracts with the U.S. Government for a substantial portion of our business. Changes in the U.S.
Government’s priorities, or delays or reductions in spending could have a material adverse effect on our business.
We derived 73% of our total consolidated net sales from the U.S. Government in 2023, including 64% from the
Department of Defense (DoD). We expect to continue to derive most of our sales from work performed under U.S. Government
contracts. A reduction in overall U.S. defense spending, on an absolute or inflation-adjusted basis, because of shifting priorities,
budget compromises or otherwise could adversely affect our business. Budget uncertainty, the potential for U.S. Government
shutdowns, the use of continuing resolutions, and the federal debt ceiling can adversely affect our industry and the funding for
our programs. If appropriations are delayed or a government shutdown were to occur and continue for an extended period of
time, we could be at risk of reduced orders, program cancellations and other disruptions and nonpayment. When the U.S.
Government operates under a continuing resolution, new contract and program starts are restricted and funding for our
programs may be unavailable, reduced or delayed.
Our contracts with the U.S. Government are conditioned upon the continuing availability of Congressional appropriations.
Congress usually appropriates funds on a fiscal year (FY) basis even though contract performance may extend over many years.
Consequently, contracts are often partially funded initially, and additional funds are committed only as Congress makes further
appropriations over time. To the extent we incur costs in excess of funds obligated on a contract or in advance of a contract
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award or contract definitization, we are at risk of not being reimbursed for those costs unless and until additional funds are
obligated under the contract or the contract is successfully awarded, definitized and funded, which could adversely affect our
results of operations, financial condition and cash flows.
Failure to fund or the termination of significant programs or contracts by the U.S. Government could adversely affect our
business and financial performance. DoD’s changes in funding priorities also could reduce opportunities in existing programs
and in future programs or initiatives where we intend to compete and where we have made investments. While we would expect
to compete and be well positioned as the incumbent on existing programs, we may not be successful and, even if we are
successful, the replacement programs may be funded at lower levels or result in lower margins. In addition, our ability to grow
in key areas such as hypersonics programs, classified programs and next-generation franchise programs will be affected by the
overall budget environment and whether development programs transition to production and the timing of such transition, all of
which are dependent on U.S. Government authorization and funding.
The F-35 program comprises a material portion of our revenue and reductions or delays in funding for this program and
risks related to performance, schedule, cost and requirements of the program could adversely affect our performance.
The F-35 program, which consists of multiple development, production and sustainment contracts, is our largest program
and represented 26% of our total consolidated net sales in 2023. A decision by the U.S. Government, international partners, or
FMS customer countries to cut spending on this program or reduce or delay planned orders would have an adverse impact on
our business and results of operations. 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. Challenges and risks associated with this
program include supplier performance, software development, definitizing and receiving funding for contracts on a timely
basis, 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. See also the “Status of the F-35 Program” in Management Discussion and Analysis of Financial
Condition and Results of Operations for a discussion of the current program status and specific challenges and risks, including
with respect to Technology Refresh 3 (TR-3) configuration development and deliveries.
We also may not be successful in making hardware upgrades and other modernization capabilities in a timely manner,
including as a result of dependencies on suppliers, which could increase costs and create schedule delays. Our ability to capture
and retain future F-35 growth in development, production and sustainment is dependent on the success of our efforts to achieve
F-35 sustainment performance, customer affordability, supply chain improvements, continued reliability improvements and
other efficiencies, some of which are outside our control. See also the Risk Factor below captioned “We are heavily dependent
on suppliers and if our subcontractors or other suppliers or teaming agreement or joint venture partners fail to perform their
obligations, our performance and ability to win future business could be adversely affected” for further discussion.
We are subject to extensive procurement laws and regulations, including those that enable the U.S. Government to terminate
contracts for convenience. Our business and reputation could be adversely affected if we or those we do business with fail to
comply with these laws and regulations.
We must comply with extensive laws and regulations relating to the award, administration and performance of U.S.
Government contracts. Government contract laws and regulations affect how we do business with our customers and impose
certain risks and costs on our business. A violation of these laws and regulations by us, our employees, others working on our
behalf, a supplier or a joint venture partner could harm our reputation and result in the imposition of fines and penalties, the
termination of our contracts, suspension or debarment from bidding on or being awarded contracts, loss of our ability to export
products or perform services and civil or criminal investigations or proceedings. From time to time, the U.S. Government has
proposed contract terms, imposed internal policies, or taken positions that represent fundamental changes from historical
practices or that we believe are inconsistent with the FAR or other laws and regulations and that could adversely affect our
business. In addition, costs to comply with new government regulations can increase our costs, reduce our margins and
adversely affect our competitiveness. Also, a portion of our contracts are classified by the U.S. Government, which imposes
security requirements that limit our ability to discuss our performance on these contracts, including any specific risks, disputes
and claims.
Contract Termination. The U.S. Government may terminate any of our government contracts at its convenience or for
default based on our performance, either of which could adversely affect our business and financial performance. Generally,
prime contractors have similar termination rights under subcontracts related to government contracts. If a contract is terminated
for convenience, we generally are protected by provisions covering reimbursement for costs incurred on the contract and profit
on those costs. However, to the extent insufficient funds have been appropriated by the U.S. Government to cover our costs
upon a termination for convenience, the U.S. Government may assert that it is not required to appropriate additional funding. If
a contract is terminated for default, the U.S. Government could make claims to reduce our recovery or recoup its procurement
costs and could assess other special penalties, exposing us to liability and adversely affecting our ability to compete for future
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contracts and orders. In addition, the U.S. Government could terminate a prime contract under which we are a subcontractor,
notwithstanding the fact that our performance and the quality of the products or services we delivered were consistent with our
contractual obligations as a subcontractor.
Undefinitized Contract Action (UCA). When operating under a undefinitized contract action (UCA), which is when we
begin performing our obligations before the terms, specifications or price are finally agreed to between the parties, the U.S.
Government has the right to unilaterally definitize contracts, which it has exercised in the past and which, absent a successful
appeal, obligates us to perform under terms and conditions imposed by the U.S. Government. This can affect our ability to
negotiate mutually agreeable contract terms. If a contract is unilaterally imposed upon us, it may negatively affect our expected
profit and cash flows on a program or impose burdensome terms.
Bid Protests. U.S Government procurement laws permit legal challenges, referred to as bid protests, to the terms of a
contract solicitation or the award of a contract. We may encounter bid protests from unsuccessful bidders on new program
awards seeking to overturn the award. Unsuccessful bidders also may protest with the goal of being awarded a subcontract for a
portion of the work in return for withdrawing the protest. Bid protests can result in significant expenses to us, contract
modifications or even loss of the contract award and the resolution can extend the time until contract activity can begin and
delay the recognition of sales and defer underlying cash flows and adversely affect our operating results. Our efforts to protest
or challenge any bids for contracts that were not awarded to us also may be unsuccessful.
Competition and changing procurement policies could adversely affect our business and financial results.
We operate in a highly competitive industry and our competitors may have more extensive or more specialized,
engineering, technical, marketing and servicing capabilities than we do in certain areas. Our competitors may develop new
technologies, products or services that could replace our current offerings. Additionally, if competitors can offer lower cost
services and products, or provide services or products more quickly, at equivalent or in some cases even reduced capabilities,
we may lose new business opportunities or contract recompetes, which could adversely affect our future results. We are facing
increased competition from startups and non-traditional defense contractors, which may have a lower cost structure or be able to
move quickly in addition to being favored, in certain cases, by procurement policy. Furthermore, acquisitions in our industry,
including vertical integration, also could result in increased competition or limit our access to certain suppliers without
appropriate remedies to protect our interests.
A substantial portion of our business is awarded through competitive bidding. The U.S. Government increasingly has relied
on competitive contract award types, including indefinite-delivery, indefinite-quantity and other multi-award contracts, which
have the potential to create pricing pressure and to increase our costs by requiring us to submit multiple bids and proposals.
Multi-award contracts require us to make sustained efforts to obtain task orders under the contract. Additionally, procurements
that do not evaluate whether the cost assumptions in the bids are realistic can lead to bidders taking aggressive pricing
positions, which could result in the winner realizing a loss upon contract award or an increased risk of lower margins or
realizing a loss over the term of the contract. Competitors may be willing to accept more risk or lower profitability in competing
for contracts than we are. The U.S. Government also may not award us large competitive contracts that we otherwise might
have won in an effort to maintain a broad industrial base.
U.S. Government procurement policies and procedures and the application thereof are regularly changing and such changes
could adversely affect our profitability or the ability to win new business. For example, an increase in the use of contract
structures that shift risk to the contractor, such as fixed-price development contracts and incentive-based fee arrangements, or
the U.S Government using different award fee criteria than historically used (such as the evaluation of environmental factors)
could adversely affect our profit rates or make it more difficult to win new contracts. The DoD is increasingly pursuing rapid
acquisition pathways and procedures for new technologies, including through so called “other transaction authority” agreements
(OTAs). OTAs are exempt from many traditional procurement laws, including the FAR, and an OTA award may be subject, in
certain cases, to the condition that a significant portion of the work under the OTA is performed by a non-traditional defense
contractor or that a portion of the cost of the protype project is funded by non-governmental sources. Changes in regulations or
interpretations of what are allowable costs under our government contracts could adversely impact our profitability and changes
in contract financing policy for fixed-price contracts, such as changes in performance and progress payments policies, could
significantly affect the timing of our cash flows.
Our profitability and cash flow may vary based on the mix of our contracts and programs, our performance, and our ability
to control costs.
Our profitability and cash flow may vary materially depending on the types of government contracts undertaken, the nature
of products produced or services performed under those contracts, the costs incurred in performing the work, the achievement
of other performance objectives and the stage of performance at which the right to receive fees is determined, particularly under
award and incentive-fee contracts. Failure to perform to customer expectations and contract requirements may result in reduced
fees or losses and may adversely affect our financial performance.
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Contract types primarily include fixed-price and cost-reimbursable contracts. Cost-reimbursable contracts provide for the
payment of allowable costs incurred during performance of the contract plus a fee up to a ceiling based on the amount that has
been funded. Cost, schedule or technical performance issues with respect to cost-reimbursable contracts could result in reduced
fees, lower profit rates, or program cancellation. Fixed-price contracts are predominantly either firm fixed-price (FFP) contracts
or fixed-price incentive (FPI) contracts. Under FFP contracts, we receive a fixed price irrespective of the actual costs we incur
and therefore we carry the burden of any cost overruns. Under FPI contracts the U.S. Government is responsible for our costs
up to a negotiated ceiling price and we generally share, based on a negotiated sharing formula, savings from cost underruns and
expenses, up to the negotiated ceiling price, from cost overruns. We bear the risk for all cost overruns that exceed the negotiated
ceiling price. Due to the fixed-price nature of the contracts, if our actual costs exceed our estimates, our margins and profits are
reduced and we could incur a reach-forward loss. A reach-forward loss is when estimates of total costs to be incurred on a
contract exceed total estimates of the transaction price. When this occurs, a provision for the entire loss is determined at the
contract level and is recorded in the period in which the loss is evident.
Under both fixed-price and cost-reimbursable contracts, if we are unable to control costs, our operating results could be
adversely affected. Costs to complete a contract may increase for many reasons, including technical and manufacturing
challenges, schedule delays, workforce-related issues, inaccurate initial contract cost estimates, the timeliness and availability
of materials from suppliers, internal and subcontractor performance or product quality issues, inability to meet cost reduction
initiatives or achieve efficiencies from digital transformation, changing laws or regulations, inflation and natural disasters.
Certain contracts may impose other risks, such as forfeiting fees, paying penalties, or providing replacement systems in the
event of performance failure.
Contracts for development programs include complex design and technical requirements and are often contracted on a cost-
reimbursable basis, however, some of our existing development programs are contracted on a fixed-price basis. In addition, we
have certain contracts where we bid upfront on cost-reimbursable development work and the follow-on fixed-price production
options in one submission. We expect we also will bid on similar programs in the future. Fixed-price development work or
fixed-price production options, especially on competitively bid programs, is inherently riskier than cost-reimbursable work
because the revenue is fixed, while the estimates of costs required to complete these contracts are subject to significant
variability due to the nature of development programs. The technical complexity coupled with the fixed-price contract structure
of certain of our ongoing development programs or new programs increases the risk that our costs will be greater than
anticipated, resulting in reduced margins, operating profit, or reach-forward losses during the period of contract performance or
upon contract award, all of which could be significant to our operating results, cash flows, or financial condition. Bidding
upfront on fixed-price production options increases the risk that we may experience lower margins than expected, or a loss, on
the production options because we must estimate the cost of producing a product before it has been developed. These risks may
cause us not to bid on certain future programs, which could adversely affect our future growth prospects and financial
performance. See Note 1 – Organization and Significant Accounting Policies included in our Notes to Consolidated Financial
Statements for further details about losses incurred on certain programs, including fixed-price development programs.
Contracts for the transition from development to production (e.g., low rate initial production (LRIP) contracts) also create
performance and financial risks to our business because of the challenge of starting and stabilizing a manufacturing production
and test line while concurrently validating final design and managing change in requirements or capabilities requested by the
customer.
Many of our contracts include multiple option years exercisable at the customer’s discretion, which carries risk. The
customer may decline to exercise an option, or the customer may exercise an option on a contract for which we expect to incur
a loss or perform at a low margin, either of which could adversely affect our financial results.
We are routinely subject to audit by our customers on government contracts and the results of those audits could have an
adverse effect on our business, reputation and results of operations.
U.S. Government agencies, including the Defense Contract Audit Agency, the Defense Contract Management Agency and
various agency Inspectors General, routinely audit and investigate government contractors. These agencies review a
contractor’s compliance with applicable laws, regulations and contract terms, regarding, among other things, contract pricing,
contract performance, cost structure and business systems. U.S. Government audits and investigations often take years to
complete, and many result in no adverse action against us. Like many U.S. Government contractors, we have received audit and
investigative reports recommending the reduction of certain contract prices or that certain payments be repaid, delayed, or
withheld, and may involve substantial amounts. Similarly, like other U.S. Government contractors, audits and investigations
also occur related to cost reimbursements that are based upon our final allowable incurred costs for each year. We have
unaudited or unsettled incurred cost claims related to past years, which limits our ability to issue final billings on contracts for
which authorized and appropriated funds may be expiring or can result in delays in final billings and our ability to close out a
contract.
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If an audit or investigation uncovers improper or illegal activities, we may be subject to civil or criminal penalties and
administrative sanctions, including reductions of the value of contracts, contract modifications or terminations, forfeiture of
profits, suspension of payments, penalties, fines or suspension or debarment from doing business with the U.S. Government.
Suspension or debarment could have a material adverse effect on us because of our dependence on contracts with the U.S.
Government. In addition, we could suffer serious reputational harm if allegations of impropriety were made against us. Similar
government oversight and risks to our business and reputation exist in most other countries where we conduct business.
Other Risks Related to our Operations
We are heavily dependent on suppliers and if our subcontractors or other suppliers or teaming agreement or joint venture
partners fail to perform their obligations, our performance and ability to win future business could be adversely affected.
We are the prime contractor on most of our contracts and rely on other companies to provide materials, major components
and products, and to perform a portion of the services that are provided to our customers under the terms of most of our
contracts. These arrangements may involve subcontracts, teaming arrangements, joint ventures, or supply agreements with other
companies on which we rely (contracting parties) and, in many cases, our contracting parties in turn rely on lower-tier
subcontractors. We sometimes have disputes with our contracting parties, including disputes regarding the cost, quality and
timeliness of work performed, workshares, customer concerns about the other party’s performance, issues related to lower-tier
subcontractor performance, our failure to issue or extend task orders, or our hiring the personnel of a subcontractor, teammate
or joint venture partner or vice versa. We also could be adversely affected by actions or issues experienced by our contracting
parties that are outside of our control, such as misconduct and reputational issues involving our contracting parties, which could
subject us to liability or adversely affect our ability to compete for contract awards. The financial stability and viability of our
contracting parties or lower-tier subcontractors have and in the future could adversely affect their ability to meet their
performance obligation.
A failure by one or more of our contracting parties to provide the agreed-upon materials, components or products, or
perform the agreed-upon services, on a timely basis, according to specifications, including compliance with regulatory
requirements we flow down from our prime contracts, or at all, has and may adversely affect our ability to perform our
obligations and require that we transition the work to other companies. Contracting party performance deficiencies may result
in additional costs or delays in product deliveries and affect our operating results and could result in a customer terminating our
contract for default or convenience. A default termination could expose us to liability and affect our ability to compete for
future contracts and orders. A failure by our contracting parties to meet affordability targets could negatively affect our
profitability, result in contract losses and affect our ability to win new business.
Additionally, we are affected by government procurement restrictions and issues affecting industry supply chains broadly.
For example, U.S. Government statutes and regulations impose restrictions in the sourcing of items from specified countries.
We seek to manage supply risk through long-term contracts, identifying domestic or other U.S. allied alternative sources of
items and maintaining an acceptable level of our key materials in inventories. Advanced microelectronics, including
semiconductors, underpin many of our current and future critical technologies and platforms, and global shortages of these
products due to increased demand or other supply chain challenges could result in increased procurement lead times and
increased costs and potential shortages, which could affect our performance. We also must comply with specific procurement
requirements that can limit the number of eligible suppliers and a significant number of the components or supplies used are
currently single or sole sourced. Because the identification and qualification of new or additional suppliers can take an extended
period of time, issues with suppliers or trade actions that limit our ability to use certain suppliers, especially when single or sole
sourced, can have an adverse impact on our business. Complying with U.S. Government contracting regulations that limit the
source or manufacture of suppliers and impose stringent cybersecurity regulations also may create challenges for our supply
chain and increase costs.
We remain heavily dependent on our supply chain for sourcing contractually compliant components, which is outside of
our direct control and is multi-tiered. The future occurrence of non-compliant components in our programs could cause
suspensions in product deliveries, remediation work on installed components, contract price adjustments and alternate supply
sourcing, all of which could adversely affect our results of operations, financial condition and cash flows.
Our success depends, in part, on our ability to develop new technologies, products and services and efficiently produce and
deliver existing products.
Many of the products and services we provide are highly engineered and involve sophisticated technologies with related
complex manufacturing and systems integration processes. Our customers’ requirements change and evolve regularly.
Accordingly, our future performance depends, in part, on our ability to adapt to changing customer needs rapidly, identify
emerging technological trends, develop and manufacture innovative products and services efficiently and bring those offerings
to market quickly at cost-effective prices. This includes efforts to provide mission solutions that integrate capabilities and
resources across all forces and domains, which we refer to as joint all domain operations, and to implement emerging digital
and network technologies and capabilities. Artificial intelligence technologies have rapidly developed and our business may be
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adversely affected if we cannot successfully integrate the technology into our internal business processes and product and
service offerings in a timely, cost-effective, compliant and responsible manner. To advance our innovation and position us to
meet our customers’ requirements, we make investments in emerging technologies that we believe are needed to keep pace with
rapid industry innovation and seek to collaborate with commercial entities that we believe have complementary technologies to
ours. These commercial entities may not be accustomed to government contracting and may be unwilling to agree to the
government’s customary terms, including with respect to intellectual property, liability and indemnification term, which may
prevent or lessen the benefit of collaboration. We may not be successful in identifying or developing emerging technologies and
may spend significant resources on projects that ultimately are unsuccessful or yield a low return on the amount invested.
Our future success in delivering innovative and affordable solutions to our customers relies, in part, on our multi-year
business transformation initiative that seeks to significantly enhance our digital infrastructure to increase efficiencies and
collaboration throughout our business while reducing costs. This digital transformation effort requires substantial investment
and if we are unable to successfully implement the strategy or do so in a timely manner, our results of operations and future
competitiveness may be adversely affected.
If we fail in our development projects or if our new products or technologies fail to achieve customer acceptance or
competitors develop more capable technologies or offerings, we may be unsuccessful in obtaining new contracts or winning all
or a portion of next generation programs, including in key areas such as hypersonics and classified work, and this could
adversely affect our future performance and financial results.
Geopolitical, macroeconomic and public health events and conditions could adversely affect our business, operating results,
financial condition and cash flows.
Geopolitical. Our business is highly sensitive to geopolitical and security issues, including foreign policy actions taken by
governments such, as tariffs, sanctions, embargoes, export and import controls and other trade restrictions, which can affect the
demand for our products and services, the ability to sell our products and services, and disrupt our supply chain, all of which
could adversely affect our business.
Global conflicts, including Russia’s invasion of Ukraine, have significantly elevated global geopolitical tensions and
security concerns. The conflict has resulted in increased demand for some of our products and services; however, if we are
unable to increase production to meet demand on the timeframe expected by potential customers, whether it be from supply
constraints, government funding or otherwise, then we may lose sales opportunities as they seek alternatives, even less capable
ones, that may be able to be delivered more quickly. In addition, the U.S. Government and other nations have implemented
broad economic sanctions and export controls targeting Russia, which, combined with the Ukraine conflict, has indirectly
disrupted the global supply chain and increased pressures on certain resources. The Ukraine conflict also has increased the
threat of malicious cyber activity from nation states and other actors.
China’s Ministry of Commerce announced in 2023 that it had added Lockheed Martin Corporation to its “unreliable
entities list” in connection with certain foreign military sales by the U.S. Government to Taiwan involving our products and
services, and that it would impose certain sanctions against us, including a fine equal to twice the value of the arms that we had
sold to Taiwan since September 2020. In addition, China prohibited our CEO, COO and CFO from traveling or working in
China. We will continue to follow official U.S. Government guidance as it relates to sales to Taiwan and do not currently
expect a material impact to our business from these actions. In 2023, China also implemented broad-based export restrictions on
certain minerals used in the production, among other things, of semiconductors and missile systems. If China were to further
restrict the export of certain materials, take further actions to enforce the existing sanctions on us or impose additional
sanctions, or impose sanctions on our suppliers, teammates or partners, our business could be adversely affected.
International sales also may be adversely affected by actions taken by the U.S. Government in the exercise of foreign
policy, Congressional oversight or the financing of particular programs, including the prevention or imposition of conditions
upon the sale and delivery of our products or the transfer of sensitive technology, the imposition of sanctions, or Congressional
action to restrict sales of our products. For example, the U.S. Government has imposed certain sanctions on Türkish entities and
persons, which has affected our ability to obtain certain U.S. export permits or authorizations necessary to perform under our
existing contracts supporting the Türkish Utility Helicopter Program (TUHP), our work with Türkish industry and our
opportunity for sales in Türkiye generally. See “Note 1 – Organization and Significant Accounting Policies” included in our
Notes to Consolidated Financial Statements for more information on TUHP. Our inability to perform under contracts with
international customers as a result of actions taken by the U.S. Government has resulted and may in the future result in our
inability to recover our costs and reach forward losses, claims and contract terminations by these customers and suppliers,
which could have an adverse effect on our operating results.
Macroeconomic. Heightened levels of inflation and the potential worsening of macro-economic conditions, including
slower growth or recession, changes to fiscal and monetary policy, tighter credit, higher interest rates and currency fluctuations,
present a risk for us, our suppliers and the stability of the broader defense industrial base. If we are unable to successfully
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mitigate the impact of inflation, our profits, margins and cash flows, particularly for existing fixed-price contracts, may be
adversely affected. Although we believe defense spending is more resilient to adverse macro-economic conditions than many
other industrial sectors, our suppliers and other partners, many of which are more exposed to commercial markets or have fewer
resources, may be adversely impacted to a more significant degree than we are by an economic downturn, which could affect
their performance and adversely impact our operations. In addition, macroeconomic conditions could cause budgetary pressures
for our government customers resulting in reductions or delays in spending, which could adversely impact our business. Higher
interest rates increase the borrowing costs on new debt and could affect the fair value of our investments. Interest rates also
impact our pension. For example, higher interest rates generally reduce the measure of our gross pension obligations while
lower interest rates increase it.
Public health. We face a wide variety of risks related to public health crises, epidemics, pandemics or similar events,
including COVID-19. If a new health epidemic or outbreak were to occur, we could experience broad and varied impacts
similar to the impact of COVID-19, including adverse impacts to our workforce and supply chain, inflationary pressures and
increased costs, schedule or production delays, market volatility and other financial impacts. If any of these were to occur, our
future results and performance could be adversely impacted.
International sales may pose different economic, regulatory, competition and other risks.
International sales present risks that are different and potentially greater than those encountered in our U.S. business. In
2023, 26% of our total net sales were from international customers. International sales are subject to numerous political and
economic factors, including changes in foreign national priorities, foreign government budgets, global economic conditions,
and fluctuations in foreign currency exchange rates, the possibility of trade sanctions and other government actions, regulatory
requirements, significant competition, taxation, and other risks associated with doing business outside the U.S. Sales of military
products and services and any associated industrial development (offset) agreements are subject to U.S. export regulations and
foreign policy, and there could be significant delays or other issues in reaching definitive agreements for announced programs.
See the Risk Factor “Geopolitical, macroeconomic and public health events and conditions could adversely affect our business,
operating results, financial condition and cash flows.” Competition for international sales is intense, including from
international manufacturers whose governments sometimes provide research and development assistance, marketing subsidies
and other assistance for their products and services.
Our international business is conducted through foreign military sales (FMS) contracted through the U.S. Government and
by direct commercial sales (DCS) to international customers. FMS contracts with the U.S. Government are subject to the FAR
and the DFARS. Because the U.S. Government functions as an intermediary in FMS sales, we are reliant on the capacity and
speed of the DoD’s administration of requests from non-U.S. countries to convert requests to sales. In contrast, DCS
transactions represent sales directly to international customers and are subject to U.S. and foreign laws and regulations,
including product testing, import-export control, technology transfer restrictions, investments, taxation, repatriation of earnings,
exchange controls, the Foreign Corrupt Practices Act and other anti-corruption laws and regulations, and the anti-boycott
provisions of the U.S. Export Control Reform Act of 2018. While we have extensive policies in place to comply with such laws
and regulations, failure by us, our employees or others working on our behalf to comply with these laws and regulations could
result in administrative, civil, or criminal liabilities, including suspension, debarment from bidding for or performing
government contracts, or suspension of our export privileges, which could have a material adverse effect on us. We frequently
team with international subcontractors and suppliers who also are exposed to similar risks.
We believe DCS transactions present a higher level of potential risks because they involve direct commercial relationships
with parties with which we typically have less familiarity. Additionally, international procurement and local country rules and
regulations, contract laws and judicial systems differ from those in the U.S. and, in some cases, may be less predictable than
those in the U.S., which could impair our ability to enforce contracts and increase the risk of adverse or unpredictable
outcomes, including the possibility that certain matters that would be considered civil matters in the U.S. are treated as criminal
matters in other countries.
In conjunction with defense procurements, some international customers require contractors to comply with industrial
cooperation regulations, including entering into industrial participation, industrial development or localization agreements,
sometimes referred to as offset agreements (also known as offset contracts), as a condition to obtaining orders for our products
and services. These offset agreements generally extend over several years and obligate the contractor to perform certain
commitments, which may include in-country purchases, technology transfers, local manufacturing support, consulting support
to in-country projects, investments in joint ventures and financial support projects, and preference for local suppliers or
subcontractors. The customer’s expectations in respect of the scope of offset commitments can be substantial, including high-
value content, and may exceed existing local technical capability. Failure to meet these commitments, which can be subjective
and outside of our control, may result in significant penalties, and could lead to a reduction in sales to a country. Furthermore,
some of our existing offset agreements are dependent upon the successful operation of joint ventures that we do not control and
involve products and services that are outside of our core business, which may increase the risk of breaching our obligations,
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exposing us to compliance risks of the joint venture, and impairing our ability to recover our investment. For more information
on our industrial development obligations, including the notional value of our remaining industrial development obligations and
potential penalties for non-compliance, see “Contractual Commitments” in Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
We may be unable to benefit fully from or adequately protect our intellectual property rights or use third-party intellectual
property, which could negatively affect our business.
We own a substantial number of U.S. and foreign patents and trademarks related to the products and services we provide.
In addition to owning a large portfolio of patents and trademarks, we develop and own other intellectual property, including
copyrights, trade secrets and research, development and engineering know-how, which contribute significantly to our business.
We also license intellectual property to and from third parties. The FAR and DFARS provide that the U.S. Government obtains
certain rights in intellectual property, including patents, developed by us and our subcontractors and suppliers in performance of
government contracts or with government funding. The U.S. Government may use or authorize others, including competitors, to
use such intellectual property. Non-U.S. governments also may have certain rights in patents and other intellectual property
developed in performance of our contracts with these entities. The U.S. Government is pursuing aggressive positions regarding
the types of intellectual property to which government use rights apply and when it is appropriate for the government to insist
on broad use rights. The DoD is also implementing an overarching intellectual property acquisition policy that will require a
greater focus and planning as to intellectual property rights for its programs, and we have no assurance as to the potential
impacts of this policy or any associated regulatory changes on future acquisitions. The DoD’s efforts could affect our ability to
protect and exploit our intellectual property and to leverage supplier intellectual property, for example, if we are unable to
obtain necessary licenses from our suppliers to meet government requirements. Additionally, third parties may assert that our
products or services infringe their intellectual property rights, which could result in costly and time-consuming disputes, subject
us to damages and injunctions and adversely affect our ability to compete and perform on certain contracts.
Our business and financial performance depends on us identifying, attracting and retaining a highly skilled workforce.
Our performance is dependent upon us identifying, attracting, developing, motivating and retaining a highly skilled
workforce with the requisite skills in multiple areas including: engineering, science, manufacturing, information technology,
cybersecurity, business development and strategy and management. Due to the national security nature of our work, our
performance is also dependent upon personnel who hold security clearances and receive substantial training to work on certain
programs or tasks and can be difficult to replace on a timely basis if we experience unplanned attrition. The market for highly
skilled workers and leaders in our industry as well as the market for individuals holding high-level security clearances is
extremely competitive and not confined to our industry. For example, we compete with commercial technology companies
outside of the aerospace and defense industry for qualified technical, cyber and scientific positions, which may not face the
same type of cost pressures as a government contractor and which may be able to offer more flexible work arrangements given
that certain of our employees must perform the majority of their work in a secure facility because of the need to access
classified information. If we cannot adequately attract and retain personnel with the requisite skills or clearances in this
competitive market, our performance and future prospects may be adversely affected.
Workforce dynamics are constantly evolving. If we do not manage changing workforce dynamics effectively, it could
adversely affect our culture, reputation and operational flexibility. Beginning with the COVID-19 pandemic, a significant
portion of our workforce began working remotely and we expect a significant portion to continue working remotely under our
hybrid workforce model. If we are unable to effectively adapt to this hybrid work environment long term, then we may
experience a less cohesive workforce, increased attrition, reduced program performance and less innovation.
It is also critical that we develop and train employees, hire new qualified personnel, and successfully manage the short and
long-term transfer of critical knowledge and skills, including leadership development and succession planning throughout our
business. While we have processes in place for management transition and the transfer of knowledge and skills, the loss of key
personnel, coupled with an inability to adequately train other personnel, hire new personnel or transfer knowledge and skills,
could significantly impact our ability to perform under our contracts and execute on new or growing programs.
Additionally, approximately 19% of our workforce is comprised of employees that are covered by collective bargaining
agreements with various unions. If we encounter difficulties with renegotiations or renewals of collective bargaining
arrangements or are unsuccessful in those efforts, we could incur additional costs and experience work stoppages. Union
actions at suppliers also can affect us. Any delays or work stoppages could adversely affect our ability to perform under our
contracts, which could negatively impact our results of operations, cash flows, and financial condition.
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Cyber-attacks and other security threats and disruptions could have a material adverse affect on our business.
As an aerospace and defense company, we face a multitude of security threats, including cybersecurity threats ranging from
attacks common to most industries, such as ransomware and denial-of-service, to attacks from more advanced and persistent,
highly organized adversaries, including nation state actors, which target the defense industrial base and other critical
infrastructure sectors. The sophistication of the threats continue to evolve and grow, including the risk associated with the use
of emerging technologies, such as artificial intelligence and quantum computing, for nefarious purposes. In addition to
cybersecurity threats, we face threats to the security of our facilities and employees from terrorist acts, sabotage or other
disruptions, any of which could adversely affect our business. The improper conduct of our employees or others working on
behalf of us who have access to export controlled, classified or other sensitive information could also adversely affect our
business and reputation. Our customers (including sites that we operate and manage for our customers), suppliers,
subcontractors and joint venture partners, experience similar security threats.
If we are unable to protect sensitive information, including complying with evolving information security, data protection
and privacy regulations, our customers or governmental authorities could investigate the adequacy of our threat mitigation and
detection processes and procedures; and could bring actions against us for noncompliance with applicable laws and regulations.
Moreover, depending on the severity of an incident, our customers’ data, our employees’ data, our intellectual property
(including trade secrets and research, development and engineering know-how), and other third-party data (such as
subcontractors, suppliers and vendors) could be compromised, which could adversely affect our business. Products and services
we provide to customers also carry cybersecurity risks, including risks that they could be breached or fail to detect, prevent or
combat attacks, which could result in losses to our customers and claims against us, and could harm our relationships with our
customers and financial results.
Given the persistence, sophistication, volume and novelty of threats we face, we may not be successful in preventing or
mitigating an attack that could have a material adverse effect on us and the costs related to cyber or other security threats or
disruptions may not be fully insured or indemnified by other means. The national security aspects of our business and much of
the data we protect increase and create different risks relative to other industries. National security considerations may also
preclude us from publicly disclosing a cybersecurity incident.
Our customers, suppliers, subcontractors, joint venture partners and acquired entities face similar security threats and an
incident at one of these entities could adversely impact our business. These entities are typically outside our control and may
have access to our information with varying levels of security and cybersecurity resources, expertise, safeguards and
capabilities. Their relationships with government contractors, including us, may increase the risk that they are targeted by the
same threats we face, however, they may not be as prepared for such threats. Adversaries actively seek to exploit security and
cybersecurity weaknesses in our supply chain. Breaches in our multi-tiered supply chain, which is comprised of thousands of
direct and indirect suppliers, has and could in the future compromise our data and adversely affect customer deliverables. We
also must rely on our supply chain for adequately detecting and reporting cyber incidents, which could affect our ability to
report or respond to cybersecurity incidents effectively or in a timely manner.
For information on our cybersecurity risk management, strategy and governance, see Item 1C. - Cybersecurity.
If we fail to successfully complete or manage acquisitions, divestitures, equity investments and other transactions or if
acquired entities or equity investments fail to perform as expected, our financial results, business and future prospects could
be harmed.
In pursuing our business strategy, we routinely conduct discussions, evaluate companies, and enter into agreements
regarding possible acquisitions, joint ventures, other investments and divestitures. We seek to identify acquisition or investment
opportunities that will expand or complement our existing products and services or customer base, at reasonable valuations. To
be successful, we must conduct due diligence to identify valuation issues and potential loss contingencies or underlying risks,
some of which are difficult to discover or assess prior to consummation of an acquisition or investment; negotiate transaction
terms; complete and close complex transactions; integrate acquired companies and employees; and realize anticipated operating
synergies efficiently and effectively. U.S. regulators have increased their scrutiny of mergers and acquisitions in recent years,
which could continue to limit our ability to execute certain transactions that we might otherwise pursue.
Acquisition, divestiture, joint venture and investment transactions often require substantial management resources and have
the potential to divert our attention from our existing business. Unidentified or identified but uncertain liabilities that are not
covered by indemnification or other coverage could adversely affect our future financial results. This is particularly the case in
respect of successor liability under procurement laws and regulations such as the False Claims Act or the Truthful Cost or
Pricing Data Act (formerly the Truth in Negotiations Act), anti-corruption, environmental, tax, import-export and technology
transfer laws, which provide for civil and criminal penalties and the potential for debarment. We also may incur unanticipated
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costs or expenses, including post-closing asset impairment charges, expenses associated with eliminating duplicate facilities,
employee retention, transaction-related or other litigation, and other liabilities. Any of the foregoing could adversely affect our
business and results of operations.
Joint ventures and other noncontrolling investments operate under shared control with other parties. These investments
typically face many of the same risks and uncertainties as we do, but may expose us to additional risks not present if we
retained full control. A joint venture partner may have economic or other business interests that are inconsistent with ours and
we may be unable to prevent strategic decisions that may adversely affect our business, financial condition and results of
operations. We also could be adversely affected by, or liable for, actions taken by these joint ventures that we do not control,
including violations of anti-corruption, import and export, taxation and anti-boycott laws.
Depending on our rights and percentage of ownership, we may consolidate the financial results of such entities or account
for our interests under the equity method. Under the equity method of accounting for nonconsolidated ventures and
investments, we recognize our share of the operating profit or loss of these joint ventures in our results of operations. Our
operating results are affected by the conduct and performance of businesses over which we do not exercise control and, as a
result, we may not be successful in achieving the growth or other intended benefits of strategic investments.
We make investments in early-stage companies that we believe are advancing or developing new technologies applicable to
our businesses. These investments are generally illiquid at the time of investment and typically we hold a non-controlling
interest. We have and expect to continue to recognize gains or losses attributable to adjustments of the investments’ fair value,
including impairments up to and including the full value of the investment, which events are generally outside of our control
such as the success or failure of the company and market volatility.
Risks Related to Significant Contingencies, Uncertainties and Estimates, including Pension, Taxes, Environmental and
Litigation Costs
Pension funding requirements and costs are dependent on return on pension assets and other economic and actuarial
assumptions which if changed may cause our future earnings and cash flow to fluctuate significantly and affect the
affordability of our products and services.
Many of our employees and retirees participate in defined benefit pension plans, retiree medical and life insurance plans,
and other postemployment plans (collectively, postretirement benefit plans). The impact of these plans on our earnings may be
volatile in that the amount of expense or income we record for our postretirement benefit plans may materially change from
year to year because the calculations are sensitive to changes in several key economic assumptions, including interest rates and
rates of return on plan assets, other actuarial assumptions, including participant longevity (also known as mortality), as well as
the timing of cash funding. Changes in these factors, including actual returns on plan assets, may also affect our plan funding,
cash flows and stockholders’ equity. We could be required to make pension contributions earlier and/or in excess than planned
if our return on pension assets is less than our assumptions, which would reduce our free cash flow.
With regard to cash flow, we have made substantial cash contributions to our plans as required by the Employee
Retirement Income Security Act of 1974 (ERISA), as amended, and expect to make future contributions as required or when
deemed prudent. We generally can recover a significant portion of these contributions related to our plans as allowable costs on
our U.S. Government contracts, including FMS. However, there is a lag between the time when we contribute cash to our plans
under pension funding rules and when we recover pension costs under U.S. Government Cost Accounting Standards (CAS),
which can affect the timing of our cash flows. Our business segments’ results of operations include pension expense as
calculated under CAS while our consolidated financial statements must present pension income or expense in accordance with
U.S. GAAP Financial Accounting Standards (FAS); differences in these accounting rules may result in significant period
adjustments referred to as our FAS/CAS pension adjustments.
In recent years, we have taken actions intended to mitigate the risk related to our defined benefit pension plans including
pension risk transfer transactions whereby we purchase group annuity contracts (GACs) from insurance companies using assets
from the pension trust. We expect to continue to evaluate such transactions in the future. Although under the majority of the
GACs we have purchased we are relieved of all responsibility for the associated pension obligations, we have purchased and
may in the future purchase GACs whereby the insurance company reimburses the pension plans but we remain responsible for
paying benefits under the plans to covered retirees and beneficiaries and are subject to the risk that the insurance company will
default on its obligations to reimburse the pension trusts. While we believe pension risk transfer transactions are beneficial;
future transactions, depending on their size, could result in us making additional contributions to the pension trust and/or
require us to recognize noncash settlement charges in earnings in the applicable reporting period.
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For more information on how these factors could impact earnings, financial position, cash flow and stockholders’ equity,
see “Critical Accounting Policies - Postretirement Benefit Plans” in the MD&A and “Note 11 – Postretirement Benefit Plans”
included in our Notes to Consolidated Financial Statements.
Our estimates and projections may prove to be inaccurate and certain of our assets may be at risk of future impairment.
The accounting for some of our most significant activities is based on judgments and estimates, which are complex and
subject to many variables. For example, accounting for sales using the percentage-of-completion cost-to-cost method requires
that we assess risks and make assumptions regarding future schedule, cost, technical and performance issues for thousands of
contracts, many of which are long-term in nature. This process can be especially difficult when estimating costs for
development programs because of the inherent uncertainty in developing a new product or technology. Because of the
significance of the judgments and estimation processes involved in accounting for our contracts, materially different amounts or
revenue and operating profit could be recorded if we used different assumptions or if the underlying circumstances were to
change. Changes in underlying assumptions, circumstances or estimates may adversely affect our future financial condition and
results of operations. Additionally, we initially allocate the purchase price of acquired businesses based on a preliminary
assessment of the fair value of identifiable assets acquired and liabilities assumed. For significant acquisitions we may use a
one-year measurement period to analyze and assess several factors used in establishing the asset and liability fair values as of
the acquisition date which could result in adjustments to asset and liability balances.
We have $10.8 billion of goodwill assets recorded on our consolidated balance sheet as of December 31, 2023 from
previous acquisitions, which represents approximately 21% of our total assets. These goodwill assets are subject to annual
impairment testing and more frequent testing upon the occurrence of certain events or significant changes in circumstances that
indicate goodwill may be impaired. If we experience changes or factors arise that negatively affect the expected cash flows of a
reporting unit, we may be required to write off all or a portion of the reporting unit’s related goodwill assets.
Actual financial results could differ from our judgments and estimates. See “Critical Accounting Policies” in the MD&A
and Results of Operations and “Note 1 – Organization and Significant Accounting Policies” included in our Notes to
Consolidated Financial Statements for a complete discussion of our significant accounting policies and use of estimates.
Changes in tax laws and regulations or exposure to additional tax liabilities could adversely affect our financial results.
Changes in U.S. (federal or state) or foreign tax laws and regulations, or their interpretation and application, including
those with retroactive effect, could result in increases in our tax expense and affect profitability and cash flows. For example,
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 (research
and development capitalization). While the most significant impact of this provision was to cash tax liability for 2022, the tax
year in which the provision took effect, the impact will continue over the five-year amortization period, but decline to an
immaterial amount in year six.
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, change in the amount or
reevaluation of uncertain tax positions, and future changes in tax laws. In addition, we are regularly under audit or examination
by tax authorities, including foreign tax authorities. 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.
Our business involves significant risks and uncertainties that may not be covered by indemnity or insurance.
A significant portion of our business relates to designing, developing and manufacturing advanced defense and technology
products and systems. New technologies may be untested or unproven. Failure of some of these products and services could
result in extensive loss of life or property damage. Accordingly, we may incur liabilities that are unique to our products and
services. In some but not all circumstances, we may be entitled to certain legal protections or indemnifications from our
customers, either through U.S. Government indemnifications under Public Law 85-804, 10 U.S.C. 3861, the Commercial Space
Launch Act or the Price-Anderson Act, qualification of our products and services by the Department of Homeland Security
under the SAFETY Act provisions of the Homeland Security Act of 2002, contractual provisions or otherwise.
We seek to obtain insurance coverage from established and reputable insurance carriers to the extent available in order to
cover these risks and liabilities. However, the amount of insurance coverage that we maintain or that is available to purchase in
the market may not be adequate to cover all claims or liabilities. Insurance coverage is subject to the terms and conditions of the
insurance contract and is further subject to any sublimits, exclusions, restrictions, or defenses, including standard exclusions for
acts of war. Existing coverage is renewed annually and may be canceled pursuant to the terms of the policies while we remain
20
exposed to the risk and it is not possible to obtain insurance to protect against all operational risks, natural hazards and
liabilities. For example, we are limited in the amount of insurance we can obtain to cover unusually hazardous risks or certain
natural hazards such as earthquakes, fires or extreme weather conditions, some of which may be exacerbated by climate change.
We have significant operations in geographic areas prone to these risks, such as in California, Florida and Texas and certain of
our properties have suffered damage from natural disasters in the past and may again in the future. We could incur significant
costs to improve the climate resiliency of our infrastructure and supply chain and otherwise prepare for, respond to, and
mitigate the effects of climate change. In addition, under certain classified fixed price development and production contracts,
we are unable to insure risk of loss to government property because of the classified nature of the contracts and the inability to
disclose classified information necessary for underwriting and claims to commercial insurers. Even if insurance coverage is
available, we may not be able to obtain it in an amount, at a price or on terms acceptable to us. Some insurance providers may
be unable or unwilling to provide us insurance given the nature of our business or products. Additionally, disputes with
insurance carriers over coverage terms or the insolvency of one or more of our insurance carriers may significantly affect the
amount or timing of our cash flows.
Substantial costs resulting from an accident; failure of or defect in our products or services; natural catastrophe or other
incident; or liability arising from our products and services in excess of any legal protection, indemnity, and our insurance
coverage (or for which indemnity or insurance is not available or not obtained) could adversely impact our financial condition,
cash flows, and operating results. Any accident, failure of, or defect in our products or services, even if fully indemnified or
insured, could negatively affect our reputation among our customers and the public and make it more difficult for us to compete
effectively. It also could affect the cost and availability of adequate insurance in the future.
Environmental regulations, including in relation to climate change, could adversely affect our future earnings as well as the
affordability of our products and services.
We are subject to federal, state, local and foreign requirements for the protection of the environment, including those for
discharge of hazardous materials and remediation of contaminated sites. Due in part to the complexity and pervasiveness of
these requirements, we are a party to or have property subject to various lawsuits, proceedings, and remediation obligations.
These types of matters could result in fines, penalties, cost reimbursements or contributions, compensatory or treble damages or
non-monetary sanctions or relief. We have incurred and will continue to incur liabilities for environmental remediation at some
of our current and former facilities and at third-party-owned sites where we have been designated a potentially responsible party
as a result of our historical activities and those of our predecessor companies. Environmental remediation activities usually span
many years, and the extent of financial exposure can be difficult to estimate. Among the variables management must assess in
evaluating costs associated with these cases and remediation sites are the status of site assessment, extent of the contamination,
impacts on natural resources, changing cost estimates, evolution of technologies used to remediate the site, continually evolving
environmental standards, availability of insurance coverage and indemnification under existing agreements and cost
allowability issues, including varying efforts by the U.S. Government to limit allowability of our costs in resolving liability at
third-party-owned sites. Our environmental remediation related liabilities also could increase significantly because of
acquisitions, stricter remediation standards for existing or newly regulated substances, changes in the interpretation or
enforcement of existing laws and regulations, or the discovery of previously unknown or more extensive contamination. For
information regarding these matters, including current estimates of the amounts that we believe are required for environmental
remediation to the extent probable and estimable, see “Critical Accounting Policies - Environmental Matters” in the MD&A
and “Note 14 – Legal Proceedings, Commitments and Contingencies” included in our Notes to Consolidated Financial
Statements.
We manage and have managed various U.S. Government-owned facilities on behalf of the U.S. Government. At such
facilities, environmental compliance and remediation costs historically have been the responsibility of the U.S. Government.
We have relied, and continue to rely with respect to past practices, on U.S. Government funding to pay at least a portion if not
all of such costs, notwithstanding efforts by some U.S. Government representatives to limit the U.S. Government’s
responsibility. Although the U.S. Government remains responsible for capital and operating costs associated with
environmental compliance, responsibility for fines and penalties associated with environmental noncompliance typically is
borne by either the U.S. Government or the contractor, depending on the contract and the relevant facts. Some environmental
laws include criminal provisions. A conviction under environmental law could affect our ability to be awarded future or
perform under existing U.S. Government contracts.
The increasing global regulatory focus on greenhouse gas (GHG) emissions and their potential impacts relating to climate
change could result in laws, regulations or policies that significantly increase our direct and indirect operational and compliance
burdens, which could adversely affect our financial condition and results of operations. These laws, regulations or policies
could take many forms, including carbon taxes, cap and trade regimes, increased efficiency standards, GHG reduction
commitments, incentives or mandates for particular types of energy or changes in procurement laws. Changes in government
21
procurement laws that mandate or take into account climate change considerations, such as the contractor’s GHG emissions,
GHG emission reduction targets, lower emission products or other climate risks, in evaluating bids could result in costly
changes to our operations or affect our competitiveness on future bids, or our ability to bid at all. In addition to incurring direct
costs to implement any climate-change related laws, regulations or policies, we may see indirect costs rise, such as increased
energy or material costs, as a result of policies affecting other sectors of the economy. Although most of these increased costs
likely would be recoverable through pricing, to the extent that the increase in our costs as a result of these policies are greater
than our competitors we may be less competitive on future bids or the total increased cost in our industry’s products and
services could result in lower demand from our customers. We monitor developments in climate change-related laws,
regulations and policies for their potential effect on us, however, we currently are not able to accurately predict the materiality
of any potential costs associated with such developments. In addition, climate change-related litigation and investigations have
increased in recent years and any claims or investigations against us could be costly to defend and our business could be
adversely affected by the outcome.
We are involved in several legal proceedings. We cannot predict the outcome of litigation and other contingencies with
certainty.
Our business may be adversely affected by the outcome of legal proceedings and other contingencies that cannot be
predicted with certainty. As required by U.S. GAAP, we estimate loss contingencies and establish reserves based on our
assessment of contingencies where liability is deemed probable and reasonably estimable considering the facts and
circumstances known to us at a particular point in time. Subsequent developments in legal proceedings may affect our
assessment and estimates of the loss contingency recorded as a liability or as a reserve against assets in our financial statements.
For a description of our current legal proceedings, see Item 3 - Legal Proceedings, “Critical Accounting Policies -
Environmental Matters” in Management’s Discussion and Analysis of Financial Condition and Results of Operations and
“Note 14 – Legal Proceedings, Commitments and Contingencies” included in our Notes to Consolidated Financial Statements.
Risks Related to Ownership of our Common Stock
There can be no assurance that we will continue to increase our dividend or to repurchase shares of our common stock.
Cash dividend payments and share repurchases are subject to limitations under applicable laws and the discretion of our
Board of Directors and are determined after considering then-existing conditions, including earnings, other operating results
and capital requirements and cash deployment alternatives. Our payment of dividends and share repurchases could vary from
historical practices or our stated expectations. Decreases in asset values or increases in liabilities, including liabilities associated
with employee benefit plans and assets and liabilities associated with taxes, can reduce net earnings and stockholders’ equity.
Under certain circumstances, a deficit in stockholders’ equity could limit our ability to pay dividends and make share
repurchases under Maryland state law in the future. In addition, the timing and amount of share repurchases under Board of
Directors approved share repurchase plans may differ from stated expectations and is within the discretion of management and
will depend on many factors, including our ability to generate sufficient cash flows from operations in the future or to borrow
money from available financing sources, our results of operations, capital requirements and applicable law.
ITEM 1B.
Unresolved Staff Comments
None.
ITEM 1C.
Cybersecurity
We believe cybersecurity is critical to advancing our 21st Century Security vision and enabling our digital transformation
efforts. As an aerospace and defense company, we face a multitude of cybersecurity threats that range from attacks common to
most industries, such as ransomware and denial-of-service, to attacks from more advanced and persistent, highly organized
adversaries, including nation state actors, that target the defense industrial base and other critical infrastructure sectors. Our
customers, suppliers, subcontractors and joint venture partners face similar cybersecurity threats, and a cybersecurity incident
impacting us or any of these entities could materially adversely affect our operations, performance and results of operations.
These cybersecurity threats and related risks make it imperative that we are a leader in the information security field, and we
expend considerable resources on cybersecurity.
The Board of Directors oversees management’s processes for identifying and mitigating risks, including cybersecurity
risks, to help align our risk exposure with our strategic objectives. Senior leadership, including our Chief Information Security
Officer (CISO), regularly briefs the Board of Directors on our cybersecurity and information security posture and the Board of
Directors is apprised of cybersecurity incidents deemed to have a moderate or higher business impact, even if immaterial to us.
The Classified Business and Security Committee of the Board of Directors is briefed by senior leadership, as appropriate, on the
22
cybersecurity of classified programs and the security of our classified business supply chain. Other than oversight of classified
business cybersecurity, the full Board retains oversight of cybersecurity because of its importance to Lockheed Martin and the
heightened risk in the aerospace and defense industry. In the event of an incident, we intend to follow our detailed incident
response playbook, which outlines the steps to be followed from incident detection to mitigation, recovery and notification,
including notifying functional areas (e.g. legal), as well as senior leadership and the Board, as appropriate.
Our corporate information security organization, led by our CISO, is responsible for our overall information security
strategy, policy, security engineering, operations and cyber threat detection and response. The current CISO has extensive
information technology and program management experience, and has served many years in our corporate information security
organization. The corporate information security organization manages and continually enhances a robust enterprise security
structure with the ultimate goal of preventing cybersecurity incidents to the extent feasible, while simultaneously increasing our
system resilience in an effort to minimize the business impact should an incident occur. Central to this organization is our
computer incident response team (CIRT), which is responsible for the protection, detection and response capabilities used in the
defense of Lockheed Martin’s data and enterprise computing networks. Employees outside of our corporate information
security organization also have a role in our cybersecurity defenses and they are immersed in a corporate culture supportive of
security, which we believe improves our cybersecurity.
The corporate information security organization has implemented a governance structure and processes to assess, identify,
manage and report cybersecurity risks. We also have a corporate-wide counterintelligence and insider threat detection program
to proactively identify external and internal threats, and mitigate those threats in a timely manner. As a defense contractor, we
must comply with extensive regulations, including requirements imposed by the Defense Federal Acquisition Regulation
Supplement (DFARS) related to adequately safeguarding controlled unclassified information (CUI) and reporting cybersecurity
incidents to the DoD. We have implemented cybersecurity policies and frameworks based on industry and governmental
standards to align closely with DoD requirements, instructions and guidance. Moreover, we continue to work with the DoD on
assessing cybersecurity risk and on policies and practices aimed at mitigating these risks. For example, we have worked in
collaboration with the other members of the defense industrial base to support DoD’s development of the Cybersecurity
Maturity Model Certification (CMMC) program, DoD’s program to ensure members of the defense industrial base meet
cybersecurity requirements for handling CUI and federal contract information. We believe we are well positioned to meet the
requirements of the CMMC and are preparing for certification once the requirements are effective. In addition to following
DoD guidance and implementing pre-existing third party frameworks, we have developed our own practices and frameworks,
which we believe enhance our ability to identify and manage cybersecurity risks. For example, we use a proactive risk
management strategy that we developed and implemented called the Intelligence Driven Defense® model that seeks to identify
and prevent cybersecurity incidents by understanding the nature of adversaries and using this information to minimize the
impact of an attack.
Third parties also play a role in our cybersecurity. We engage third-party services to conduct evaluations of our security
controls, whether through penetration testing, independent audits or consulting on best practices to address new challenges.
These evaluations include testing both the design and operational effectiveness of security controls. We also share and receive
threat intelligence with our defense industrial base peers, government agencies, information sharing and analysis centers and
cybersecurity associations.
Assessing, identifying and managing cybersecurity related risks are integrated into our overall enterprise risk management
(ERM) process. Cybersecurity related risks are included in the risk universe that the ERM function evaluates to assess top risks
to the enterprise on an annual basis. To the extent the ERM process identifies a heightened cybersecurity related risk, risk
owners are assigned to develop risk mitigation plans, which are then tracked to completion. The ERM process’s annual risk
assessment is presented to the Board of Directors.
We rely heavily on our supply chain to deliver our products and services to our customers, and a cybersecurity incident at a
supplier, subcontractor or joint venture partner could materially adversely impact us. We assess third party cybersecurity
controls through a cybersecurity questionnaire and include security and privacy addendums to our contracts where applicable.
We also contractually flow cybersecurity regulatory requirements to our subcontractors as required by the DFARS and other
government agency specific requirements. These contractual flow downs include the requirement that our subcontractors
implement certain security controls, and that our subcontractors self-report the status of their implementation of these controls
to the U.S. Government. These government contracting regulations may create challenges for our supply chain and increase
costs. We also require that our subcontractors report cybersecurity incidents to us so that we can assess the impact of the
incident on us. For select suppliers, we engage third-party cybersecurity monitoring and alerting services, and seek to work
directly with those suppliers to address potential deficiencies identified. We also make available cybersecurity education and
awareness materials and briefings to our suppliers.
23
Notwithstanding the extensive approach we take to cybersecurity, we may not be successful in preventing or mitigating a
cybersecurity incident that could have a material adverse effect on us. While Lockheed Martin maintains cybersecurity
insurance, the costs related to cybersecurity threats or disruptions may not be fully insured. See Item 1A. “Risk Factors” for a
discussion of cybersecurity risks.
ITEM 2.
Properties
At December 31, 2023, we owned or leased building space (including offices, manufacturing plants, warehouses, service
centers, laboratories and other facilities) at 335 locations primarily in the U.S. Additionally, we manage or occupy 9
government-owned facilities under lease and other arrangements. At December 31, 2023, we had significant operations in the
following locations:
Aeronautics - Palmdale, California; Marietta, Georgia; Greenville, South Carolina; and Fort Worth, Texas.
•
• Missiles and Fire Control - Camden, Arkansas; Ocala and Orlando, Florida; Lexington, Kentucky; and Grand Prairie,
Texas.
Rotary and Mission Systems - Stratford, Connecticut; Orlando, Florida; Moorestown/Mt. Laurel, New Jersey; Owego and
Syracuse, New York; Manassas, Virginia; and Mielec, Poland.
Space - Huntsville, Alabama; Sunnyvale, California; Denver, Colorado; Cape Canaveral, Florida; and Valley Forge,
Pennsylvania.
Corporate activities - Bethesda, Maryland.
•
•
•
The following is a summary of our square feet of floor space owned, leased, or utilized by business segment at
December 31, 2023 (in millions):
Aeronautics
Missiles and Fire Control
Rotary and Mission Systems
Space
Corporate activities
Total
Owned
5.5
7.8
10.8
9.3
2.4
35.8
Leased
3.0
2.6
4.7
3.0
0.9
14.2
Government-
Owned
14.8
2.0
0.2
0.1
—
17.1
Total
23.3
12.4
15.7
12.4
3.3
67.1
We believe our facilities are in good condition and adequate for their current use. We may add, improve, replace, or reduce
facilities as considered appropriate to meet the needs of our operations.
ITEM 3.
Legal Proceedings
We are a party to litigation and other proceedings that arise in the ordinary course of our business, including matters arising
under provisions relating to the protection of the environment, and are subject to contingencies related to certain businesses we
previously owned. These types of matters could result in fines, penalties, cost reimbursements or contributions, compensatory
or treble damages or non-monetary sanctions or relief. We believe the probability is remote that the outcome of each of these
matters will have a material adverse effect on the corporation as a whole, notwithstanding that the unfavorable resolution of any
matter may have a material effect on our net earnings and cash flows in any particular interim reporting period. We cannot
predict the outcome of legal or other proceedings with certainty.
We are subject to federal, state, local and foreign requirements for the protection of the environment, including those for
discharge of hazardous materials and remediation of contaminated sites. Due in part to the complexity and pervasiveness of
these requirements, we are a party to or have property subject to various lawsuits, proceedings and remediation obligations. The
extent of our financial exposure cannot in all cases be reasonably estimated at this time.
For information regarding the matters discussed above, including current estimates of the amounts that we believe are
required for remediation or clean-up to the extent estimable, see “Critical Accounting Policies - Environmental Matters” in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Note 14 – Legal Proceedings,
Commitments and Contingencies” included in our Notes to Consolidated Financial Statements.
ITEM 4.
Mine Safety Disclosures
Not applicable.
24
ITEM 4(a).
Information about our Executive Officers
Our executive officers as of January 23, 2024 are listed below, with their ages on that date, positions and offices currently
held, and principal occupation and business experience during at least the last five years. There are no family relationships
among any of our executive officers and directors. All executive officers serve at the discretion of the Board of Directors.
Timothy S. Cahill (age 58), Executive Vice President – Missiles and Fire Control
Mr. Cahill has served as Executive Vice President for the Missiles and Fire Control (MFC) business segment, since
November 2022. Mr. Cahill previously served as Senior Vice President of Global Business Development & Strategy (GBD&S)
from March 2021 to October 2022. Prior to that, Mr. Cahill served as Senior Vice President Lockheed Martin International
from October 2019 to March 2021; and as Vice President, Integrated Air and Missile Defense (IAMD) Systems for MFC from
January 2016 to October 2019.
Stephanie C. Hill (age 58), Executive Vice President – Rotary and Mission Systems
Ms. Hill has served as Executive Vice President of the Rotary and Mission Systems (RMS) business segment since June
2020. She previously served as Senior Vice President, Enterprise Business Transformation from June 2019 to June 2020. Prior
to that, she was Deputy Executive Vice President of RMS from October 2018 to June 2019; and Senior Vice President for
Corporate Strategy and Business Development from September 2017 to October 2018.
Maryanne R. Lavan (age 64), Senior Vice President, General Counsel and Corporate Secretary
Ms. Lavan has served as Senior Vice President, General Counsel and Corporate Secretary since September 2010.
Robert M. Lightfoot, Jr. (age 60), Executive Vice President – Space
Mr. Lightfoot has served as Executive Vice President of the Space business segment since January 2022. He previously
served as Vice President, Operations for the Space business segment from June 2021 to December 2021. Prior to that, he served
as Vice President, Strategy and Business Development of Space from May 2019 to June 2021. Prior to joining Lockheed Martin
in 2019, Mr. Lightfoot served as President, LSINC Corporation, a provider of product development and engineering services,
from May 2018 to May 2019. Prior to that, he was Associate Administrator at the National Aeronautics & Space
Administration (NASA), the agency’s highest-ranking civil service position, from March 2012 to April 2018.
Jesus Malave (age 55), Chief Financial Officer
Mr. Malave has served as Chief Financial Officer since January 31, 2022. Prior to joining Lockheed Martin in 2022, Mr.
Malave served as Senior Vice President and Chief Financial Officer of L3Harris Technologies, Inc. (L3Harris) from June 2019
to January 2022. Before joining L3Harris, Mr. Malave worked at United Technologies Corporation (UTC) as Vice President
and Chief Financial Officer of UTC’s Carrier Corporation from April 2018 to June 2019; and as Chief Financial Officer of
UTC’s Aerospace Systems from January 2015 to April 2018.
H. Edward Paul, III (age 48), Vice President and Controller
Mr. Paul has served as Vice President and Controller since June 2022. Previously, he served as Vice President, Accounting
from March 2015 to July 2023.
Maria A. Ricciardone (age 48), Vice President, Treasurer and Investor Relations
Ms. Ricciardone has served as Vice President, Treasurer and Investor Relations since January 1, 2024. She previously
served as Vice President, Investor Relations from October 2022 to December 2023. Prior to joining Lockheed Martin in
October 2022, she served as Vice President, Finance – FP&A and Global Components for Arrow Electronics from June 2019 to
October 2022. Prior to that, she served as Vice President, Strategy and Investor Relations at Hubbell Incorporated from March
2015 to June 2019.
25
Frank A. St. John (age 57), Chief Operating Officer
Mr. St. John has served as Chief Operating Officer since June 2020. He previously served as Executive Vice President of
RMS from August 2019 to June 2020. Prior to that, he served as Executive Vice President of MFC from January 2018 to
August 2019; and as Executive Vice President and Deputy Programs for MFC from June 2017 to January 2018.
James D. Taiclet (age 63), Chairman, President and Chief Executive Officer
Mr. Taiclet has served as Chairman since March 2021 and as President and Chief Executive Officer (CEO) of Lockheed
Martin since June 2020. He has served on the Lockheed Martin Board of Directors since January 2018. Previously, he was
Chairman, President and CEO of American Tower Corporation from February 2004 to March 2020; and Executive Chairman
from March 2020 to May 2020.
Gregory M. Ulmer (age 59), Executive Vice President – Aeronautics
Mr. Ulmer has served as Executive Vice President for the Aeronautics business segment since February 2021. He served as
Vice President and General Manager, F-35 Lightning II Program from March 2018 to January 2021. Prior to that, he served as
Vice President, F-35 Aircraft Production business unit from March 2016 to March 2018.
26
PART II
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
At January 19, 2024, we had 22,665 holders of record of our common stock, par value $1 per share. Our common stock is
traded on the New York Stock Exchange (NYSE) under the symbol LMT.
Stockholder Return Performance Graph
The following graph compares the total return on a cumulative basis through December 31, 2023, assuming reinvestment
of dividends, of $100 invested in Lockheed Martin common stock as of market close on December 31, 2018 to the Standard and
Poor’s (S&P) 500 Index and the S&P Aerospace & Defense Index.
250
200
150
100
50
0
Dec-18
M ar-19
Jun-19
Sep-19
Dec-19
M ar-20
Jun-20
Sep-20
Dec-20
M ar-21
Jun-21
Sep-21
Dec-21
M ar-22
Jun-22
Sep-22
Dec-22
M ar-23
Jun-23
Sep-23
Dec-23
Lockheed Martin Common Stock
S&P 500 Index
S&P Aerospace & Defense Index
The S&P Aerospace & Defense Index comprises The Boeing Company, General Dynamics Corporation, Howmet
Aerospace Inc., Huntington Ingalls Industries, L3Harris Technologies, Inc., Lockheed Martin Corporation, Northrop Grumman
Corporation, RTX Corporation, Textron Inc. and Transdigm Group Inc. The stockholder return performance indicated on the
graph is not a guarantee of future performance.
This graph is not deemed to be “filed” with the U.S. Securities and Exchange Commission or subject to the liabilities of
Section 18 of the Securities Exchange Act of 1934 (the Exchange Act), and should not be deemed to be incorporated by
reference into any of our prior or subsequent filings under the Securities Act of 1933 or the Exchange Act.
27
Purchases of Equity Securities
There were no sales of unregistered equity securities during the quarter ended December 31, 2023.
The following table provides information about our repurchases of our common stock that is registered pursuant to Section
12 of the Securities Exchange Act of 1934 during the quarter ended December 31, 2023.
Period (a)
Total
Number of
Shares
Purchased
Average
Price Paid
Per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Approximate Dollar
Value of Shares That
May Yet be Purchased
Under the Plans or
Programs (b)
(in millions)
September 25, 2023 – October 29, 2023
October 30, 2023 – November 26, 2023
1,265,110 $
446.24
2,775,003 $
447.82
November 27, 2023 – December 31, 2023
2,675,777 $
446.97
1,264,627 $
2,774,470 $
2,669,558 $
Total (c)
6,715,890 $
447.18
6,708,655
12,459
11,217
10,023
(b)
(a) We close our books and records on the last Sunday of each month to align our financial closing with our business processes, except for
the month of December, as our fiscal year ends on December 31. As a result, our fiscal months often differ from the calendar months.
For example, November 27, 2023 was the first day of our December 2023 fiscal month.
In 2010, our Board of Directors approved a share repurchase program pursuant to which we are authorized to repurchase our common
stock in privately negotiated transactions or in the open market at prices per share not exceeding the then-current market prices. From
time to time, our Board of Directors authorizes increases to our share repurchase program. On October 6, 2023, the Board of Directors
authorized an increase to the program by $6.0 billion. The total remaining authorization for future common share repurchases under our
share repurchase program was $10.0 billion as of December 31, 2023. Under the program, management has discretion to determine the
dollar amount of shares to be repurchased and the timing of any repurchases in compliance with applicable law and regulation. This
includes purchases pursuant to Rule 10b5-1 plans, including accelerated share repurchases. The program does not have an expiration
date.
(c) During the fourth quarter of 2023, the total number of shares purchased included 7,235 shares that were transferred to us by employees
in satisfaction of tax withholding obligations associated with the vesting of restricted stock units. These purchases were made pursuant to
a separate authorization by our Board of Directors and are not included within the share repurchase program described above.
ITEM 6.
[Reserved]
28
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is
intended to help the reader understand our results of operations and financial condition. The MD&A is provided as a
supplement to, and should be read in conjunction with, our consolidated financial statements and notes thereto included in Item
8 - Financial Statements and Supplementary Data.
The MD&A generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions
of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in
“Management’s Discussion and Analysis of Financial Condition and Results or Operations” in the Company’s Annual Report
on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on January 26, 2023.
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 also provide a broad range of
management, engineering, technical, scientific, logistics, system integration and cybersecurity services. Our main areas of focus
are in defense, space, intelligence, homeland security and information technology, including cybersecurity. We serve both U.S.
and international customers with products and services that have defense, civil and commercial applications, with our principal
customers being agencies of the U.S. Government. In 2023, 73% of our $67.6 billion in net sales were from the U.S.
Government, either as a prime contractor or as a subcontractor (including 64% from the Department of Defense (DoD)), 26%
were from international customers (including foreign military sales (FMS) contracted through the U.S. Government) and 1%
were from U.S. commercial and other customers.
We operate in four business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS)
and Space. We organize our business segments based on the nature of 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); 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. Underpinning our ability
to execute our strategy is our talent and culture. We invest substantially in our people to ensure that our workforce has the
technical skills necessary to succeed, and we expect to continue to invest internally in innovative technologies that address
rapidly evolving mission requirements for our customers. We also will continue to evaluate our portfolio and will make
strategic acquisitions or divestitures, as appropriate, while deepening our connection to commercial industry through
cooperative partnerships, joint ventures and equity investments.
Portfolio Shaping Activities
We continuously strive to strengthen our portfolio of products and services to meet the current and future needs of our
customers. We accomplish this in part by our independent research and development activities and through acquisition,
divestiture and internal realignment activities.
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We selectively pursue the acquisition of businesses, investments and ventures at attractive valuations that will expand or
complement our current portfolio and allow access to new customers or technologies. We also may explore the divestiture of
businesses, investments or ventures that no longer meet our needs or strategy or that could perform better outside of our
organization or with a different owner. In pursuing our business strategy, we routinely conduct discussions, evaluate targets and
enter into agreements regarding possible acquisitions, divestitures, joint ventures and equity investments.
U.S. Budget Environment
With nearly 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.
The House and Senate continue the legislative process on the FY 2024 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; related U.S. restock of capacity transfers to Ukraine and Israel; and U.S. 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 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
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interest for certain of our products and services as countries seek to improve their security posture. In addition, security
assistance provided by the U.S. Government and its allies to Ukraine has created U.S. Government and allied demand to
replenish U.S. stockpiles, resulting in additional and potential future orders for our products, including for the ramp-up in
production capacity for certain products. 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. We continue to work with the U.S. Government and
our supply chain to evaluate increases in capacity at certain of our operations to anticipate potential demand and enable us to
deliver critical capabilities.
Our business and financial performance 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 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.
International Business
A key component of our strategic plan is to grow our international sales. 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. Government or by direct commercial sales
(DCS) to international customers. In 2023, approximately 75% of our sales to international customers were FMS and about
25% were DCS. Additionally, in 2023, substantially all of our sales from international customers were in our Aeronautics, MFC
and RMS business segments. Space’s sales from international customers were not material in 2023. See Item 1A - Risk Factors
for a discussion of risks related to international sales.
In 2023, international customers accounted for 33% of Aeronautics’ net sales. 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. The U.S. 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.
In 2023, international customers accounted for 31% 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.
In 2023, international customers accounted for 31% 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. Our Multi-Mission Surface Combatant (MMSC) program
will provide surface combatant ships for international customers, such as the Kingdom of Saudi Arabia, designed to operate in
shallow waters and the open ocean. 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.
31
Commercial aircraft are sold to international customers to support search and rescue missions as well as VIP and offshore oil
and gas transportation.
Status of the F-35 Program
The F-35 program primarily consists of production contracts, sustainment activities, and new development efforts.
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. Air Force, U.S. Marine Corps, and U.S. Navy; 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.
Backlog
At December 31, 2023, our backlog was $160.6 billion compared with $150.0 billion at December 31, 2022. 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.
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. We do not
include unexercised options or potential orders under indefinite-delivery, indefinite-quantity (IDIQ) agreements in our backlog.
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. Funded backlog was $107.4 billion at December 31, 2023, as compared to $95.5 billion at
December 31, 2022. For backlog related to each of our business segments, see below.
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Consolidated Results of Operations
Our operating cycle is primarily long-term and involves many types of contracts for the design, development and
manufacture of products and related activities with varying delivery schedules. Consequently, the results of operations of a
particular year, or year-to-year comparisons of sales and profits, may not be indicative of future operating results. The
following discussions of comparative results should be reviewed in this context. All per share amounts cited in these
discussions are presented on a “per diluted share” basis, unless otherwise noted. Our consolidated results of operations were as
follows (in millions, except per share data):
Net sales
Cost of sales
Gross profit
Other income, net
Operating profit
Interest expense
Non-service FAS pension income (expense)
Other non-operating income (expense), net
Earnings before income taxes
Income tax expense
Net earnings
Diluted earnings per common share
2023
$ 67,571
(59,092)
8,479
28
8,507
(916)
443
64
8,098
(1,178)
6,920
27.55
$
$
2022
$ 65,984
(57,697)
8,287
61
8,348
(623)
(971)
(74)
6,680
(948)
5,732
21.66
$
$
2021
$ 67,044
(57,983)
9,061
62
9,123
(569)
(1,292)
288
7,550
(1,235)
6,315
22.76
$
$
Certain amounts reported in other income (expense), net, including our share of earnings or losses from equity method
investees, are included in the operating profit of our business segments. Accordingly, such amounts are included in the
discussion of our business segment results of operations.
Net Sales
We generate sales from the delivery of products and services to our customers. Our consolidated net sales were as follows
(in millions):
Products
% of total net sales
Services
% of total net sales
Total net sales
2023
$ 56,265
2022
$ 55,466
2021
$ 56,435
83.3 %
84.1 %
84.2 %
11,306
10,518
10,609
16.7 %
15.9 %
15.8 %
$ 67,571
$ 65,984
$ 67,044
Substantially all of our contracts are accounted for using the percentage-of-completion cost-to-cost method. Under the
percentage-of-completion cost-to-cost method, we record net sales on contracts over time based upon our progress towards
completion on a particular contract, as well as our estimate of the profit to be earned at completion. The following discussion of
material changes in our consolidated net sales should be read in tandem with the subsequent discussion of changes in our
consolidated cost of sales and our business segment results of operations because changes in our sales are typically
accompanied by a corresponding change in our cost of sales due to the nature of the percentage-of-completion cost-to-cost
method.
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.
Service Sales
Service sales increased $788 million, or 7%, in 2023 as compared to 2022. 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.
33
Cost of Sales
Cost of sales, for both products and services, consist of materials, labor, subcontracting costs and an allocation of indirect
costs (overhead and general and administrative), as well as the costs to fulfill our industrial cooperation agreements, sometimes
referred to as offset agreements, required under certain contracts with international customers. 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):
Cost of sales – products
% of product sales
Cost of sales – services
% of service sales
Severance and other charges
Other unallocated, net
Total cost of sales
2023
$ (50,206)
2022 a
$ (49,357)
2021 a
$ (50,017)
89.2 %
89.0 %
88.6 %
(10,027)
(9,252)
(9,434)
88.7 %
(92)
1,233
$ (59,092)
88.0 %
(100)
1,012
$ (57,697)
88.9 %
(36)
1,504
$ (57,983)
(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.
Except for potential impacts to our programs resulting from supply chain disruptions and inflation, we have not identified any
additional developing trends in cost of sales for products and services that would have a material impact on our future
operations.
Product Costs
Product costs increased 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.
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 severance 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.
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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. 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 $1.2 billion in 2023, compared to $1.0 billion in 2022. 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.
Other Income, Net
Other income, net primarily includes earnings generated by equity method investees. Other income, net in 2023 was
$28 million, compared to $61 million in 2022. 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.
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. 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.
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. 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 14.5% for 2023 and 14.2% for 2022. 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.
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.
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
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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.
Net Earnings
We reported net earnings of $6.9 billion ($27.55 per share) in 2023 and $5.7 billion ($21.66 per share) in 2022. Net
earnings and earnings per share in 2023 were affected by the factors mentioned above. Earnings per share also benefited from a
net decrease of approximately 13.4 million weighted average common shares outstanding in 2023, compared to 2022. The
reduction in weighted average common shares was a result of share repurchases, partially offset by share issuance under our
stock-based awards and certain defined contribution plans.
Business Segment Results of Operations
We operate in four business segments: Aeronautics, MFC, RMS and Space. We organize our business segments based on
the nature of products and services offered.
Net sales and operating profit of our business segments exclude intersegment sales, cost of sales and profit as these
activities are eliminated in consolidation and thus are not included in management’s evaluation of performance of each
segment. Business segment operating profit includes our share of earnings or losses from equity method investees as the
operating activities of the equity method investees are closely aligned with the operations of our business segments.
Business segment operating profit excludes the FAS/CAS pension operating adjustment described below, a portion of
corporate costs not considered allowable or allocable to contracts with the U.S. Government under the applicable U.S.
Government cost accounting standards (CAS) or federal acquisition regulations (FAR), and other items not considered part of
management’s evaluation of segment operating performance. 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.
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Sales and operating profit for each of our business segments were as follows (in millions):
2023
2022
2021
Net sales
Aeronautics
Missiles and Fire Control
Rotary and Mission Systems
Space
Total net sales
Operating profit
Aeronautics
Missiles and Fire Control
Rotary and Mission Systems
Space
Total business segment operating profit
Unallocated items
FAS/CAS pension operating adjustment
Intangible asset amortization expense
Severance and other charges (a)
Other, net
Total unallocated, net
Total consolidated operating profit
$ 27,474 $ 26,987 $ 26,748
11,693
16,789
11,814
$ 67,571 $ 65,984 $ 67,044
11,317
16,148
11,532
11,253
16,239
12,605
$
$
2,825 $
1,541
1,865
1,158
7,389
1,660
(247)
(92)
(203)
1,118
8,507 $
2,867 $
1,637
1,906
1,057
7,467
1,709
(248)
(100)
(480)
881
8,348 $
2,800
1,650
2,030
1,184
7,664
1,960
(285)
(36)
(180)
1,459
9,123
(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. 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. 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. 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. Our consolidated financial statements must present
pension and other postretirement benefit plan income calculated in accordance with Financial Accounting Standards (FAS)
requirements under U.S. GAAP. The operating portion of the total FAS/CAS pension adjustment represents the difference
between the service cost component of FAS pension income (expense) and total CAS pension cost. The non-service FAS
pension income (expense) components are included in non-service FAS pension income (expense) 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.
37
The total FAS/CAS pension adjustments, including the service and non-service cost components of FAS pension income
(expense) for our qualified defined benefit pension plans, were as follows (in millions):
2023
2022
2021
Total FAS income (expense) and CAS cost
FAS pension income (expense)
Less: CAS pension cost
Total FAS/CAS pension adjustment
Service and non-service cost reconciliation
FAS pension service cost
Less: CAS pension cost
Total FAS/CAS pension operating adjustment
Non-service FAS pension income (expense)
Total FAS/CAS pension adjustment
$
378 $ (1,058) $ (1,398)
2,066
668
1,725
$ 2,103 $
738 $
1,796
$
(65) $
(87) $
1,725
1,660
443
$ 2,103 $
1,796
1,709
(971)
738 $
(106)
2,066
1,960
(1,292)
668
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.
Management evaluates performance on our contracts by focusing on net sales and operating profit and not by type or
amount of operating expense. Consequently, our discussion of business segment performance focuses on net sales and operating
profit, consistent with our approach for managing the business. This approach is consistent throughout the life cycle of our
contracts, as management assesses the bidding of each contract by focusing on net sales and operating profit and monitors
performance on our contracts in a similar manner through their completion.
We regularly provide customers with reports of our costs as the contract progresses. The cost information in the reports is
accumulated in a manner specified by the requirements of each contract. For example, cost data provided to a customer for a
product would typically align to the subcomponents of that product (such as a wing-box on an aircraft) and for services would
align to the type of work being performed (such as aircraft sustainment). Our contracts generally allow for the recovery of costs
in the pricing of our products and services. Most of our contracts are bid and negotiated with our customers under
circumstances in which we are required to disclose our estimated total costs to provide the product or service. This approach for
negotiating contracts with our U.S. Government customers generally allows for recovery of our actual costs plus a reasonable
profit margin. 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,
38
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.
Our net sales are primarily derived from long-term contracts for products and services provided to the U.S. Government
as well as FMS contracted through the U.S. Government. We recognize revenue as performance obligations are satisfied and
the customer obtains control of the products and services. For performance obligations to deliver products with continuous
transfer of 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 our contracts
because it best depicts the transfer of control to the customer as we incur costs on our contracts. 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. 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.
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.
Aeronautics
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. Aeronautics’ major programs include the F-35 Lightning II, C-130 Hercules, F-16 Fighting Falcon and F-22
Raptor. Aeronautics’ operating results included the following (in millions):
Net sales
Operating profit
Operating margin
Backlog at year-end
2023
$ 27,474
2,825
2022
$ 26,987
2,867
2021
$ 26,748
2,800
10.3 %
10.6 %
10.5 %
$ 60,156
$ 56,630
$ 49,118
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
39
production. 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’ operating profit in 2023 decreased $42 million, or 1%, compared to 2022. 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
Backlog increased in 2023 compared to 2022 primarily due to higher orders on classified and C-130 programs.
Missiles and Fire Control
Our MFC business segment provides air and missile defense systems; tactical missiles and air-to-ground precision strike
weapon systems; logistics; fire control systems; mission operations support, readiness, engineering support and integration
services; manned and unmanned ground vehicles; and energy management solutions. MFC’s major programs include PAC-3,
Terminal High Altitude Area Defense (THAAD), Multiple Launch Rocket System (MLRS), Precision Strike Missile (PrSM),
Joint Air-to-Surface Standoff Missile (JASSM), Long-Range Anti-Ship Missile (LRASM), Hellfire, Apache fire control
system, Sniper Advanced Targeting Pod (SNIPER®), Infrared Search and Track (IRST21®), Special Operations Forces Global
Logistics Support Services (SOF GLSS), hypersonics programs and Javelin. MFC’s operating results included the following (in
millions):
Net sales
Operating profit
Operating margin
Backlog at year-end
2023
2022
2021
$ 11,253
$ 11,317
$ 11,693
1,541
1,637
1,650
13.7 %
14.5 %
14.1 %
$ 32,229
$ 28,735
$ 27,021
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
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.
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,
40
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):
Net sales
Operating profit
Operating margin
Backlog at year-end
2023
2022
2021
$ 16,239
$ 16,148
$ 16,789
1,865
1,906
2,030
11.5 %
11.8 %
12.1 %
$ 37,726
$ 34,949
$ 33,700
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
Backlog increased in 2023 compared to 2022 primarily due to higher orders on Sikorsky programs.
Space
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. Space provides network-enabled situational
awareness and integrates complex space and ground global systems to help our customers gather, analyze, and securely
distribute critical intelligence data. Space is also responsible for various classified systems and services in support of vital
national security systems. 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. Government and commercial customers. Space’s operating results included the following (in millions):
Net sales
Operating profit
Operating margin
Backlog at year-end
2023
$ 12,605
1,158
2022
$ 11,532
1,057
2021
$ 11,814
1,184
9.2 %
9.2 %
10.0 %
$ 30,456
$ 29,684
$ 25,516
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.
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.
41
Backlog
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.
Liquidity and Cash Flows
As of December 31, 2023, we had cash and cash equivalents of $1.4 billion. 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, from time to time, we fund customer programs
ourselves pending government appropriations. If we incur costs in excess of funds obligated on the contract or in advance of a
contract award, this negatively affects our cash flows and we may be at risk for reimbursement of the excess costs.
Billing timetables and payment terms on our contracts vary based on a number of factors, including the contract type. We
generally bill and collect cash more frequently under cost-reimbursable contracts, which represented approximately 41% of the
sales we recorded in 2023, as we are authorized to bill as the costs are incurred. A number of our fixed-price contracts may
provide for performance-based payments, which allow us to bill and collect cash as we perform on the contract. The amount of
performance-based payments and the related milestones are encompassed in the negotiation of each contract. The timing of
such payments may differ from the timing of the costs incurred related to our contract performance, thereby affecting our cash
flows.
The U.S. Government has indicated that it would consider progress payments as the baseline for negotiating payment terms
on fixed-price contracts, rather than performance-based payments. In contrast to negotiated performance-based payment terms,
progress payment provisions correspond to a percentage of the amount of costs incurred during the performance of the contract
and are invoiced regularly as costs are incurred. Our cash flows may be affected if the U.S. Government changes its payment
policies. The U.S. Government from time to time withholds payments on certain of our billings based on contract terms or
regulatory provisions. Ultimately, the impact of policy changes or withholding payments may delay the receipt of cash, but the
cumulative amount of cash collected during the life of the contract should not vary. Additionally, during the COVID-19
pandemic, we accelerated payments to the supply chain with a focus on small and at-risk businesses. 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. Consistent with that strategy, we have continued to invest in our business and technologies through capital
expenditures, independent research and development, and selective business acquisitions and investments.
We continue to return cash to stockholders through dividends and share repurchases. In October 2023, the Board of
Directors authorized a fourth quarter dividend payment of $3.15 per share, representing an increase of $0.15 per share over the
prior quarterly dividend payment. The Board of Directors also authorized an increase of $6.0 billion to our share repurchase
program. 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 stock
repurchase program does not have an expiration date and may be amended or terminated by the Board of Directors at any time.
The amount of shares ultimately purchased and the timing of purchases are at the discretion of management and subject to
compliance with applicable law and regulation.
We continue to actively manage our debt levels, including maturities and interest rates. We also actively manage our
pension obligations and expect to continue to opportunistically manage our pension liabilities through the purchase of group
annuity contracts or other actions for portions of our outstanding defined benefit pension obligations using assets from the
pension trust. 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
42
contributions to the pension trust and/or require us to recognize noncash, non-operating pension settlement charges in earnings
in the applicable reporting period.
The following table provides a summary of our cash flow information followed by a discussion of the key elements
(in millions):
Cash and cash equivalents at beginning of year
Operating activities
Net earnings
Noncash adjustments
Changes in working capital
Other, net
Net cash provided by operating activities
Net cash used for investing activities
Net cash used for financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at end of year
Operating Activities
2023
2,547
$
2022
3,604
$
2021
3,160
$
6,920
1,289
317
(606)
7,920
(1,694)
(7,331)
(1,105)
1,442
$
5,732
2,455
(733)
348
7,802
(1,789)
(7,070)
(1,057)
2,547
6,315
3,109
9
(212)
9,221
(1,161)
(7,616)
444
3,604
$
$
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. Our federal and foreign income tax payments, net of refunds, were $1.8 billion in 2023, compared to $1.6 billion in
2022.
Non-GAAP Financial Measure - Free Cash Flow
Free cash flow is a non-GAAP financial measure that we define as cash from operations less capital expenditures. 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 believe free
cash flow is a useful measure for investors because it represents the amount of cash generated from operations after reinvesting
in the business and that may be available to return to stockholders and creditors (through dividends, stock repurchases and debt
repayments) or available to fund acquisitions and other investments. The entire amount of free cash flow is not necessarily
available for discretionary expenditures, however, because it does not account for certain mandatory expenditures, such as the
repayment of maturing debt and pension contributions. While management believes that free cash flow as a non-GAAP
financial measure may be useful in evaluating our financial performance, it should be considered supplemental to, and not a
substitute for, financial information prepared in accordance with GAAP and may not be comparable to similarly titled measures
used by other companies.
The following table reconciles net cash provided by operating activities to free cash flow (in millions):
Cash from operations
Capital expenditures
Free cash flow
Investing Activities
2023
$ 7,920
(1,691)
$ 6,229
2022
$ 7,802
(1,670)
$ 6,132
2021
$ 9,221
(1,522)
$ 7,699
Cash flows related to investing activities primarily include capital expenditures and payments for acquisitions and
divestitures of businesses and investments. The majority of our capital expenditures are for equipment and facilities
infrastructure that generally are incurred to support new and existing programs across all of our business segments. We also
43
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.
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.
We paid dividends totaling $3.1 billion ($12.15 per share) in 2023 and $3.0 billion ($11.40 per share) in 2022. We paid
quarterly dividends of $3.00 per share during each of the first three quarters of 2023 and $3.15 per share during the fourth
quarter of 2023; $2.80 per share during each of the first three quarters of 2022 and $3.00 per share during the fourth quarter of
2022.
During 2023, we paid $6.0 billion to repurchase 13.4 million shares of our common stock. See “Note 12 – Stockholders’
Equity” included in our Notes to Consolidated Financial Statements for additional information. During 2022, we paid
$7.9 billion to repurchase 18.3 million shares of our common stock.
During 2023, we received net proceeds of $2.0 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.
Capital Structure, Resources and Other
At December 31, 2023, we held cash and cash equivalents of $1.4 billion that were generally available to fund ordinary
business operations without significant legal, regulatory, or other restrictions.
Our total outstanding short-term and long-term debt, net of unamortized discounts and issuance costs, was $17.5 billion as
of December 31, 2023 and is in the form of publicly-issued notes that bear interest at fixed rates. As of December 31, 2023, we
were in compliance with all covenants contained in our debt and credit agreements. See “Note 10 – Debt” included in our Notes
to Consolidated Financial Statements for more information on our long-term debt and revolving credit facilities.
We actively 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.
44
Contractual Commitments
At December 31, 2023, we had contractual commitments to repay debt, make payments under operating leases, settle
obligations related to agreements to purchase goods and services and settle tax and other liabilities. Financing lease obligations
were not material. Payments due under these obligations and commitments are as follows (in millions):
Total debt
Interest payments
Other liabilities
Operating lease obligations
Purchase obligations:
Operating activities
Capital expenditures
Total contractual cash obligations
Total
Due Within
1 Year
18,723 $
15,849
2,372
1,306
168
857
233
339
63,438
1,011
102,699 $
29,041
641
31,279
$
$
The table above includes debt presented gross of any unamortized discounts and issuance costs, but excludes the net
unfunded obligation and estimated minimum funding requirements related to our qualified defined benefit pension plans. For
additional information about obligations and our future minimum contribution requirements for these plans, see “Note 11 –
Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements. Amounts related to other liabilities
represent the contractual obligations for certain long-term liabilities recorded as of December 31, 2023. Such amounts mainly
include expected payments under non-qualified pension plans, environmental liabilities and deferred compensation plans.
Purchase obligations related to operating activities include agreements and contracts that give the supplier recourse to us
for cancellation or nonperformance under the contract or contain terms that would subject us to liquidated damages. Such
agreements and contracts may, for example, be related to direct materials, obligations to subcontractors and outsourcing
arrangements. Total purchase obligations for operating activities in the preceding table include approximately $57.3 billion
related to contractual commitments entered into as a result of contracts we have with our U.S. Government customers. The U.S.
Government generally would be required to pay us for any costs we incur relative to these commitments if they were to
terminate the related contracts “for convenience” under the FAR, subject to available funding. This also would be true in cases
where we perform subcontract work for a prime contractor under a U.S. Government contract. The termination for convenience
language also may be included in contracts with foreign, state and local governments. We also have contracts with customers
that do not include termination for convenience provisions, including contracts with commercial customers.
The majority of our capital expenditures for 2023 and those planned for 2024 are for equipment, facilities infrastructure
and information technology. The amounts above in the table represent the portion of expected capital expenditures to be
incurred in 2024 and beyond that have been obligated under contracts as of December 31, 2023 and not necessarily total capital
expenditures for future periods. Expenditures for equipment and facilities infrastructure are generally incurred to support new
and existing programs across all of our business segments. For example, we have projects underway at Aeronautics to support
classified development programs and at RMS to support our Sikorsky helicopter programs; and we have projects underway to
modernize certain of our facilities. We also 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.
We also may enter into industrial cooperation agreements, sometimes referred to as offset agreements, as a condition to
obtaining orders for our products and services from certain customers in foreign countries. These agreements are designed to
enhance the social and economic environment of the foreign country by requiring the contractor to promote investment in the
country. Offset agreements may be satisfied through activities that do not require us to use cash, including transferring
technology, providing manufacturing and other consulting support to in-country projects and the purchase by third parties (e.g.,
our vendors) of supplies from in-country vendors. These agreements also may be satisfied through our use of cash for such
activities as purchasing supplies from in-country vendors, providing financial support for in-country projects, establishment of
joint ventures with local companies and building or leasing facilities for in-country operations. We typically do not commit to
offset agreements until orders for our products or services are definitive. The amounts ultimately applied against our offset
agreements are based on negotiations with the customer and typically require cash outlays that represent only a fraction of the
original amount in the offset agreement. Satisfaction of our offset obligations are included in the estimates of our total costs to
complete the contract and may impact our sales, profitability and cash flows. Our ability to recover investments on our
consolidated balance sheet that we make to satisfy offset obligations is generally dependent upon the successful operation of
45
ventures that we do not control and may involve products and services that are dissimilar to our business activities. At
December 31, 2023, the notional value of remaining obligations under our outstanding offset agreements totaled approximately
$21.3 billion, which primarily relate to our Aeronautics, MFC and RMS business segments, most of which extend through
2044. To the extent we have entered into purchase or other obligations at December 31, 2023 that also satisfy offset
agreements, those amounts are included in the contractual commitments table above. Offset programs usually extend over
several years and may provide for penalties, estimated at approximately $2.3 billion at December 31, 2023, in the event we fail
to perform in accordance with offset requirements. While historically we have not been required to pay material penalties,
resolution of offset requirements are often the result of negotiations and subjective judgments.
We have entered into standby letters of credit and surety bonds issued on our behalf by financial institutions, and we have
directly issued guarantees to third parties primarily relating to advances received from customers and the guarantee of future
performance on certain contracts. Letters of credit and surety bonds generally are available for draw down in the event we do
not perform. In some cases, we may guarantee the contractual performance of third parties such as joint venture partners. At
December 31, 2023, we had the following outstanding letters of credit, surety bonds and third-party guarantees (in millions):
Standby letters of credit (a)
Surety bonds
Third-party Guarantees
Total commitments
Total
Commitment
$
Less Than
1 Year
1,234
354
229
1,817
2,546 $
354
1,000
3,900 $
$
(a) Approximately $861 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. These amounts represent our
estimate of the maximum amounts we would expect to incur upon the contractual non-performance of the joint venture, joint
venture partners or divested businesses. Generally, we also have cross-indemnities in place that may enable us to recover
amounts that may be paid on behalf of a joint venture partner.
In determining our exposures, we evaluate the reputation, performance on contractual obligations, technical capabilities
and credit quality of our current and former joint venture partners and the transferee under novation agreements, all of which
include a guarantee as required by the FAR. At December 31, 2023 and 2022, there were no material amounts recorded in our
financial statements related to third-party guarantees or novation agreements.
Critical Accounting Policies
Our consolidated financial statements are prepared in conformity with U.S. GAAP, which requires us to make estimates
and assumptions about future events that affect the amounts reported in our consolidated financial statements. We employ
judgment in making our estimates in consideration of historical experience, currently available information and various other
assumptions that we believe to be reasonable under the circumstances. Actual results could differ from our estimates and
assumptions, and any such differences could be material to our consolidated financial statements. We believe the following
accounting policies are critical to the understanding of our consolidated financial statements and require the use of significant
management judgment in their application. For a summary of our significant accounting policies, see “Note 1 – Organization
and Significant Accounting Policies” included in our Notes to Consolidated Financial Statements for additional information.
Contract Accounting / Sales Recognition
The majority of our net sales are generated from long-term contracts with the U.S. Government and international
customers (including FMS contracted through the U.S. Government) for the research, design, development, manufacture,
integration and sustainment of advanced technology systems, products and services. We recognize revenue as performance
obligations are satisfied and the customer obtains control of the products and services. 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.
Significant estimates and assumptions are made in estimating contract sales, costs, and profit. We estimate profit as the
difference between estimated revenues and total estimated costs to complete the contract. We also estimate variable
46
consideration at the most likely amount, which is included in the transaction price to the extent it is probable that a significant
reversal of cumulative revenue recognized will not occur. All of the estimates require significant judgement and are subject to
change during the performance of the contract and may affect the profit booking rate. When estimates of total costs to be
incurred on a contract exceed total estimates of the transaction price, a provision for the entire loss is determined at the contract
level and is recorded in the period in which the loss is evident, which we refer to as a reach-forward loss.
Comparability of our segment sales, operating profit and operating margin may be impacted favorably or unfavorably by
changes in profit booking rates on our contracts. 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.
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.
Other Contract Accounting Considerations
The majority of our sales are driven by pricing based on costs incurred to produce products or perform services under
contracts with the U.S. Government. Cost-based pricing is determined under the FAR. The FAR provides guidance on the types
of costs that are allowable in establishing prices for goods and services under U.S. Government contracts. For example, costs
such as those related to charitable contributions, interest expense and certain advertising and public relations activities are
unallowable and, therefore, not recoverable through sales. In addition, we may enter into advance agreements with the U.S.
Government that address the subjects of allowability and allocability of costs to contracts for specific matters. For example,
most of the environmental costs we incur for environmental remediation related to sites operated in prior years are allocated to
our current operations as general and administrative costs under FAR provisions and supporting advance agreements reached
with the U.S. Government.
We closely monitor compliance with and the consistent application of our critical accounting policies related to contract
accounting. Costs incurred and allocated to contracts are reviewed for compliance with U.S. Government regulations by our
personnel and are subject to audit by the Defense Contract Audit Agency.
Postretirement Benefit Plans
Overview
Many of our employees and retirees participate in qualified and nonqualified defined benefit pension plans, retiree medical
and life insurance plans and other postemployment plans (collectively, postretirement benefit plans - see “Note 11 –
Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements). The majority of our accrued benefit
obligations relate to our qualified defined benefit pension and retiree medical and life insurance plans. We recognize on a plan-
by-plan basis the net funded status of these postretirement benefit plans under GAAP as either an asset or a liability on our
consolidated balance sheets. The GAAP funded status represents the difference between the fair value of each plan’s assets and
the benefit obligation of the plan. The GAAP benefit obligation represents the present value of the estimated future benefits we
currently expect to pay to plan participants based on past service. 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 expect to continue to look for opportunities to manage our pension liabilities through additional pension risk transfer
transactions in future years. Future transactions could result in a noncash settlement charge to earnings, which could be material
to a reporting period.
47
Notwithstanding these actions, the impact of our postretirement benefit plans on our earnings may be volatile in that the
amount of expense we record and the funded status for our postretirement benefit plans may materially change from year to
year because the calculations are sensitive to changes in several key economic assumptions, including interest rates, actual rates
of return on plan assets and other actuarial assumptions including participant longevity, as well as the timing of cash funding.
Actuarial Assumptions
The benefit obligations and assets of our postretirement benefit plans are measured at the end of each year, or more
frequently, upon the occurrence of certain events such as a significant plan amendment (including in connection with a pension
risk transfer transaction), settlement, or curtailment. The amounts we record are measured using actuarial valuations, which are
dependent upon key assumptions such as discount rates, the expected long-term rate of return on plan assets, and participant
longevity. The assumptions we make affect both the calculation of the benefit obligations as of the measurement date and the
calculation of FAS expense in subsequent periods. When reassessing these assumptions, we consider past and current market
conditions and make judgments about future market trends. We also consider factors such as the timing and amounts of
expected contributions to the plans and benefit payments to plan participants.
We continue to use a single weighted average discount rate approach when calculating our consolidated benefit obligations
related to our defined benefit pension plans resulting in 5.00% at December 31, 2023, compared to 5.25% at December 31,
2022. We utilized a single weighted average discount rate of 5.00% when calculating our benefit obligations related to our
retiree medical and life insurance plans at December 31, 2023, compared to 5.25% at December 31, 2022. We evaluate several
data points in order to arrive at an appropriate single weighted average discount rate, including results from cash flow models,
quoted rates from long-term bond indices and changes in long-term bond rates over the past year. 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.
We utilized an expected long-term rate of return on plan assets of 6.50% at both December 31, 2023 and December 31,
2022. The long-term rate of return assumption represents the expected long-term rate of return on the funds invested or to be
invested, to provide for the benefits included in the benefit obligations. 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. 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. Any variance in a particular year
should not, by itself, suggest that the assumption should be changed. Patterns of variances are reviewed over time, and then
combined with expectations for the future. As a result, changes in this assumption are less frequent than changes in the discount
rate. The actual investment return for our qualified defined benefit plans during 2023 was approximately 7.00%.
Our stockholders’ equity has been reduced cumulatively by $8.7 billion from the annual year-end measurements of the
funded status of postretirement benefit plans. The cumulative noncash, after-tax reduction primarily represents net actuarial
losses resulting from changes in discount rates, investment experience, and updated longevity. A market-related value of our
plan assets, determined using actual asset gains or losses over the prior three-year period, is used to calculate the amount of
deferred asset gains or losses to be amortized. 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, 2023. 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.
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 5.00% discount rate assumption at December 31,
2023, 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 2023 by approximately $765 million, which would result in an after-tax increase or
decrease in stockholders’ equity at the end of the year of approximately $600 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
48
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.
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. 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; which may require the use of different assumptions, such as the discount rate and longevity, than used under
GAAP. All of our qualified defined benefit pension plans had an ERISA funded status of at least 80% as of both December 31,
2023 and 2022.
Contributions to our defined benefit pension plans are recovered over time through the pricing of our products and services
on U.S. 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. 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. Amounts contributed in excess of the
CAS pension costs recovered under U.S. Government contracts are considered to be prepayment credits under the CAS rules.
Our prepayment credits were approximately $2.9 billion and $4.3 billion at December 31, 2023 and 2022. The prepayment
credit balance will increase or decrease based on our actual investment return on plan assets.
Environmental Matters
We are a party to various agreements, proceedings and potential proceedings for environmental remediation issues,
including matters at various sites where we have been designated a potentially responsible party (PRP). We also are involved in
environmental remediation activities at sites where formal agreements either do not exist or do not quantify the extent and
timing of our obligations. Environmental remediation activities usually span many years, which makes estimating the costs
more judgmental due to, for example, changing remediation technologies. To determine the costs related to clean up sites, we
have to assess the extent of contamination, effects on natural resources, the appropriate technology to be used to accomplish the
remediation, and evolving environmental standards.
We perform quarterly reviews of environmental remediation sites and record liabilities and receivables in the period it
becomes probable that the liabilities have been incurred and the amounts can be reasonably estimated (see the discussion under
“Environmental Matters” in “Note 1 – Organization and Significant Accounting Policies” and “Note 14 – Legal Proceedings,
Commitments and Contingencies” included in our Notes to Consolidated Financial Statements). We consider the above factors
in our quarterly estimates of the timing and amount of any future costs that may be required for environmental remediation
activities, which result in the calculation of a range of estimates for each particular environmental remediation site. We do not
discount the recorded liabilities, as the amount and timing of future cash payments are not fixed or cannot be reliably
determined. Given the required level of judgment and estimation, it is likely that materially different amounts could be recorded
if different assumptions were used or if circumstances were to change (e.g., a change in environmental standards or a change in
our estimate of the extent of contamination).
Under agreements reached with the U.S. Government, most of the amounts we spend for environmental remediation are
allocated to our operations as general and administrative costs. Under existing U.S. Government regulations, these and other
environmental expenditures relating to our U.S. Government business, after deducting any recoveries received from insurance
or other PRPs, are allowable in establishing prices of our products and services. 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). We continually evaluate the recoverability of our assets for the portion of
environmental costs that are probable of future recovery by assessing, among other factors, U.S. Government regulations, our
U.S. Government business base and contract mix, our history of receiving reimbursement of such costs, and efforts by some
U.S. Government representatives to limit such reimbursement.
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
49
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. Government.
We cannot reasonably determine the extent of our financial exposure at all environmental remediation sites with which we
are involved. There are a number of former operating facilities we are monitoring or investigating for potential future
environmental remediation. In some cases, although a loss may be probable, it is not possible at this time to reasonably estimate
the amount of any obligation for remediation activities because of uncertainties (e.g., assessing the extent of the contamination).
During any particular quarter, such uncertainties may be resolved, allowing us to estimate and recognize the initial liability to
remediate a particular former operating site. The amount of the liability could be material. Upon recognition of the liability, a
portion will be recognized as a receivable with the remainder charged to earnings, which may have a material effect in any
particular interim reporting period.
If we are ultimately found to have liability at those sites where we have been designated a PRP, we expect that the actual
costs of environmental remediation will be shared with other liable PRPs. Generally, PRPs that are ultimately determined to be
responsible parties are strictly liable for site remediation and usually agree among themselves to share, on an allocated basis, the
costs and expenses for environmental investigation and remediation. Under existing environmental laws, responsible parties are
jointly and severally liable and, therefore, we are potentially liable for the full cost of funding such remediation. In the unlikely
event that we were required to fund the entire cost of such remediation, the statutory framework provides that we may pursue
rights of cost recovery or contribution from the other PRPs. The amounts we record do not reflect the fact that we may recover
some of the environmental costs we have incurred through insurance or from other PRPs, which we are required to pursue by
agreement and U.S. Government regulation.
Goodwill and Intangible Assets
The assets and liabilities of acquired businesses are recorded under the acquisition method of accounting at their estimated
fair values at the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying identifiable
net assets of acquired businesses. 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. 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. Such events or changes in circumstances may include a significant deterioration in
overall economic conditions, changes in the business climate of our industry, a decline in our market capitalization, operating
performance indicators, competition, reorganizations of our business, U.S. Government budget restrictions or the disposal of all
or a portion of a reporting unit. Our goodwill has been allocated to and is tested for impairment at a level referred to as the
reporting unit, which is our business segment level or a level below the business segment. The level at which we test goodwill
for impairment requires us to determine whether the operations below the business segment constitute a self-sustaining business
for which discrete financial information is available and segment management regularly reviews the operating results.
We may use both qualitative and quantitative approaches when testing goodwill for impairment. For selected reporting
units where we use the qualitative approach, we perform a qualitative evaluation of events and circumstances impacting the
reporting unit to determine the likelihood of goodwill impairment. Based on that qualitative evaluation, if we determine it is
more likely than not that the fair value of a reporting unit exceeds its carrying amount, no further evaluation is necessary.
Otherwise, we perform a quantitative impairment test. We perform quantitative tests for most reporting units at least once every
three years. However, for certain reporting units we may perform a quantitative impairment test every year.
To perform the quantitative impairment test, we compare the fair value of a reporting unit to its carrying value, including
goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the
carrying value of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment loss is recognized in an
amount equal to that excess. We generally estimate the fair value of each reporting unit using a combination of a discounted
cash flow (DCF) analysis and market-based valuation methodologies such as comparable public company trading values and
values observed in recent business acquisitions. Determining fair value requires the exercise of significant judgments, including
the amount and timing of expected future cash flows, long-term growth rates, discount rates and relevant comparable public
company earnings multiples and relevant transaction multiples. The cash flows employed in the DCF analysis are based on our
best estimate of future sales, earnings and cash flows after considering factors such as general market conditions, U.S.
Government budgets, existing firm orders, expected future orders, contracts with suppliers, labor agreements, changes in
50
working capital, long term business plans and recent operating performance. The discount rates utilized in the DCF analysis are
based on the respective reporting unit’s weighted average cost of capital, which takes into account the relative weights of each
component of capital structure (equity and debt) and represents the expected cost of new capital, adjusted as appropriate to
consider the risk inherent in future cash flows of the respective reporting unit. 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. 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. 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.
Recent Accounting Pronouncements
See “Note 1 – Organization and Significant Accounting Policies” included in our Notes to Consolidated Financial Statements
(under the caption “Recent Accounting Pronouncements”).
51
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk
We maintain active relationships with a broad and diverse group of U.S. and international financial institutions. We believe
that they provide us with sufficient access to the general and trade credit we require to conduct our business. We closely
monitor the financial market environment and actively manage counterparty exposure to minimize the potential impact from
adverse developments with any single credit provider while ensuring availability of, and access to, sufficient credit resources.
Our main exposure to market risk relates to interest rates, foreign currency exchange rates and market prices on certain
equity securities. Our financial instruments that are subject to interest rate risk principally include fixed-rate long-term debt and
commercial paper, if issued. The estimated fair value of our outstanding debt was $18.5 billion at December 31, 2023 and the
outstanding principal amount of debt, including short-term and long-term debt, was $18.7 billion, excluding unamortized
discounts and issuance costs of $1.3 billion. A 10% change in the level of interest rates would not have a material impact on the
fair value of our outstanding debt at December 31, 2023.
We use derivative instruments principally to reduce our exposure to market risks from changes in foreign currency
exchange rates and interest rates. We do not enter into or hold derivative instruments for speculative trading purposes. We
transact business globally and are subject to risks associated with changing foreign currency exchange rates. We enter into
foreign currency hedges such as forward and option contracts that change in value as foreign currency exchange rates change.
Our most significant foreign currency exposures relate to the British pound sterling, the euro, the Canadian dollar, the
Australian dollar, the Norwegian kroner and the Polish zloty. These contracts hedge forecasted foreign currency transactions in
order to minimize fluctuations in our earnings and cash flows associated with changes in foreign currency exchange rates. We
designate foreign currency hedges as cash flow hedges. We also are exposed to the impact of interest rate changes primarily
through our borrowing activities. For fixed rate borrowings, we may use variable interest rate swaps, effectively converting
fixed rate borrowings to variable rate borrowings in order to hedge changes in the fair value of the debt. These swaps are
designated as fair value hedges. For variable rate borrowings, we may use fixed interest rate swaps, effectively converting
variable rate borrowings to fixed rate borrowings in order to minimize the impact of interest rate changes on earnings. These
swaps are designated as cash flow hedges. We also may enter into derivative instruments that are not designated as hedges and
do not qualify for hedge accounting, which are intended to minimize certain economic exposures.
The classification of gains and losses resulting from changes in the fair values of derivatives is dependent on our intended
use of the derivative and its resulting designation. Adjustments to reflect changes in fair values of derivatives attributable to
highly effective hedges are either reflected in earnings and largely offset by corresponding adjustments to the hedged items or
reflected net of income taxes in accumulated other comprehensive loss until the hedged transaction is recognized in earnings.
Changes in the fair value of the derivatives that are not highly effective, if any, are immediately recognized in earnings. The
aggregate notional amount of our outstanding interest rate swaps was $1.3 billion at both December 31, 2023 and 2022. The
aggregate notional amount of our outstanding foreign currency hedges at December 31, 2023 and 2022 was $6.5 billion and
$7.3 billion. At December 31, 2023 and 2022, the net fair value of our derivative instruments was not material (see “Note 15 –
Fair Value Measurements” included in our Notes to Consolidated Financial Statements). A 10% unfavorable exchange rate
movement of our foreign currency contracts would not have a material impact on the aggregate net fair value of such contracts
or our consolidated financial statements. Additionally, as we enter into foreign currency contracts to hedge foreign currency
exposure on underlying transactions we believe that any movement on our foreign currency contracts would be offset by
movement on the underlying transactions and, therefore, when taken together do not create material risk.
We evaluate the credit quality of potential counterparties to derivative transactions and only enter into agreements with
those deemed to have acceptable credit risk at the time the agreements are executed. Our foreign currency exchange hedge
portfolio is diversified across many banks. We regularly monitor changes to counterparty credit quality as well as our
concentration of credit exposure to individual counterparties. We do not hold or issue derivative financial instruments for
trading or speculative purposes.
We maintain a separate trust that includes investments to fund certain of our non-qualified deferred compensation plans. As
of December 31, 2023, investments in the trust totaled $1.8 billion and are reflected at fair value on our consolidated balance
sheet in other noncurrent assets. The trust holds investments in marketable equity securities and fixed-income securities that are
exposed to price changes and changes in interest rates. A portion of the liabilities associated with the deferred compensation
plans supported by the trust is also impacted by changes in the market price of our common stock and certain market indices.
Changes in the value of the liabilities have the effect of partially offsetting the impact of changes in the value of the trust. Both
the change in the fair value of the trust and the change in the value of the liabilities are recognized on our consolidated
statements of earnings in other unallocated, net and were not material for the year ended December 31, 2023.
52
ITEM 8.
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
on the Audited Consolidated Financial Statements
Board of Directors and Stockholders
Lockheed Martin Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Lockheed Martin Corporation (the Corporation) as of
December 31, 2023 and 2022, the related consolidated statements of earnings, comprehensive income, cash flows and equity
for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Corporation at December 31, 2023 and 2022, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Corporation’s internal control over financial reporting as of December 31, 2023, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) and our report dated January 23, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an
opinion on the Corporation’s financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.
53
Description of
the Matter
Revenue recognition based on the percentage of completion method
For the year ended December 31, 2023, the Corporation recorded net sales of $67.6 billion. As more fully
described in Note 1 to the consolidated financial statements, the Corporation generates the majority of its
net sales from long-term contracts with its customers whereby substantially all of the Corporation’s
revenue is recognized over time using the percentage-of-completion cost-to-cost measure of progress.
Under the percentage-of-completion cost-to-cost measure of progress, the Corporation measures progress
towards completion based on the ratio of costs incurred to date to the estimated total costs to complete the
performance obligation(s) (referred to as the estimate-at-completion analysis). The Corporation estimates
profit on these contracts as the difference between total estimated revenues and total estimated cost at
completion.
The percentage-of-completion cost-to-cost method requires management to make significant estimates
and assumptions to estimate contract sales and costs associated with its contracts with customers. At the
outset of a long-term contract, the Corporation identifies risks to the achievement of the technical,
schedule and cost aspects of the contract. Throughout the contract life cycle, the Corporation monitors
and assesses the effects of those risks on its estimates of sales and total costs to complete the contract.
Profit booking rates may increase during the performance of the contract if the Corporation successfully
retires risks surrounding the technical, schedule and cost aspects of the contract, which would decrease
the estimated total costs to complete the contract. Conversely, the profit booking rates may decrease if
the estimated total costs to complete the contract increase. Changes to the profit booking rates resulting
from changes in estimates could have a material effect on the Corporation’s results of operations.
Auditing the Corporation’s estimate-at-completion analyses used in its revenue recognition process was
complex due to the judgment involved in evaluating the significant estimates and assumptions made by
management in the initial development and subsequent updates to the Corporation’s estimate-at-
completion analyses. The estimate-at-completion analyses of each contract consider risks surrounding the
Corporation’s ability to achieve the technical, schedule and cost aspects of the contract.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant
internal controls over the Corporation’s revenue recognition process. For example, we tested internal
controls over management’s review of the estimate-at-completion analyses and the significant
assumptions underlying the estimated contract value and estimated total costs to complete. We also
tested internal controls that management executes which are designed to validate the data used in the
estimate-at-completion analyses was complete and accurate.
To test the accuracy of the Corporation’s estimate-at-completion analyses, our audit procedures included,
among others, comparing estimates of labor costs, subcontractor costs, and materials to historical results
of similar contracts, and agreeing the key terms to contract documentation and management’s estimates.
We also performed sensitivity analyses over the significant assumptions to evaluate the change in the
profit booking rates resulting from changes in the assumptions.
Defined Benefit Pension Plan Obligation
Description of
the Matter
At December 31, 2023, the Corporation’s aggregate obligation for its qualified defined benefit pension
plans was $29.0 billion and exceeded the gross fair value of the related plan assets of $22.8 billion,
resulting in a net unfunded qualified defined benefit pension obligation of $6.2 billion. As explained in
Note 11 of the consolidated financial statements, the Corporation remeasures the qualified defined benefit
pension assets and obligations at the end of each year or more frequently upon the occurrence of certain
events. The amounts are measured using actuarial valuations, which depend on key assumptions such as
the discount rate.
Auditing the defined benefit pension obligation was complex and required the involvement of specialists
as a result of the judgmental nature of the actuarial assumptions such as the discount rate used in the
measurement process. The discount rate assumption has a significant effect on the measurement of the
projected benefit obligation.
54
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant
internal controls over management’s measurement and valuation of the defined benefit pension obligation
calculations. For example, we tested the internal controls over management’s review of the defined
benefit pension obligation calculations, the significant actuarial assumptions and the data inputs provided
to the actuaries.
To test the defined benefit pension obligation, our audit procedures included, among others, evaluating
the methodology used, the significant actuarial assumptions described above and the underlying data used
by the Corporation. We compared the actuarial assumptions used by management to historical trends and
evaluated the change in the defined benefit pension obligation from prior year due to the change in
service cost, interest cost, benefit payments, settlements, actuarial gains and losses, longevity
assumptions and plan amendments. In addition, we involved our actuarial specialists to assist in
evaluating management’s methodology for determining the discount rate that considers the maturity and
duration of the benefit payments and is used to measure the defined benefit pension obligation. As part
of this assessment, we compared the projected cash flows to the prior year and compared the current year
benefits paid to the prior year projected cash flows. Lastly, we also tested the completeness and accuracy
of the underlying data, including the participant data provided to the Corporation’s actuarial specialists.
/s/ Ernst & Young LLP
We have served as the Corporation’s auditor since 1994.
Tysons, Virginia
January 23, 2024
55
Lockheed Martin Corporation
Consolidated Statements of Earnings
(in millions, except per share data)
Years Ended December 31,
2023
2022
2021
$ 56,265 $ 55,466 $ 56,435
10,609
67,044
11,306
67,571
10,518
65,984
(50,206)
(10,027)
(92)
1,233
(59,092)
8,479
28
8,507
(916)
443
64
8,098
(1,178)
6,920 $
(49,357)
(9,252)
(100)
1,012
(57,697)
8,287
61
8,348
(623)
(971)
(74)
6,680
(948)
5,732 $
(50,017)
(9,434)
(36)
1,504
(57,983)
9,061
62
9,123
(569)
(1,292)
288
7,550
(1,235)
6,315
27.65 $
27.55 $
21.74 $
21.66 $
22.85
22.76
$
$
$
Net sales
Products
Services
Total net sales
Cost of sales
Products
Services
Severance and other charges
Other unallocated, net
Total cost of sales
Gross profit
Other income, net
Operating profit
Interest expense
Non-service FAS pension income (expense)
Other non-operating income (expense), net
Earnings before income taxes
Income tax expense
Net earnings
Earnings per common share
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
56
Lockheed Martin Corporation
Consolidated Statements of Comprehensive Income
(in millions)
Net earnings
Other comprehensive income, net of tax
Years Ended December 31,
2023
6,920 $
2022
5,732 $
2021
6,315
$
Postretirement benefit plans
Net actuarial (loss) gain recognized due to plan remeasurements, net of tax of $181
million in 2023, $518 million in 2022 and $925 million in 2021
Amortization of actuarial losses and prior service credits, net of tax of $40 million
in 2023, $18 million in 2022 and $130 million in 2021
Pension settlement charge, net of tax of $314 million in 2022 and $355 million in
2021
Other, net, net of tax of $6 million in 2023, $2 million in 2022 and $11 million in
2021
Other comprehensive income, net of tax
Comprehensive income
(689)
1,873
3,404
(149)
69
477
—
1,156
1,310
58
(780)
6,140 $
(115)
(76)
5,115
2,983
8,715 $ 11,430
$
The accompanying notes are an integral part of these consolidated financial statements.
57
Lockheed Martin Corporation
Consolidated Balance Sheets
(in millions, except par value)
December 31,
2023
2022
$
1,442 $
2,132
13,183
3,132
632
20,521
8,370
10,799
2,212
2,953
7,601
2,547
2,505
12,318
3,088
533
20,991
7,975
10,780
2,459
3,744
6,931
$ 52,456 $ 52,880
$
2,312 $
3,133
9,190
168
2,134
16,937
17,291
6,162
5,231
45,621
2,117
3,075
8,488
118
2,089
15,887
15,429
5,472
6,826
43,614
240
—
15,398
(8,803)
6,835
254
92
16,943
(8,023)
9,266
$ 52,456 $ 52,880
Assets
Current assets
Cash and cash equivalents
Receivables, net
Contract assets
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Deferred income taxes
Other noncurrent assets
Total assets
Liabilities and equity
Current liabilities
Accounts payable
Salaries, benefits and payroll taxes
Contract liabilities
Current maturities of long-term debt
Other current liabilities
Total current liabilities
Long-term debt, net
Accrued pension liabilities
Other noncurrent liabilities
Total liabilities
Stockholders’ equity
Common stock, $1 par value per share
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and equity
The accompanying notes are an integral part of these consolidated financial statements.
58
Years Ended December 31,
2023
2022
2021
$
6,920 $
5,732 $
6,315
1,430
265
(498)
—
92
373
(865)
(44)
151
702
(133)
(378)
(95)
7,920
1,404
238
(757)
1,470
100
(542)
(1,739)
(107)
1,274
381
148
(412)
612
7,802
1,364
227
(183)
1,665
36
15
(1,034)
564
(98)
562
45
(267)
10
9,221
(1,691)
(3)
(1,694)
(1,670)
(119)
(1,789)
(1,522)
361
(1,161)
1,975
(115)
(6,000)
(3,056)
(135)
(7,331)
(1,105)
2,547
1,442 $
6,211
(2,250)
(7,900)
(3,016)
(115)
(7,070)
(1,057)
3,604
2,547 $
—
(500)
(4,087)
(2,940)
(89)
(7,616)
444
3,160
3,604
$
Lockheed Martin Corporation
Consolidated Statements of Cash Flows
(in millions)
Operating activities
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization
Stock-based compensation
Deferred income taxes
Pension settlement charge
Severance and other charges
Changes in:
Receivables, net
Contract assets
Inventories
Accounts payable
Contract liabilities
Income taxes
Qualified defined benefit pension plans
Other, net
Net cash provided by operating activities
Investing activities
Capital expenditures
Other, net
Net cash used for investing activities
Financing activities
Issuance of long-term debt, net of related costs
Repayments of long-term debt
Repurchases of common stock
Dividends paid
Other, net
Net cash used for financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
The accompanying notes are an integral part of these consolidated financial statements.
59
Lockheed Martin Corporation
Consolidated Statements of Equity
(in millions, except per share data)
Common
Stock
Additional
Paid-In
Capital
221
—
279 $
—
Accumulated
Other
Comprehensive
Loss
(16,121)
—
Retained
Earnings
$
21,636 $
6,315
Noncontrolling
Interests in
Subsidiary
23
—
$
Total
Equity
$ 6,038
6,315
—
—
—
—
5,115
(4,087)
(2,944)
545
(23)
—
—
(23)
$ 10,959
5,732
—
—
—
—
—
—
—
—
—
—
—
2,983
(7,900)
(3,010)
502
$ 9,266
6,920
(780)
(6,000)
(3,051)
480
$ 6,835
Balance at December 31, 2020
Net earnings
Other comprehensive loss, net
$
of tax
Repurchases of common stock
Dividends declared ($10.60 per
share)
Stock-based awards, ESOP
activity and other
Net decrease in noncontrolling
interests in subsidiary
Balance at December 31, 2021
Net earnings
Other comprehensive income,
net of tax
Repurchases of common stock
Dividends declared ($11.40 per
share)
Stock-based awards, ESOP
activity and other
Balance at December 31, 2022
Net earnings
Other comprehensive income,
net of tax
Repurchases of common stock
Dividends declared ($12.15 per
share)
Stock-based awards, ESOP
activity and other
$
$
—
(9)
—
—
(671)
—
(3,407)
—
(2,944)
1
544
—
5,115
—
—
—
—
271 $
—
—
(18)
—
1
254 $
—
—
(15)
—
94
—
$
—
21,600 $
5,732
—
(11,006)
—
—
(503)
—
(7,379)
2,983
—
—
501
92
—
—
(571)
(3,010)
—
$
—
16,943 $
6,920
—
(8,023)
—
—
(780)
(5,414)
—
—
(3,051)
1
479
—
—
—
—
Total
Stockholders’
Equity
$
$
$
6,015
6,315
5,115
(4,087)
(2,944)
545
—
10,959
5,732
2,983
(7,900)
(3,010)
502
9,266
6,920
(780)
(6,000)
(3,051)
480
$
$
Balance at December 31, 2023
$
240 $
—
$
15,398 $
(8,803)
$
6,835
$
The accompanying notes are an integral part of these consolidated financial statements.
60
Lockheed Martin Corporation
Notes to Consolidated Financial Statements
Note 1 – Organization and Significant Accounting Policies
Organization – 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 also provide a broad
range of management, engineering, technical, scientific, logistics, system integration and cybersecurity services. We serve both
U.S. and international customers with products and services that have defense, civil and commercial applications, with our
principal customers being agencies of the U.S. Government. As described in “Note 3 – Information on Business Segments”, we
operate in four business segments: Aeronautics, MFC, RMS and Space.
Basis of presentation – These consolidated financial statements include the accounts of subsidiaries we control and
variable interest entities if we are the primary beneficiary. We eliminate intercompany balances and transactions in
consolidation. We classify certain assets and liabilities as current utilizing the duration of the related contract or program as our
operating cycle, which is generally longer than one year. This primarily impacts receivables, contract assets, inventories, and
contract liabilities. We classify all other assets and liabilities based on whether the asset will be realized or the liability will be
paid within one year.
Effective January 1, 2023, we no longer consider amortization expense related to purchased intangible assets when
evaluating the operating performance of our business segments. As a result, intangible asset amortization expense, which was
previously included in segment operating profit, is now reported in unallocated corporate expense within total consolidated
operating profit. This change has no impact on our consolidated operating results. Management believes this updated
presentation better aligns with how the business is viewed and managed and will provide better insights into business segment
performance. This change has been applied to the amounts in this Form 10-K, including amounts for 2022 and 2021. See
“Note 3 – Information on Business Segments” for further information regarding the impact of this change on our current and
prior period segment operating profit.
Use of estimates – We prepare our consolidated financial statements in conformity with U.S. generally accepted
accounting principles (GAAP). In doing so, we are required to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. We base these estimates on historical experience and on
various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Our
actual results may differ materially from these estimates. Significant estimates inherent in the preparation of our consolidated
financial statements include, but are not limited to, accounting for sales and cost recognition; postretirement benefit plans;
environmental liabilities and assets for the portion of environmental costs that are probable of future recovery; evaluation of
goodwill, intangible assets, investments and other assets for impairment; income taxes including deferred income taxes; fair
value measurements; and contingencies.
Revenue Recognition – The majority of our net sales are generated from long-term contracts with the U.S. Government
and international customers (including foreign military sales (FMS) contracted through the U.S. Government) for the research,
design, development, manufacture, integration and sustainment of advanced technology systems, products and services. We
account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment
terms are identified, the contract has commercial substance and collectability of consideration is probable. For certain contracts
that meet the foregoing requirements, primarily international direct commercial sale contracts, we are required to obtain certain
regulatory approvals. In these cases, we recognize revenue when it is probable that we will receive regulatory approvals based
upon all known facts and circumstances. We provide our products and services under fixed-price and cost-reimbursable
contracts.
Under fixed-price contracts, we agree to perform the specified work for a pre-determined price. To the extent our actual
costs vary from the estimates upon which the price was negotiated, we will generate more or less profit or could incur a loss.
Some fixed-price contracts have a performance-based component under which we may earn incentive payments or incur
financial penalties based on our performance.
Cost-reimbursable contracts provide for the payment of allowable costs incurred during performance of the contract plus a
fee up to a ceiling based on the amount that has been funded. Typically, we enter into three types of cost-reimbursable
contracts: cost-plus-award-fee, cost-plus-incentive-fee, and cost-plus-fixed-fee. Cost-plus-award-fee contracts provide for an
award fee that varies within specified limits based on the customer’s assessment of our performance against a predetermined set
of criteria, such as targets based on cost, quality, technical and schedule criteria. Cost-plus-incentive-fee contracts provide for
61
reimbursement of costs plus a fee, which is adjusted by a formula based on the relationship of total allowable costs to total
target costs (i.e., incentive based on cost) or reimbursement of costs plus an incentive to exceed stated performance targets (i.e.,
incentive based on performance). Cost-plus-fixed-fee contracts provide a fixed fee that is negotiated at the inception of the
contract and does not vary with actual costs.
We assess each contract at its inception to determine whether it should be combined with other contracts. When making
this determination, we consider factors such as whether two or more contracts were negotiated and executed at or near the same
time or were negotiated with an overall profit objective. If combined, we treat the combined contracts as a single contract for
revenue recognition purposes.
We evaluate the products or services promised in each contract at inception to determine whether the contract should be
accounted for as having one or more performance obligations. The products and services in our contracts are typically not
distinct from one another due to their complex relationships and the significant contract management functions required to
perform under the contract. Accordingly, our contracts are typically accounted for as one performance obligation. In limited
cases, our contracts have more than one distinct performance obligation, which occurs when we perform activities that are not
highly complex or interrelated or involve different product lifecycles. Significant judgment is required in determining
performance obligations, and these decisions could change the amount of revenue and profit recorded in a given period. We
classify net sales as products or services on our consolidated statements of earnings based on the predominant attributes of the
performance obligations.
We determine the transaction price for each contract based on the consideration we expect to receive for the products or
services being provided under the contract. For contracts where a portion of the price may vary (e.g. awards, incentive fees and
claims), we estimate variable consideration at the most likely amount, which is included in the transaction price to the extent it
is probable that a significant reversal of cumulative revenue recognized will not occur. We analyze the risk of a significant
revenue reversal and if necessary constrain the amount of variable consideration recognized in order to mitigate this risk.
At the inception of a contract we estimate the transaction price based on our current rights and do not contemplate future
modifications (including unexercised options) or follow-on contracts until they become legally enforceable. Contracts are often
subsequently modified to include changes in specifications, requirements or price, which may create new or change existing
enforceable rights and obligations. Depending on the nature of the modification, we consider whether to account for the
modification as an adjustment to the existing contract or as a separate contract. Generally, modifications to our contracts are not
distinct from the existing contract due to the significant integration and interrelated tasks provided in the context of the contract.
Therefore, such modifications are accounted for as if they were part of the existing contract and recognized as a cumulative
adjustment to revenue.
For contracts with multiple performance obligations, we allocate the transaction price to each performance obligation
based on the estimated standalone selling price of the product or service underlying each performance obligation. The
standalone selling price represents the amount we would sell the product or service to a customer on a standalone basis (i.e., not
bundled with any other products or services). Our contracts with the U.S. Government, including FMS contracts, are subject to
the Federal Acquisition Regulations (FAR) and the price is typically based on estimated or actual costs plus a reasonable profit
margin. As a result of these regulations, the standalone selling price of products or services in our contracts with the U.S.
Government and FMS contracts are typically equal to the selling price stated in the contract.
For non-U.S. government contracts with multiple performance obligations, we evaluate whether the stated selling prices
for the products or services represent their standalone selling prices. We primarily sell customized solutions unique to a
customer’s specifications. When it is necessary to allocate the transaction price to multiple performance obligations, we
typically use the expected cost plus a reasonable profit margin to estimate the standalone selling price of each product or
service. We occasionally sell standard products or services with observable standalone sales transactions. In these situations, the
observable standalone sales transactions are used to determine the standalone selling price.
We recognize revenue as performance obligations are satisfied and the customer obtains control of the products and
services. In determining when performance obligations are satisfied, we consider factors such as contract terms, payment terms
and whether there is an alternative future use of the product or service. 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 most
contracts with the U.S. Government and FMS contracts, this continuous transfer of control of the work in process to the
customer is supported by clauses in the contract that give the customer ownership of work in process and allow the customer to
unilaterally terminate the contract for convenience and pay us for costs incurred plus a reasonable profit. For most non-U.S.
government contracts, primarily international direct commercial contracts, continuous transfer of control to our customer is
supported because we deliver products that do not have an alternative use to us and if our customer were to terminate the
62
contract for reasons other than our non-performance we would have the right to recover damages which would include, among
other potential damages, the right to payment for our work performed to date plus a reasonable profit.
For performance obligations to deliver products with continuous transfer of 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 our contracts because it best depicts the transfer of control to the customer as
we incur costs on our contracts. Under the percentage-of-completion cost-to-cost measure of progress, the extent of progress
towards completion is measured based on the ratio of costs incurred to date to the total estimated costs to complete the
performance obligation(s). For performance obligations to provide services to the customer, revenue is recognized over time
based on costs incurred or the right to invoice method (in situations where the value transferred matches our billing rights) as
our customer receives and consumes the benefits.
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. This coincides with the point in time the customer obtains
control of the product or service, which typically occurs upon customer acceptance or receipt of the product or service, given
that we maintain control of the product or service until that point.
Backlog (i.e., unfulfilled or remaining performance obligations) represents the sales we expect to recognize for our
products and services for which control has not yet transferred to the customer. It is converted into sales in future periods as
work is performed or deliveries are made. For our cost-reimbursable and fixed-priced-incentive contracts, the estimated
consideration we expect to receive pursuant to the terms of the contract may exceed the contractual award amount. The
estimated consideration is determined at the outset of the contract and is continuously reviewed throughout the contract period.
In determining the estimated consideration, we consider the risks related to the technical, schedule and cost impacts to complete
the contract and an estimate of any variable consideration. Periodically, we review these risks and may increase or decrease
backlog accordingly. As the risks on such contracts are successfully retired, the estimated consideration from customers may be
reduced, resulting in a reduction of backlog without a corresponding recognition of sales. As of December 31, 2023, our ending
backlog was $160.6 billion. 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.
For arrangements with the U.S. Government and FMS contracts, we generally do not begin work on contracts until
funding is appropriated by the customer. Billing timetables and payment terms on our contracts vary based on a number of
factors, including the contract type. Typical payment terms under fixed-price contracts with the U.S. Government provide that
the customer pays either performance-based payments (PBPs) based on the achievement of contract milestones or progress
payments based on a percentage of costs we incur. Typical payment terms under cost-reimbursable contracts with the U.S
Government provide for billing of allowable costs incurred plus applicable fee on a monthly or semi-monthly basis. For the
majority of our international direct commercial contracts to deliver complex systems, we typically receive advance payments
prior to commencement of work, as well as milestone payments that are paid in accordance with the terms of our contract as we
perform. We recognize a liability for payments in excess of revenue recognized, which is presented as a contract liability on the
balance sheet. The portion of payments retained by the customer until final contract settlement is not considered a significant
financing component because the intent is to protect the customer from our failure to adequately complete some or all of the
obligations under the contract. Payments received from customers in advance of revenue recognition are not considered to be
significant financing components because they are used to meet working capital demands that can be higher in the early stages
of a contract.
For fixed-price and cost-reimbursable contracts, we present revenues recognized in excess of billings as contract assets on
the balance sheet. Amounts billed and due from our customers under both contract types are classified as receivables on the
balance sheet.
Significant estimates and assumptions are made in estimating contract sales, costs, and profit. We estimate profit as the
difference between estimated revenues and total estimated costs to complete the contract. At the outset of a long-term contract,
we identify and monitor risks to the achievement of the technical, schedule and cost aspects of the contract, as well as our
ability to earn variable consideration, and assess the effects of those risks on our estimates of sales and total costs to complete
the contract. The estimates consider the technical requirements (e.g., a newly-developed product versus a mature product), the
schedule and associated tasks (e.g., the number and type of milestone events) and costs (e.g., material, labor, subcontractor,
overhead, general and administrative and the estimated costs to fulfill our industrial cooperation agreements, sometimes
referred to as offset or localization agreements, required under certain contracts with international customers). The initial profit
booking rate of each contract considers risks surrounding the ability to achieve the technical requirements, schedule and costs in
the initial estimated total costs to complete the contract. Profit booking rates may increase during the performance of the
contract if we successfully retire risks related to technical, schedule and cost aspects of the contract, which decreases the
estimated total costs to complete the contract or may increase the variable consideration we expect to receive on the contract.
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Conversely, our profit booking rates may decrease if the estimated total costs to complete the contract increase or our estimates
of variable consideration we expect to receive decrease. All of the estimates are subject to change during the performance of the
contract and may affect the profit booking rate. When estimates of total costs to be incurred on a contract exceed total estimates
of the transaction price, a provision for the entire loss is determined at the contract level and is recorded in the period in which
the loss is evident, which we refer to as a reach-forward loss.
Comparability of our segment sales, operating profit and operating margin may be impacted favorably or unfavorably by
changes in profit booking rates on our contracts. Increases in the profit booking rates, typically referred to as favorable profit
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 net sales by $1.6 billion in 2023, $2.0 billion in 2022, and
$2.2 billion in 2021. These adjustments increased segment operating profit by approximately $1.6 billion ($1.3 billion, or $4.98
per share, after-tax) in 2023, $1.8 billion ($1.4 billion, or $5.40 per share, after-tax) in 2022 and $2.0 billion ($1.6 billion, or
$5.81 per share, after-tax) in 2021.
We have various development programs for new and upgraded products, services, and related technologies which have
complex design and technical challenges. This development work is inherently uncertain and subject to significant variability in
estimates of the cost and time required to complete the work by us and our suppliers. Many of these programs have cost-type
contracting arrangements (e.g. cost-reimbursable or cost-plus-fee). In such cases, the associated financial risks are primarily in
reduced fees, lower profit rates, or program cancellation if cost, schedule, or technical performance issues arise.
However, some of our existing development programs are contracted on a fixed-price basis or include cost-type
contracting for the development phase with fixed-price production options and our customers are increasingly implementing
procurement policies such as these that shift risk to contractors. Competitively bid programs with fixed-price development work
or fixed-price production options increase the risk of a reach-forward loss upon contract award and during the period of contract
performance. Due to the complex and often experimental nature of development programs, we may experience (and have
experienced in the past) technical and quality issues during the development of new products or technologies for a variety of
reasons. Our development programs are ongoing, and while we believe the cost and fee estimates incorporated in the financial
statements are appropriate, the technical complexity of these programs and fixed-price contract structure creates financial risk
as estimated completion costs may exceed the current contract value, which could trigger earnings charges, termination
provisions, or other financially significant exposures. These programs have risk for reach-forward losses if our estimated costs
exceed our estimated contract revenues, and such losses could be significant to our financial results, cash flows, or financial
condition. Any such losses are recorded in the period in which the loss is evident.
We have experienced performance issues on a classified fixed-price incentive fee contract that involves highly complex
design and systems integration at our Aeronautics business segment and have periodically recognized reach-forward losses. As
of December 31, 2023, cumulative losses remained at approximately $270 million. We will continue to monitor the technical
requirements and our performance, the remaining work and any future changes in scope or schedule, and estimated costs to
complete the program and may have to record additional losses in future periods if we experience further performance issues,
increases in scope, or cost growth, which could be material to our financial results. In addition, we and our industry team will
continue to incur advanced procurement costs (also referred to as pre-contract costs) in order to enhance our ability to achieve
the schedule and certain milestones. We will monitor the recoverability of pre-contract costs, which could be impacted by the
customer’s decision regarding future phases of the program.
We are responsible for a program to design, develop and construct a ground-based radar at our RMS business segment.
The program has experienced performance issues for which we have periodically recognized reach-forward losses. As of
December 31, 2023, cumulative losses remained at approximately $280 million. We will continue to monitor our performance,
any future changes in scope, and estimated costs to complete the program and may have to record additional losses in future
periods if we experience further performance issues, increases in scope, or cost growth. However, based on the losses
previously recorded, the near completion status of the program, and our current estimate of the sales and costs to complete the
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program, at this time we do not anticipate that additional losses, if any, would be material to our financial results or financial
condition.
We have contracted with the Canadian Government for the Canadian Maritime Helicopter Program (CMHP) at our RMS
business segment that provides for design, development, and production of CH-148 aircraft (the Original Equipment contract),
which is a military variant of the S-92 helicopter, and for logistical support to the fleet (the In Service Support contract) over an
extended time period. We are currently in discussions with the Canadian Government to potentially restructure certain
contractual terms and conditions that may be beneficial to both parties. The program has experienced performance issues,
including delays in the final aircraft deliveries from the original contract requirement, and the Royal Canadian Air Force’s flight
hours have been less than originally anticipated, which has impacted program revenues and the recovery of our costs under this
program. We have incurred significant costs and recognized the related sales, a portion of which are currently included in
contract assets on the balance sheet. Such assets are recovered based on flight hours. Future sales and recovery of costs under
the program are highly dependent upon achieving a certain number of flight hours, which are uncertain and dependent on
aircraft availability and performance, and the availability of Canadian government resources. During the second quarter of
2023, due to increases in estimated costs for the production and lower than planned revenues for the logistical support program
considering discussions with the customer and subsequent analysis, we recognized a loss of $100 million ($75 million, or $0.29
per share, after-tax) on the program. Future performance issues, lower than forecast flight hours, or changes in our estimates
due to the outcome of any restructuring discussions, including revised contract scope or customer requirements may further
affect our ability to recover our costs, including the contract assets recognized on the balance sheet, or our assessment of the
likelihood of cost recovery and may result in additional losses that could be material to our operating results. As of
December 31, 2023, cumulative losses remained unchanged.
We also have a number of contracts with Türkish industry for the Türkish Utility Helicopter Program (TUHP), which
anticipates co-production with Türkish industry for production of T70 helicopters for use in Türkiye, as well as the related
provision of Türkish goods and services under buy-back or offset obligations, to include the future sales of helicopters built in
Türkiye for sale globally. In 2020, the U.S. Government imposed certain sanctions on Türkish entities and persons that have
affected our ability to perform under the TUHP contracts and we have provided force majeure notices under the affected
contracts. As of December 31, 2023, we have recorded insignificant losses related to development work for the program. The
TUHP contracts may be negotiated to be restructured or terminated, either in whole or in part and as a result, we could be at risk
of recording significant reach-forward losses in future periods. Additionally, we could elect to pursue other relief or remedies,
which could result in a further reduction in sales, the imposition of penalties or assessment of damages, and increased
unrecoverable costs, which could be material to our financial results.
Our MFC business segment was previously awarded a competitively bid classified contract, which includes multiple
phases of the program. We are currently performing on a phase which is primarily structured as cost-type. Additional phases are
primarily fixed price and are not currently able to be awarded. If the additional phases are awarded at later dates, some of which
could be within the next twelve months, we expect that those phases would be performed at a loss. As of December 31, 2023,
cumulative losses recognized were approximately $45 million. We will continue to monitor the circumstances on the program
and we may be required to recognize a reach-forward loss related to any additional phases at such time that we determine it is
probable that they will be awarded. Any such losses could be material to our financial results.
Research and development and similar costs – We conduct research and development (R&D) activities using our own
funds (referred to as company-funded R&D or independent research and development (IR&D)) and under contractual
arrangements with our customers (referred to as customer-funded R&D) to enhance existing products and services and to
develop future technologies. R&D costs include basic research, applied research, concept formulation studies, design,
development, and related test activities. Company-funded R&D costs are allocated to customer contracts as part of the general
and administrative overhead costs and are generally recoverable to the extent allocable to our cost-reimbursable customer
contracts with the U.S. Government. These costs also may be recoverable to the extent allocable to certain fixed-price incentive
contracts with the U.S. Government. Customer-funded R&D costs are charged directly to the related customer contracts.
Substantially all R&D costs are charged to cost of sales as incurred. Company-funded R&D costs charged to cost of sales
totaled $1.5 billion, $1.7 billion and $1.5 billion in 2023, 2022 and 2021.
Stock-based compensation – We issue stock-based compensation awards in the form of restricted stock units (RSUs) and
performance stock units (PSUs) that generally vest three years from the grant date and are settled in shares. Compensation cost
related to all stock-based awards is measured at the grant date based on the estimated fair value of the award. The grant date fair
value of RSUs is equal to the closing market price of our common stock on the grant date less a discount to reflect the delay in
payment of dividend-equivalent cash payments that are made only upon vesting. The grant date fair value of PSUs is measured
in a manner similar to RSUs for awards that vest based on service and performance conditions or using a Monte Carlo model
for awards that vest based on service and market conditions.
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For all RSUs, we recognize the grant date fair value, less estimated forfeitures, as compensation expense ratably over the
requisite service period, which is shorter than the vesting period if the employee is retirement eligible on the date of grant or
will become retirement eligible before the end of the vesting period. For PSUs that vest based on service and performance
conditions, we recognize the grant date fair value, less estimated forfeitures, as compensation expense ratably over the vesting
period based on the number of awards expected to ultimately vest. For PSUs that vest based on service and market conditions,
we recognize the grant date fair value, less estimated forfeitures, as compensation expense ratably over the vesting period. At
each reporting date, estimated forfeitures for all stock-based compensation awards and the number of PSUs expected to vest
based on service and performance conditions is adjusted.
Income taxes – We calculate our provision for income taxes using the asset and liability method, under which deferred tax
assets and liabilities are recognized based on the future tax consequences attributable to temporary differences that exist
between the financial statement carrying amount of assets and liabilities and their respective tax bases, as well as from
operating loss and tax credit carry-forwards. The provision for income taxes differs from the amounts currently receivable or
payable because certain items of income and expense are recognized in different periods for financial reporting purposes than
for income tax purposes. We measure deferred tax assets and liabilities using enacted tax rates that will apply in the years in
which we expect the temporary differences to be recovered or paid.
We periodically assess our tax exposures related to periods that are open to examination. Based on the latest available
information, we evaluate our tax positions to determine whether the position will more likely than not be sustained upon
examination by the Internal Revenue Service (IRS) or other taxing authorities. If we cannot reach a more-likely-than-not
determination, no benefit is recorded. If we determine that the tax position is more likely than not to be sustained, we record the
largest amount of benefit that is more likely than not to be realized when the tax position is settled. We record interest and
penalties related to income taxes as a component of income tax expense on our consolidated statements of earnings.
In accordance with the regulations that govern cost accounting requirements for government contracts, current state and
local income and franchise taxes are generally considered allowable and allocable costs and, consistent with industry practice,
are recorded in operating costs and expenses. We generally recognize changes in deferred state taxes and unrecognized state tax
benefits in unallocated corporate expenses.
Cash and cash equivalents – Cash equivalents include highly liquid instruments with original maturities of 90 days or
less.
Receivables – Receivables, net represent our unconditional right to consideration under the contract and include amounts
billed and currently due from customers. Receivables, net are recorded at the net amount expected to be collected. There were
no significant impairment losses related to our receivables in 2023, 2022 or 2021.
Contract assets – Contract assets include unbilled amounts typically resulting from sales under contracts when the
percentage-of-completion cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount
billed to the customer. Contract assets are recorded at the net amount expected to be billed and collected. Contract assets are
classified as current based on our contract operating cycle, and include amounts that may be billed and collected beyond one
year due to the long-cycle nature of our contracts.
Contract liabilities – Contract liabilities include advance payments and billings in excess of revenue recognized. Contract
liabilities are classified as current based on our contract operating cycle and reported on a contract-by-contract basis, net of
revenue recognized, at the end of each reporting period.
Inventories – We record inventories at the lower of cost or estimated net realizable value. The majority of our inventory
represents work-in-process for contracts where control has not yet passed to the customer. Work-in-process primarily consists
of labor, material, subcontractor, and overhead costs. In addition, costs incurred to fulfill a contract in advance of the contract
being awarded are recorded in inventories as work-in-process if we determine that those costs relate directly to a contract or to
an anticipated contract that we can specifically identify and contract award is probable, the costs generate or enhance resources
that will be used in satisfying performance obligations, and the costs are recoverable (referred to as pre-contract costs). Pre-
contract costs that are initially capitalized in inventory are generally recognized as cost of sales consistent with the transfer of
products and services to the customer upon the receipt of the anticipated contract. All other pre-contract costs, including start-
up costs, are expensed as incurred. We determine the costs of other inventories such as materials, spares and supplies by using
the first-in first-out or average cost methods. If events or changes in circumstances indicate that pre-contract costs are no longer
recoverable or the utility of our inventories have diminished through damage, deterioration, obsolescence, changes in price or
other causes, a loss is recognized in the period in which it occurs.
Property, plant and equipment – Property, plant and equipment are initially recorded at cost. The cost of plant and
equipment are depreciated generally using accelerated methods during the first half of the estimated useful lives of the assets
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and the straight-line method thereafter. The estimated useful lives of our plant and equipment generally range from 10 to 40
years for buildings and five to 15 years for machinery and equipment. No depreciation expense is recorded on construction in
progress until such assets are placed into operation.
We review the carrying amounts of long-lived assets for impairment if events or changes in the facts and circumstances
indicate that their carrying amounts may not be recoverable. We assess impairment by comparing the estimated undiscounted
future cash flows of the related asset grouping to its carrying amount. If an asset is determined to be impaired, we recognize an
impairment charge in the current period for the difference between the fair value of the asset and its carrying amount.
Capitalized software – We capitalize certain costs associated with the development or purchase of internal-use software.
The amounts capitalized are included in other noncurrent assets on our consolidated balance sheets and are amortized on a
straight-line basis over the estimated useful life of the resulting software, which ranges from two to 15 years. As of
December 31, 2023 and 2022, capitalized software totaled $1.4 billion and $919 million, net of accumulated amortization of
$2.8 billion and $2.6 billion. No amortization expense is recorded until the software is ready for its intended use. Amortization
expense related to capitalized software was $263 million in 2023, $253 million in 2022 and $175 million in 2021.
Fair value of financial instruments – We measure the fair value of our financial instruments using observable and
unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs
reflect internal market assumptions. The following hierarchy classifies the inputs used to determine fair value into three levels:
Level 1 – quoted prices in active markets for identical assets or liabilities.
Level 2 – inputs, other than quoted prices, observable by a marketplace participant either directly or indirectly.
Level 3 – unobservable inputs significant to the fair value measurement.
Investments – We hold a portfolio of marketable securities to fund our non-qualified employee benefit plans. A portion of
these securities are held in common/collective trust funds and are measured at fair value using Net Asset Value (NAV) per
share as a practical expedient. Marketable securities accounted for as trading are recorded at fair value on a recurring basis and
are included in other noncurrent assets on our consolidated balance sheets. Gains and losses on these investments are included
in other unallocated, net within cost of sales on our consolidated statements of earnings.
We make investments in companies that we believe are advancing or developing new technologies applicable to our
business. These investments are primarily in early-stage companies and may be in the form of common or preferred stock,
warrants, convertible debt securities, investments in funds or equity method investments. Most of these investments are in
equity securities without readily determinable fair values (privately held securities), which are measured initially at cost and are
then adjusted to fair value only if there is an observable price change or reduced for impairment, if applicable. The carrying
amounts of the investments were $581 million and $589 million at December 31, 2023 and December 31, 2022 and are
included on our consolidated balance sheets within other assets, both current and noncurrent. Changes in fair value and/or sales
of investments are reflected in the other non-operating income, net account on our consolidated statements of earnings. During
2023 and 2022, we recorded net losses of $64 million ($48 million, or $0.19 per share, after-tax) and $114 million ($86 million,
or $0.33 per share, after-tax). During 2021, we recorded net gains of $265 million ($199 million, or $0.72 per share, after-tax).
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Equity method investments – Investments where we have the ability to exercise significant influence, but do not control,
are accounted for under the equity method of accounting and are included in other noncurrent assets on our consolidated
balance sheets. Significant influence typically exists if we have a 20% to 50% ownership interest in the investee. Under this
method of accounting, our share of the net earnings or losses of the investee is included in operating profit in other income, net
on our consolidated statements of earnings since the activities of the investee are closely aligned with the operations of the
business segment holding the investment. We evaluate our equity method investments for impairment whenever events or
changes in circumstances indicate that the carrying amounts of such investments may be impaired. If a decline in the value of
an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period. As of
December 31, 2023 and December 31, 2022, our equity method investments totaled $701 million and $685 million, which was
primarily composed of our investment in the United Launch Alliance (ULA) joint venture. Our share of net earnings related to
our equity method investees was $40 million in 2023, $114 million in 2022 and $97 million in 2021, of which approximately
$20 million, $100 million and $65 million was included in our Space business segment operating profit.
Goodwill and Intangible Assets – 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. We
may use both a qualitative and quantitative approaches when testing goodwill for impairment. For selected reporting units
where we use the qualitative approach, we perform a qualitative evaluation of events and circumstances impacting the reporting
unit to determine the likelihood of goodwill impairment. Based on that qualitative evaluation, if we determine it is more likely
than not that the fair value of a reporting unit exceeds its carrying amount, no further evaluation is necessary. Otherwise we
perform a quantitative impairment test. We perform quantitative tests for most reporting units at least once every three years.
However, for certain reporting units we may perform a quantitative impairment test every year.
To perform the quantitative impairment test we compare the fair value of a reporting unit to its carrying value, including
goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the
carrying value of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment loss is recognized in an
amount equal to that excess. We generally estimate the fair value of each reporting unit using a combination of a discounted
cash flow (DCF) analysis and market-based valuation methodologies such as comparable public company trading values and
values observed in recent business acquisitions.
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. 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. We perform an
impairment test of finite-lived intangibles whenever events or changes in circumstances indicate their carrying value may be
impaired.
Leases – We evaluate whether our contractual arrangements contain leases at the inception of such arrangements.
Specifically, we consider whether we can control the underlying asset and have the right to obtain substantially all of the
economic benefits or outputs from the asset. Substantially all of our leases are long-term operating leases with fixed payment
terms. We do not have significant financing leases. Our right-of-use (ROU) operating lease assets represent our right to use an
underlying asset for the lease term, and our operating lease liabilities represent our obligation to make lease payments. ROU
operating lease assets are recorded in other noncurrent assets in our consolidated balance sheet. Operating lease liabilities are
recorded in other current liabilities or other noncurrent liabilities in our consolidated balance sheet based on their contractual
due dates.
Both the ROU operating lease asset and liability are recognized as of the lease commencement date at the present value of
the lease payments over the lease term. Most of our leases do not provide an implicit rate that can readily be determined.
Therefore, we use a discount rate based on our incremental borrowing rate, which is determined using our credit rating and
information available as of the commencement date. ROU operating lease assets include lease payments made at or before the
lease commencement date, net of any lease incentives.
Our operating lease agreements may include options to extend the lease term or terminate it early. We include options to
extend or terminate leases in the ROU operating lease asset and liability when it is reasonably certain we will exercise these
options. Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of sales on our
consolidated statement of earnings.
We have operating lease arrangements with lease and non-lease components. The non-lease components in our
arrangements are not significant when compared to the lease components. For all operating leases, we account for the lease and
non-lease components as a single component. Additionally, for certain equipment leases, we apply a portfolio approach to
recognize operating lease ROU assets and liabilities. We evaluate ROU assets for impairment consistent with our property,
plant and equipment policy.
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Postretirement benefit plans – Many of our employees and retirees participate in defined benefit pension plans, retiree
medical and life insurance plans, and other postemployment plans (collectively, postretirement benefit plans). Obligation
amounts we record related to our postretirement benefit plans are computed based on service to date, using actuarial valuations
that are based in part on certain key economic assumptions we make, including the discount rate, the expected long-term rate of
return on plan assets and other actuarial assumptions including participant longevity (also known as mortality) and health care
cost trend rates, each as appropriate based on the nature of the plans.
A market-related value of our plan assets, determined using actual asset gains or losses over the prior three year period, is
used to calculate the amount of deferred asset gains or losses to be amortized. These asset gains or losses, along with those
resulting from adjustments to our benefit obligation, will be amortized to expense using the corridor method, where gains and
losses are recognized over a period of years to the extent they exceed 10% of the greater of plan assets or benefit obligations.
We recognize on a plan-by-plan basis the funded status of our postretirement benefit plans as either an asset recorded
within other noncurrent assets or a liability recorded within noncurrent liabilities on our consolidated balance sheets. The
GAAP funded status is measured as the difference between the fair value of the plan’s assets and the benefit obligation of the
plan. The funded status under the Employee Retirement Income Security Act of 1974 (ERISA), as amended, is calculated on a
different basis than under GAAP.
Postemployment plans – We record a liability for postemployment benefits, such as severance or job training, typically
when payment is probable, the amount is reasonably estimable, and the obligation relates to rights that have vested or
accumulated.
Environmental matters – We record a liability for environmental matters when it is probable that a liability has been
incurred and the amount can be reasonably estimated. The amount of liability recorded is based on our estimate of the costs to
be incurred for remediation at a particular site. We do not discount the recorded liabilities, as the amount and timing of future
cash payments are not fixed or cannot be reliably determined. Our environmental liabilities are recorded on our consolidated
balance sheets within other liabilities, both current and noncurrent. We expect to include a substantial portion of environmental
costs in our net sales and cost of sales in future periods pursuant to U.S. Government regulation. At the time a liability is
recorded for future environmental costs, we record assets for estimated future recovery considered probable through the pricing
of products and services to agencies of the U.S. Government, regardless of the contract form (e.g., cost-reimbursable, fixed-
price). We continually evaluate the recoverability of our assets for the portion of environmental costs that are probable of future
recovery by assessing, among other factors, U.S. Government regulations, our U.S. Government business base and contract
mix, our history of receiving reimbursement of such costs, and efforts by some U.S. Government representatives to limit such
reimbursement. We include the portions of those environmental costs expected to be allocated to our non-U.S. government
contracts, or determined not to be recoverable under U.S. Government contracts, in our cost of sales at the time the liability is
established or adjusted. Our assets for the portion of environmental costs that are probable of future recovery are recorded on
our consolidated balance sheets within other assets, both current and noncurrent. We project costs and recovery of costs over
approximately 20 years.
Derivative financial instruments – Derivatives are recorded at their fair value and included in other current and
noncurrent assets and liabilities on our consolidated balance sheets. The classification of gains and losses resulting from
changes in the fair values of derivatives is dependent on our intended use of the derivative and its resulting designation.
Adjustments to reflect changes in fair values of derivatives attributable to highly effective hedges are either reflected in
earnings and largely offset by corresponding adjustments to the hedged items or reflected net of income taxes in accumulated
other comprehensive loss until the hedged transaction is recognized in earnings. Changes in the fair value of the derivatives that
are not highly effective, if any, are immediately recognized in earnings.
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Recent Accounting Pronouncements
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No.
2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to
disclose significant segment expenses and other segment items on an annual and interim basis and provide in interim periods all
disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Additionally, it requires a
public entity to disclose the title and position of the Chief Operating Decision Maker (CODM). The ASU does not change how
a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its
reportable segments. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods
within fiscal years beginning after December 15, 2024, with early adoption permitted. A public entity should apply the
amendments in this ASU retrospectively to all prior periods presented in the financial statements. We expect this ASU to only
impact our disclosures with no impacts to our results of operations, cash flows and financial condition.
Income Taxes (Topic 740): Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax
Disclosures, which focuses on the rate reconciliation and income taxes paid. ASU No. 2023-09 requires a public business entity
(PBE) to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out
into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items
exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received
disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments,
net of refunds received. For PBEs, the new standard is effective for annual periods beginning after December 15, 2024, with
early adoption permitted. An entity may apply the amendments in this ASU prospectively by providing the revised disclosures
for the period ending December 31, 2025 and continuing to provide the pre-ASU disclosures for the prior periods, or may apply
the amendments retrospectively by providing the revised disclosures for all period presented. We expect this ASU to only
impact our disclosures with no impacts to our results of operations, cash flows, and financial condition.
Note 2 – Earnings Per Share
The weighted average number of shares outstanding used to compute earnings per common share were as follows
(in millions):
Weighted average common shares outstanding for basic computations
Weighted average dilutive effect of equity awards
Weighted average common shares outstanding for diluted computations
2023
250.3
0.9
251.2
2022
263.7
0.9
264.6
2021
276.4
1.0
277.4
We compute basic and diluted earnings per common share by dividing net earnings by the respective weighted average
number of common shares outstanding for the periods presented. Our calculation of diluted earnings per common share also
includes the dilutive effects for the assumed vesting of outstanding restricted stock units (RSUs) and performance stock units
(PSUs) based on the treasury stock method. There were no significant anti-dilutive equity awards for the years ended
December 31, 2023, 2022 and 2021. Basic and diluted weighted average common shares outstanding decreased in 2023
compared to 2022 due to share repurchases.
Note 3 – Information on Business Segments
Overview
We operate in four business segments: Aeronautics, MFC, RMS and Space. We organize our business segments based on
the nature of products and services offered. Following is a brief description of the activities of our business segments:
•
Aeronautics – 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.
• Missiles and Fire Control – Provides air and missile defense systems; tactical missiles and air-to-ground precision strike
weapon systems; logistics; fire control systems; mission operations support, readiness, engineering support and integration
services; manned and unmanned ground vehicles; and energy management solutions.
70
•
•
Rotary and Mission Systems – 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.
Space – Engaged in the research and design, development, engineering and production of satellites, space transportation
systems, and strategic, advanced strike, and defensive systems. Space provides network-enabled situational awareness and
integrates complex space and ground global systems to help our customers gather, analyze and securely distribute critical
intelligence data. Space is also responsible for various classified systems and services in support of vital national security
systems. Operating profit for our Space business segment also includes our share of earnings for our 50% ownership
interest in ULA, which provides expendable launch services to the U.S. Government and commercial customers. Our
investment in ULA totaled $567 million and $571 million at December 31, 2023 and 2022.
Selected Financial Data by Business Segment
Net sales and operating profit of our business segments exclude intersegment sales, cost of sales and profit as these
activities are eliminated in consolidation and thus are not included in management’s evaluation of performance of each
segment. Business segment operating profit includes our share of earnings or losses from equity method investees as the
operating activities of the equity method investees are closely aligned with the operations of our business segments.
Summary Operating Results
As discussed in “Note 1 – Organization and Significant Accounting Policies”, effective January 1, 2023, we no longer
consider amortization expense related to purchased intangible assets when evaluating the operating performance of our business
segments. As a result, intangible asset amortization expense, which was previously included in segment operating profit, is now
reported in unallocated items within total consolidated operating profit.
This change has been applied to the amounts below, including the amounts for 2022 and 2021. Sales and operating profit
for each of our business segments were as follows (in millions):
Net sales
Aeronautics
Missiles and Fire Control
Rotary and Mission Systems
Space
Total net sales
Operating profit
Aeronautics
Missiles and Fire Control
Rotary and Mission Systems
Space
Total business segment operating profit
Unallocated items
FAS/CAS pension operating adjustment
Intangible asset amortization expense
Severance and other charges (a)
Other, net
Total unallocated, net
Total consolidated operating profit
2023
2022
2021
$ 27,474 $ 26,987 $ 26,748
11,693
11,317
11,253
16,789
16,148
16,239
12,605
11,814
11,532
$ 67,571 $ 65,984 $ 67,044
$ 2,825 $ 2,867 $ 2,800
1,650
2,030
1,184
7,664
1,541
1,865
1,158
7,389
1,637
1,906
1,057
7,467
1,660
(247)
(92)
(203)
1,118
1,960
(285)
(36)
(180)
1,459
$ 8,507 $ 8,348 $ 9,123
1,709
(248)
(100)
(480)
881
(a)
Severance and other charges include severance and other charges totaling $92 million ($73 million, or $0.30 per share, after-tax)
associated with severance costs for the planned reduction of certain positions across the corporation and asset impairment charges in
2023; $100 million ($79 million, or $0.31 per share, after-tax) charge related to actions at our RMS business segment, which include
severance costs for reduction of positions and asset impairment charges in 2022; and $36 million ($28 million, or $0.10 per share, after-
tax) charge associated with plans to close and consolidate certain facilities and reduce total workforce within our RMS business segment
in 2021.
71
Unallocated Items
Business segment operating profit excludes the FAS/CAS pension operating adjustment, a portion of corporate costs not
considered allowable or allocable to contracts with the U.S. Government under the applicable U.S. Government cost accounting
standards (CAS) or federal acquisition regulations (FAR), and other items not considered part of management’s evaluation of
segment operating performance such as a portion of management and administration costs, legal fees and settlements,
environmental costs, stock-based compensation expense, changes in the fair value of assets and liabilities for deferred
compensation plans, retiree benefits, significant severance charges, significant asset impairments, gains or losses from
divestitures, intangible asset amortization expense, and other miscellaneous corporate activities. Excluded items are included in
the reconciling item “Unallocated items” between operating profit from our business segments and our consolidated operating
profit. See “Note 1 – Organization and Significant Accounting Policies” (under the caption “Use of Estimates”) for a discussion
related to certain factors that may impact the comparability of net sales and operating profit of our business segments.
FAS/CAS Pension Operating Adjustment
Our business segments’ results of operations include pension expense only as calculated under U.S. Government Cost
Accounting Standards (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. Our consolidated financial statements must present
pension and other postretirement benefit plan income calculated in accordance with Financial Accounting Standards (FAS)
requirements under U.S. GAAP. The operating portion of the total FAS/CAS pension adjustment represents the difference
between the service cost component of FAS pension income (expense) and total CAS pension cost. The non-service FAS
pension income (expense) components are included in non-service FAS pension income (expense) 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.
Intersegment Sales
Sales between our business segments are excluded from our consolidated and segment operating results as these activities
are eliminated in consolidation. Intersegment sales for each of our business segments were as follows (in millions):
Intersegment sales
Aeronautics
Missiles and Fire Control
Rotary and Mission Systems
Space
Total intersegment sales
2023
2022
2021
$
303 $
688
249 $
627
2,125
358
1,930
381
219
618
1,895
360
$ 3,474 $ 3,187 $ 3,092
72
Disaggregation of Net Sales
Net sales by products and services, contract type, customer category and geographic region for each of our business
segments were as follows (in millions):
Net sales
Products
Services
Total net sales
Net sales by contract type
Fixed-price
Cost-reimbursable
Total net sales
Net sales by customer
U.S. Government
International (a)
U.S. commercial and other
Total net sales
Net sales by geographic region
United States
Europe
Asia Pacific
Middle East
Other
Total net sales
Net sales
Products
Services
Total net sales
Net sales by contract type
Fixed-price
Cost-reimbursable
Total net sales
Net sales by customer
U.S. Government
International (a)
U.S. commercial and other
Total net sales
Net sales by geographic region
United States
Europe
Asia Pacific
Middle East
Other
Total net sales
Aeronautics
MFC
2023
RMS
Space
Total
$
$
$
$
$
$
$
$
22,758 $
4,716
27,474 $
9,919 $
1,334
11,253 $
12,913 $
3,326
16,239 $
10,675 $
1,930
12,605 $
18,664 $
8,810
27,474 $
7,661 $
3,592
11,253 $
10,403 $
5,836
16,239 $
3,276 $
9,329
12,605 $
18,311 $
9,034
129
27,474 $
18,440 $
4,898
2,800
987
349
27,474 $
7,769 $
3,473
11
11,253 $
7,780 $
786
687
1,844
156
11,253 $
10,961 $
4,983
295
16,239 $
11,256 $
1,265
2,275
721
722
16,239 $
12,382 $
154
69
12,605 $
12,451 $
62
89
2
1
12,605 $
56,265
11,306
67,571
40,004
27,567
67,571
49,423
17,644
504
67,571
49,927
7,011
5,851
3,554
1,228
67,571
Aeronautics
MFC
2022
RMS
Space
Total
$
$
$
$
$
$
$
$
22,870 $
4,117
26,987 $
10,048 $
1,269
11,317 $
12,811 $
3,337
16,148 $
9,737 $
1,795
11,532 $
19,431 $
7,556
26,987 $
8,014 $
3,303
11,317 $
10,460 $
5,688
16,148 $
3,064 $
8,468
11,532 $
7,814 $
3,496
7
11,317 $
7,821 $
1,020
461
1,858
157
11,317 $
11,331 $
4,470
347
16,148 $
11,678 $
857
1,994
823
796
16,148 $
11,344 $
154
34
11,532 $
11,378 $
87
54
12
1
11,532 $
18,026 $
8,811
150
26,987 $
18,176 $
4,303
2,970
1,103
435
26,987 $
73
55,466
10,518
65,984
40,969
25,015
65,984
48,515
16,931
538
65,984
49,053
6,267
5,479
3,796
1,389
65,984
Net sales
Products
Services
Total net sales
Net sales by contract type
Fixed-price
Cost-reimbursable
Total net sales
Net sales by customer
U.S. Government
International (a)
U.S. commercial and other
Total net sales
Net sales by geographic region
United States
Europe
Asia Pacific
Middle East
Other
Total net sales
Aeronautics
MFC
2021
RMS
Space
Total
$
$
$
$
$
$
$
$
22,631 $
4,117
26,748 $
10,269 $
1,424
11,693 $
13,483 $
3,306
16,789 $
10,052 $
1,762
11,814 $
19,734 $
7,014
26,748 $
8,079 $
3,614
11,693 $
11,125 $
5,664
16,789 $
2,671 $
9,143
11,814 $
17,262 $
9,403
83
26,748 $
17,345 $
3,973
3,644
1,351
435
26,748 $
8,341 $
3,346
6
11,693 $
8,347 $
910
292
2,066
78
11,693 $
11,736 $
4,719
334
16,789 $
12,070 $
909
2,178
827
805
16,789 $
10,811 $
971
32
11,814 $
10,843 $
968
(6)
9
—
11,814 $
56,435
10,609
67,044
41,609
25,435
67,044
48,150
18,439
455
67,044
48,605
6,760
6,108
4,253
1,318
67,044
(a)
International sales include FMS contracted through the U.S. Government, direct commercial sales with international governments and
commercial and other sales to international customers.
Our Aeronautics business segment includes our largest program, the F-35 Lightning II Joint Strike Fighter, an international
multi-role, multi-variant, stealth fighter aircraft. Net sales for the F-35 program represented approximately 26% of our
consolidated net sales during 2023 and 27% during both 2022 and 2021.
Capital Expenditures and PP&E Depreciation and Software Amortization
2023
2022
2021
Capital expenditures
Aeronautics
Missiles and Fire Control
Rotary and Mission Systems
Space
Space
Total business segment capital expenditures
Corporate activities
Corporate activities
Total capital expenditures
Total capital expenditures
PP&E depreciation and software amortization
Aeronautics
Missiles and Fire Control
Rotary and Mission Systems
Space
Space
Total business segment depreciation and amortization
Corporate activities (a)
Total depreciation and amortization
(a)
Includes amortization of purchased intangibles.
74
$
535 $
252
220
455
1,462
229
477
304
279
305
1,365
157
$ 1,691 $ 1,670 $ 1,522
461 $
253
266
391
1,371
299
$
416 $
175
220
221
1,032
398
348
153
250
205
956
408
$ 1,430 $ 1,404 $ 1,364
383 $
160
245
201
989
415
Assets
Total assets for each of our business segments were as follows (in millions):
Assets
Aeronautics
Missiles and Fire Control
Rotary and Mission Systems
Space
Total business segment assets
Corporate assets (a)
Total assets
2023
2022
$ 13,167 $ 12,055
5,788
17,988
5,703
17,521
6,560
42,951
9,505
6,351
42,182
10,698
$ 52,456 $ 52,880
(a) Corporate assets primarily include cash and cash equivalents, deferred income taxes, assets for the portion of environmental costs that
are probable of future recovery, property, plant and equipment used in our corporate operations, assets held in a trust for deferred
compensation plans, and other marketable investments.
Note 4 – Receivables, net, Contract Assets and Contract Liabilities
Receivables, net, contract assets and contract liabilities were as follows (in millions):
Receivables, net
Contract assets
Contract liabilities
2023
2022
$ 2,132 $ 2,505
12,318
13,183
8,488
9,190
Receivables, net consist of approximately $1.4 billion from the U.S. Government and $749 million from other governments
and commercial customers as of December 31, 2023. Substantially all accounts receivable at December 31, 2023 are expected
to be collected in 2024. We do not believe we have significant exposure to credit risk as the majority of our accounts receivable
are due from the U.S. Government either as the ultimate customer or in connection with foreign military sales.
Contract assets are net of progress payments and performance based payments from our customers as well as advance
payments from non-U.S. government customers totaling approximately $50.5 billion and $47.0 billion as of December 31, 2023
and 2022. Contract assets increased $865 million during 2023, primarily due to the recognition of revenue related to the
satisfaction or partial satisfaction of performance obligations during 2023 for which we have not yet billed our customers
(primarily on the F-35 program at Aeronautics). There were no significant credit or impairment losses related to our contract
assets during 2023 and 2022. We expect to bill our customers for the majority of the December 31, 2023 contract assets during
2024.
Contract liabilities increased $702 million during 2023, primarily due to payments received in excess of revenue
recognized on these performance obligations. During 2023, we recognized $5.1 billion of our contract liabilities at
December 31, 2022 as revenue. During 2022, we recognized $4.8 billion of our contract liabilities at December 31, 2021 as
revenue. During 2021, we recognized $4.5 billion of our contract liabilities at December 31, 2020 as revenue.
Note 5 – Inventories
Inventories consisted of the following (in millions):
Materials, spares and supplies
Work-in-process
Finished goods
Total inventories
$
2023
606 $
2022
599
2,297
192
$ 3,132 $ 3,088
2,338
188
Costs incurred to fulfill a contract in advance of the contract being awarded are included in inventories as work-in-process
if we determine that those costs relate directly to a contract or to an anticipated contract that we can specifically identify and
determine that contract award is probable, the costs generate or enhance resources that will be used in satisfying performance
obligations, and the costs are recoverable (referred to as pre-contract costs). These advanced procurement costs are generally
incurred in order to enhance our ability to achieve schedule and certain customer milestones. Pre-contract costs that are initially
75
capitalized in inventory are generally recognized as cost of sales consistent with the transfer of products and services to the
customer upon the receipt of the anticipated contract. All other pre-contract costs, including start-up costs, are expensed as
incurred. As of December 31, 2023 and 2022, $989 million and $791 million of pre-contract costs were included in inventories.
The increase in pre-contract costs as of December 31, 2023 is primarily driven by our Aeronautics business segment (primarily
classified contracts).
Note 6 – Property, Plant and Equipment, net
Property, plant and equipment, net consisted of the following (in millions):
Land
Buildings
Machinery and equipment
Construction in progress
Total property, plant and equipment
Less: accumulated depreciation
Total property, plant and equipment, net
2023
144 $
9,049
9,908
2,081
21,182
(12,812)
8,370 $
2022
147
8,555
9,400
2,036
20,138
(12,163)
7,975
$
$
Depreciation expense related to plant and equipment was $920 million in 2023, $903 million in 2022 and $904 million in
2021.
Note 7 – Goodwill and Acquired Intangibles
Changes in the carrying amount of goodwill by business segment were as follows (in millions):
Balance at December 31, 2021
Acquisitions
Other
Balance at December 31, 2022
Other
Balance at December 31, 2023
$
Aeronautics
$
MFC
RMS
Space
Total
2,090 $
—
(7)
2,083
3
2,086 $
6,759 $
3
(36)
6,726
15
6,741 $
1,777 $
—
(2)
1,775
1
1,776 $
10,813
3
(36)
10,780
19
10,799
187 $
—
9
196
—
196 $
The gross carrying amounts and accumulated amortization of our acquired intangible assets consisted of the following
(useful life in years, $ in millions):
2023
2022
Estimated
Useful
Lives
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
9 - 20
4 - 10
3 - 10
$
3,186 $
94
72
3,352
$
(1,897) $
(84)
(46)
(2,027)
1,289
10
26
1,325
3,186 $
94
72
3,352
(1,664) $
(78)
(38)
(1,780)
1,522
16
34
1,572
887
4,239 $
$
—
(2,027) $
887
2,212
$
887
4,239 $
—
(1,780) $
887
2,459
Finite-Lived:
Customer programs
Customer relationships
Other
Total finite-lived intangibles
Indefinite-Lived:
Trademark
Total acquired intangibles
Acquired finite-lived intangible assets are amortized to expense primarily on a straight-line basis over their estimated
useful lives.
Amortization expense for acquired finite-lived intangible assets was $247 million, $248 million and $285 million in 2023,
2022 and 2021. Estimated future amortization expense is as follows: $244 million in 2024; $221 million in 2025; $154 million
in 2026; $153 million in 2027; and $148 million in 2028.
76
Note 8 – Leases
We generally enter into operating lease agreements for facilities, land and equipment. Our ROU operating lease assets were
$1.1 billion at December 31, 2023. Operating lease liabilities were $1.2 billion, of which $862 million were classified as
noncurrent, at December 31, 2023. New ROU operating lease assets and liabilities entered into during 2023 were $170 million.
The weighted average remaining lease term and discount rate for our operating leases were approximately 7 years and 2.9% at
December 31, 2023.
We recognized operating lease expense of $273 million in 2023 and $275 million in both 2022 and 2021. In addition, we
made cash payments of $267 million for operating leases during 2023, which are included in cash flows from operating
activities in our consolidated statement of cash flows.
Future minimum lease commitments at December 31, 2023 were as follows (in millions):
2024
339
2025
2026
2027
2028
Thereafter
$
223
$
172
$
136
$
109
$
327
Total
Operating leases
$ 1,306
$
Less: imputed interest
129
Total
$ 1,177
Note 9 – Income Taxes
Income Tax Provisions
Federal and foreign income tax expense for continuing operations consisted of the following (in millions):
2023
2022
2021
Federal income tax expense (benefit):
Current
Deferred
Total federal income tax expense
Foreign income tax expense (benefit):
Current
Deferred
Total foreign income tax expense
Total federal and foreign income tax expense
$ 1,574 $ 1,618 $ 1,325
(194)
1,131
(503)
1,071
(776)
842
102
5
107
$ 1,178 $
87
93
19
11
104
106
948 $ 1,235
Our total net state income tax expense was $115 million for 2023, $124 million for 2022, and $195 million for 2021. State
income taxes are allowable costs in establishing prices for the products and services we sell to the U.S. Government. Therefore,
state income tax expenses are included in our cost of sales, as general and administrative costs. As a result, the impact of certain
transactions on our operating profit and of other matters presented in these consolidated financial statements is disclosed net of
state income taxes.
77
A reconciliation of the U.S. federal statutory income tax expense to actual income tax expense for continuing operations is
as follows (in millions):
Income tax expense at the U.S. federal statutory tax rate
Research and development tax credit
Foreign derived intangible income deduction
Tax deductible dividends
Excess tax benefits for stock-based payment awards
Other, net
Income tax expense
2023
2022
2021
Amount
Rate
Amount
Rate
Amount
Rate
$ 1,701
(227)
(185)
(69)
(25)
(17)
$ 1,178
21.0 % $ 1,403
(178)
(2.8)
(176)
(2.3)
(67)
(0.9)
(42)
(0.3)
8
(0.2)
948
14.5 % $
21.0 % $ 1,585
(118)
(2.7)
(170)
(2.6)
(65)
(1.0)
(28)
(0.6)
0.1
31
14.2 % $ 1,235
21.0 %
(1.6)
(2.3)
(0.9)
(0.4)
0.6
16.4 %
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.
Uncertain Tax Positions
The change in unrecognized tax benefits were as follows (in millions):
Balance at January 1
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements with tax authorities
Other, net
Balance at December 31
2023
$ 1,622 $
2022
69 $
50
32
(1,526)
(33)
1
1,572
5
(2)
(23)
1
$
146 $ 1,622 $
2021
50
23
30
(19)
(14)
(1)
69
As of December 31, 2022, our liabilities associated with uncertain tax positions were $1.6 billion. For the year ended
December 31, 2023, our liabilities associated with uncertain tax positions decreased to $146 million with a corresponding
decrease to net deferred tax assets primarily resulting from our analysis of IRS Notice 2023-63 released on September 8, 2023
confirming that certain expenditures incurred in the performance of cost-type contracts are not subject to capitalization. The
reduction in uncertain tax positions had an immaterial impact to our effective tax rate. It is reasonably possible that within the
next twelve months, our liabilities associated with uncertain tax positions may increase by an immaterial amount.
This uncertain tax position will have an immaterial impact to our effective tax rate if recognized.
We recognize accrued interest and penalties related to unrecognized tax benefits as part of our income tax expense. As of
December 31, 2023 and 2022, our accrued interest and penalties related to unrecognized tax benefits were not material.
78
Deferred Income Taxes
The primary components of our federal and foreign deferred income tax assets and liabilities at December 31 were as
follows (in millions):
Deferred tax assets related to:
Pensions
Accrued compensation and benefits
Contract accounting methods
Research and development expenditures
Foreign company operating losses and credits
Other (a)
Valuation allowance
Deferred tax assets, net
Deferred tax liabilities related to:
Goodwill and intangible assets
Property, plant and equipment
Other (a)
Deferred tax liabilities
Net deferred tax assets
(a)
Includes deferred tax assets and liabilities related to lease liability and ROU asset.
2023
2022
1,485 $
731
508
1,251
19
487
(32)
4,449
494
415
597
1,506
2,943 $
1,340
718
510
2,268
20
471
(31)
5,296
449
503
605
1,557
3,739
$
$
We and our subsidiaries file federal income tax returns in the U.S. and income tax returns in various foreign jurisdictions.
With few exceptions, the statute of limitations for these jurisdictions is no longer open for audit or examination for the years
before 2016 with respect to various foreign jurisdictions and before 2018 for federal income taxes in the U.S.
We withdrew from the IRS Compliance Assurance Process (CAP) program in 2022 starting with our 2021 tax return.
Examinations of the years 2018 to 2020 remain under IRS review. We are also subject to taxation in various states and foreign
jurisdictions including Australia, Canada, India, Italy, Japan, Poland, and the United Kingdom. We are under, or may be subject
to, audit or examination and additional assessments by the relevant authorities.
Our federal and foreign income tax payments, net of refunds, were $1.8 billion in 2023, $1.6 billion in 2022 and
$1.4 billion in 2021.
79
Note 10 – Debt
Our total debt consisted of the following (in millions):
Notes
4.95% due 2025
3.55% due 2026
5.10% due 2027
4.45% due 2028
1.85% due 2030
3.90% due 2032
5.25% due 2033
4.75% due 2034
3.60% due 2035
4.50% and 6.15% due 2036
4.07% due 2042
3.80% due 2045
4.70% due 2046
2.80% due 2050
4.09% due 2052
4.15% due 2053
5.70% due 2054
5.20% due 2055
4.30% due 2062
5.90% due 2063
Other notes with rates from 4.85% to 8.50%, due 2024 to 2041
Total debt
Less: unamortized discounts and issuance costs
Total debt, net
Less: current portion
Long-term debt, net
Revolving Credit Facility
2023
2022
$
500 $
1,000
750
500
400
800
1,000
850
500
1,054
1,336
1,000
1,326
750
1,578
850
1,000
650
650
750
1,479
18,723
500
1,000
750
—
400
800
1,000
—
500
1,054
1,336
1,000
1,326
750
1,578
850
1,000
—
650
750
1,598
16,842
(1,295)
15,547
(118)
$ 17,291 $ 15,429
17,459
(1,264)
(168)
On August 24, 2022, we entered into a new Revolving Credit Agreement (the “Revolving Credit Agreement”) with
various banks. The Revolving Credit Agreement consists of a $3.0 billion five-year unsecured revolving credit facility, with the
option to increase the commitments under the credit facility by an additional amount of up to $500 million (for an aggregate
amount of up to $3.5 billion), subject to the agreement of one or more new or existing lenders to provide such additional
amounts and certain other customary conditions. Effective August 24, 2023, we extended the expiration date of the Revolving
Credit Agreement from August 24, 2027 to August 24, 2028. The Revolving Credit Agreement is available for any of our
lawful corporate purposes, including supporting commercial paper borrowings. Borrowings under the Revolving Credit
Agreement are unsecured and bear interest at rates set forth in the Revolving Credit Agreement. The Revolving Credit
Agreement contains customary representations, warranties and covenants, including covenants restricting ours and certain of
our subsidiaries’ ability to encumber assets and our ability to merge or consolidate with another entity. The Revolving Credit
Agreement replaces our revolving credit agreement (the “Former Credit Agreement”), which had been scheduled to mature on
August 24, 2026. The Former Credit Agreement, which had a total capacity of $3.0 billion and was undrawn, was terminated
effective August 24, 2022. There were no borrowings under the Revolving Credit Agreement or the Former Credit Agreement
at December 31, 2023 and 2022. As of December 31, 2023 and 2022, we were in compliance with all covenants contained in
the Revolving Credit Agreement and Former Credit Agreement, as well as in our debt agreements.
Commercial Paper
We have agreements in place with financial institutions to provide for the issuance of commercial paper. The outstanding
balance of commercial paper can fluctuate daily and the amount outstanding during the period may be greater or less than the
80
amount reported at the end of the period. There were no commercial paper borrowings outstanding as of December 31, 2023.
We may, as conditions warrant, issue commercial paper backed by our revolving credit agreement to manage the timing of cash
flows.
Long Term Debt
On May 25, 2023, we issued a total of $2.0 billion of senior unsecured notes, consisting of $500 million aggregate
principal amount of 4.45% Notes due May 15, 2028 (the “2028 Notes”), $850 million aggregate principal amount of 4.75%
Notes due February 15, 2034 (the “2034 Notes”) and $650 million aggregate principal amount of 5.20% Notes due February 15,
2055 (the “2055 Notes” and, together with the 2028 Notes and 2034 Notes, the “Notes”) in a registered public offering. Net
proceeds of $1,975 million were received from the offering after deducting pricing discounts and debt issuance costs, which are
being amortized and recorded as interest expense over the term of the Notes. We will pay interest on the 2028 Notes semi-
annually in arrears on May 15 and November 15 with the first payment to be made on November 15, 2023. Additionally, we
will pay interest on the 2034 Notes and 2055 Notes on February 15 and August 15 of each year with the first payment made on
August 15, 2023. We may, at our option, redeem the Notes of any series in whole or in part at any time and from time to time at
a redemption price equal to the greater of 100% of the principal amount of the Notes to be redeemed or an applicable make-
whole amount, plus accrued and unpaid interest to the date of redemption. The Notes rank equally in right of payment with all
of our existing unsecured and unsubordinated indebtedness.
On October 24, 2022, we issued a total of $4.0 billion of senior unsecured notes, consisting of $500 million aggregate
principal amount of 4.95% Notes due 2025 (the “2025 Notes”), $750 million aggregate principal amount of 5.10% Notes due
2027 (the “2027 Notes”), $1.0 billion aggregate principal amount of 5.25% Notes due 2033 (the “2033 Notes”), $1.0 billion
aggregate principal amount of 5.70% Notes due 2054 (the “2054 Notes”) and $750 million aggregate principal amount of
5.90% Notes due 2063 (the “2063 Notes” and, together with the 2025 Notes, the 2027 Notes, the 2033 Notes and the 2054
Notes, the “October 2022 Notes”) in a registered public offering. We will pay interest on the 2025 Notes semi-annually in
arrears on April 15 and October 15 of each year with the first payment made on April 15, 2023. We will pay interest on the
2033 Notes semi-annually in arrears on January 15 and July 15 of each year with the first payment made on January 15, 2023.
We will pay interest on each of 2027 Notes, 2054 Notes and 2063 Notes semi-annually in arrears on May 15 and November 15
of each year with the first payment made on May 15, 2023. We may, at our option, redeem the October 2022 Notes of any
series, in whole or in part, at any time at the redemption prices equal to the greater of 100% of the principal amount of the
October 2022 Notes to be redeemed or an applicable “make-whole” amount, plus accrued and unpaid interest to the date of
redemption. We used the net proceeds from this offering to enter into an accelerated share repurchase (ASR) agreement to
repurchase $4.0 billion of our common stock.
On May 5, 2022, we issued a total of $2.3 billion of senior unsecured notes, consisting of $800 million aggregate principal
amount of 3.90% Notes due June 15, 2032 (the “2032 Notes”), $850 million aggregate principal amount of 4.15% Notes due
June 15, 2053 (the “2053 Notes”) and $650 million aggregate principal amount of 4.30% Notes due June 15, 2062 (the “2062
Notes” and, together with the 2032 Notes and 2053 Notes, the “May 2022 Notes”) in a registered public offering. Net proceeds
received from the offering were after deducting pricing discounts and debt issuance costs, which are being amortized and
recorded as interest expense over the term of the May 2022 Notes. We will pay interest on the May 2022 Notes semi-annually
in arrears on June 15 and December 15 of each year with the first payment made on June 15, 2022. We may, at our option,
redeem the May 2022 Notes of any series, in whole or in part, at any time and from time to time, at a redemption price equal to
the greater of 100% of the principal amount of the May 2022 Notes to be redeemed or an applicable make-whole amount, plus
accrued and unpaid interest to the date of redemption.
On May 11, 2022, we used the net proceeds from the May 2022 Notes to redeem all of the outstanding $500 million in
aggregate principal amount of our 3.10% Notes due 2023, $750 million in aggregate principal amount of our 2.90% Notes due
2025, and the remaining balance of the net proceeds to redeem $1.0 billion of our outstanding $2.0 billion in aggregate
principal amount of our 3.55% Notes due 2026 at their redemption price. We paid make-whole premiums of $13.9 million in
connection with the early extinguishments of debt. We incurred losses of $34 million ($26 million, or $0.10 per share, after-tax)
on these transactions related to early extinguishments of debt, additional interest expense and other related charges, which was
recorded in other non-operating (expense) income, net in our consolidated statements of earnings.
We made interest payments of approximately $832 million, $573 million and $543 million during the years ended
December 31, 2023, 2022 and 2021.
81
Note 11 – Postretirement Benefit Plans
Plan Descriptions
Many of our employees and retirees participate in various postretirement benefit plans including defined benefit pension
plans, retiree medical and life insurance plans, defined contribution retirement savings plans, and other postemployment plans.
Substantially all of our postretirement benefit obligations relate to U.S. based defined benefit pension plans and retiree medical
and life insurance plans. The majority of our U.S. defined benefit pension plans provide for benefits within limits imposed by
federal tax law (referred to as qualified plans). However, certain of our U.S. defined benefit pension plans provide for benefits
in excess of qualified plan limits imposed by federal tax law (referred to as nonqualified plans).
Salaried employees hired after December 31, 2005 are not eligible to participate in our qualified defined benefit pension
plans, but are eligible to participate in a qualified defined contribution plan and other retirement savings plans for which they
may qualify. They also have the ability to participate in our retiree medical plans, but we do not subsidize the cost of their
participation in those plans as we do with employees hired before January 1, 2006. Over the last few years, we have negotiated
similar changes with various labor organizations such that new union represented employees do not participate in our defined
benefit pension plans. Our defined benefit pension plans for salaried employees were fully frozen effective January 1, 2020, at
which time such employees no longer earn additional benefits under the defined benefit pension plans and were transitioned to
a defined contribution retirement savings plan.
We continue to take actions to mitigate the effect of our defined benefit pension plans on our financial results by reducing
the volatility and size of our net pension obligations. During the fourth quarter of 2023, a voluntary offering was made to
certain former employees who had not yet commenced receiving their vested benefit payments. Total settlement payments of
$414 million for approximately 6,500 participants were made from the defined benefit pension trust with a similar
corresponding reduction in benefit obligation. During the second quarter of 2022, we purchased group annuity contracts to
transfer $4.3 billion of gross defined benefit pension obligations and related plan assets to an insurance company for
approximately 13,600 U.S. retirees and beneficiaries. In connection with this transaction, we recognized a noncash, non-
operating pension settlement charge of $1.5 billion for the affected plans in the quarter ended June 26, 2022, which represents
the accelerated recognition of actuarial losses that were included in the accumulated other comprehensive loss (AOCL) account
within stockholders’ equity. Similarly, during the third quarter of 2021, we purchased group annuity contracts to transfer
$4.9 billion of gross defined benefit pension obligations and related plan assets to an insurance company for approximately
18,000 U.S. retirees and beneficiaries, and in connection recognized a noncash pension settlement charge of $1.7 billion.
Qualified Defined Benefit Pension Plans and Retiree Medical and Life Insurance Plans
FAS Income (Expense)
The pretax FAS income (expense) related to our qualified defined benefit pension plans and retiree medical and life
insurance plans included the following (in millions):
Operating:
Service cost
Non-operating:
Interest cost
Expected return on plan assets
Recognized net actuarial (losses) gains
Amortization of prior service credits (costs)
Settlement charge
Qualified Defined
Benefit Pension Plans
2023
2022
2021
Retiree Medical and
Life Insurance Plans
2023
2022
2021
$
(65) $
(87) $
(106)
$
(5) $
(9) $
(13)
(1,459)
1,722
(168)
348
—
(1,289)
1,854
(425)
359
(1,470)
(1,220)
2,146
(902)
349
(1,665)
(68)
103
31
(10)
—
(49)
136
46
(27)
—
(53)
141
—
(37)
—
51
38
Non-service FAS income (expense)
Total FAS income (expense)
443
(1,292)
(971)
378 $ (1,058) $ (1,398)
$
$
56
51 $
106
97 $
82
We record the service cost component of FAS income (expense) for our qualified defined benefit pension plans and retiree
medical and life insurance plans in the cost of sales accounts; the non-service components of our FAS income (expense) for our
qualified defined benefit pension plans in the non-service FAS pension income (expense) account; and the non-service
components of our FAS income (expense) for our retiree medical and life insurance plans as part of the other non-operating
income (expense), net account on our consolidated statements of earnings.
Funded Status
The following table provides a reconciliation of benefit obligations, plan assets and net (unfunded) funded status of our
qualified defined benefit pension plans and our retiree medical and life insurance plans (in millions):
Change in benefit obligation
Beginning balance (a)
Service cost
Interest cost
Actuarial losses (gains) (b)
Settlements (c)
Plan amendments
Benefits paid
Medicare Part D subsidy
Participants’ contributions
Ending balance (a)
Change in plan assets
Beginning balance at fair value
Actual return on plan assets (d)
Settlements (c)
Benefits paid
Company contributions
Medicare Part D subsidy
Participants’ contributions
Ending balance at fair value
(Unfunded) funded status of the plans
Qualified Defined
Benefit Pension Plans
2022
2023
Retiree Medical and
Life Insurance Plans
2022
2023
$ 28,698
65
1,459
731
(414)
6
(1,586)
—
—
$ 28,959
$ 23,228
1,572
(414)
(1,586)
—
—
—
$ 22,800
$ (6,159)
$ 43,447
87
1,289
(10,270)
(4,309)
186
(1,732)
—
—
$ 28,698
$ 35,192
(5,923)
(4,309)
(1,732)
—
—
—
$ 23,228
$ (5,470)
$ 1,359
5
68
27
—
1
(192)
1
59
$ 1,328
$ 1,656
190
—
(192)
1
1
59
$ 1,715
387
$
$ 1,839
9
49
(396)
—
1
(207)
3
61
$ 1,359
$ 2,169
(381)
—
(207)
11
3
61
$ 1,656
297
$
(a) Benefit obligation balances represent the projected benefit obligation for our qualified defined benefit pension plans, which is
approximately equal to accumulated benefit obligation, and accumulated benefit obligation for our retiree medical and life insurance
plans.
(b) Actuarial losses for our qualified defined benefit pension plans in 2023 primarily reflect a decrease in the discount rate from 5.25% at
December 31, 2022 to 5.00% at December 31, 2023, which increased benefit obligations by approximately $765 million. Actuarial losses
for our retiree medical and life insurance plans in 2023 reflect a decrease in the discount rate from 5.25% at December 31, 2022 to 5.00%
at December 31, 2023. Actuarial gains for our qualified defined benefit pension plans in 2022 primarily reflect an increase in the
discount rate from 2.875% at December 31, 2021 to 5.25% at December 31, 2022, which decreased benefit obligations by $10.2 billion.
Actuarial gains for our retiree medical and life insurance plans in 2022 reflect an increase in the discount rate from 2.750% at December
31, 2021 to 5.25% at December 31, 2022, which decreased benefit obligations by $335 million.
(c) Qualified defined benefit pension plans settlements in 2023 include $414 million in the form of lump-sum settlement payments to
former employees who had not commenced receiving their vested benefit payments. The settlement payments had no impact on year
2023 FAS pension income. Qualified defined benefit pension plan settlements in 2022 represent the transfer of gross defined benefit
pension obligations and related plan assets to insurance companies pursuant to group annuity contracts purchased in the second quarter
of 2022 as described above.
(d) Actual return on plan assets for our qualified defined benefit pension plans was approximately 7% in 2023 and (18)% in 2022.
We are required to recognize the net funded status of each postretirement benefit plan on a standalone basis as either an
asset or a liability on our consolidated balance sheet. The funded status is measured as the difference between the fair value of
each plan’s assets and the benefit obligation. Each year we measure the fair value of each plan’s assets and benefit obligation on
December 31, consistent with our fiscal year end. The fair value of each plan’s benefit obligation reflects assumptions in effect
83
as of the measurement date as described below. For certain of our qualified defined benefit pension plans and retiree medical
and life insurance plans the plan assets may exceed the benefit obligation, for which we recognize the net amount as an asset on
our consolidated balance sheet. Conversely, for most of our qualified defined benefit pension plans the benefit obligation
exceeds plan assets, for which we recognize the net amount as a liability on our consolidated balance sheet.
The following table provides amounts recognized on our consolidated balance sheets related to our qualified defined
benefit pension plans and our retiree medical and life insurance plans (in millions):
Other noncurrent assets
Accrued pension liabilities
Net (unfunded) funded status of the plans
Qualified Defined
Benefit Pension Plans
2022
2
(5,472)
$ (5,470)
2023
3
(6,162)
$ (6,159)
$
$
Retiree Medical and
Life Insurance Plans
2022
297
—
297
2023
387
—
387
$
$
$
$
Differences between the actual return and expected return on plan assets during the year, and changes in the benefit
obligation for our qualified defined benefit pension plans and retiree medical and life insurance plans due to changes in the
annual valuation assumptions, generate actuarial gains or losses. Additionally, the benefit obligation for our qualified defined
benefit pension plans and retiree medical and life insurance plans may increase or decrease as a result of plan amendments that
affect the benefits to plan participants related to service for periods prior to the effective date of the amendment, which
generates prior service costs or credits. Actuarial gains or losses, and prior service costs or credits, are initially deferred in
accumulated other comprehensive loss and subsequently amortized for each plan into income or (expense) on a straight-line
basis either over the average remaining life expectancy of plan participants or over the average remaining service period of plan
participants, subject to certain thresholds.
The following table provides the amount of actuarial gains or losses, and prior service costs or credits, recognized in
accumulated other comprehensive loss related to qualified defined benefit pension plans and retiree medical and life insurance
plans at December 31 (in millions):
Accumulated other comprehensive (loss) pre-tax related to:
Net actuarial (losses) gains
Prior service (costs) credits
Total
Estimated tax
Net amount recognized in accumulated other comprehensive (loss)
Qualified Defined
Benefit Pension Plans
2022
2023
Retiree Medical and
Life Insurance Plans
2022
2023
$ (10,999)
(15)
$ (11,014)
2,339
$ (8,675)
$ (10,287)
339
$ (9,948)
2,117
$ (7,831)
$
$
$
416
(2)
414
(87)
327
$
$
$
387
(10)
377
(79)
298
84
The following table provides the changes recognized in accumulated other comprehensive loss, net of tax, for actuarial
gains or losses and prior service costs or credits due to differences between the actual return and expected return on plan assets
and changes in the fair value of the benefit obligation recognized in connection with our annual remeasurement and the
amortization during the year for our qualified defined benefit pension plans, retiree medical and life insurance plans, and certain
other plans (in millions):
Incurred but Not Yet
Recognized in
FAS Expense
Recognition of
Previously
Deferred Amounts
2023
2022
2021
2023
2022
2021
Actuarial gains and (losses)
Qualified defined benefit pension plans
Retiree medical and life insurance plans
Other plans
Net prior service credit and (cost)
Qualified defined benefit pension plans
Retiree medical and life insurance plans
Other plans
Total
$
$
(698) $ 1,952 $ 2,987
342
76
3,405
(95)
165
2,022
47
(33)
(684)
(5)
(1)
1
(5)
(1)
—
—
(1)
(689) $ 1,873 $ 3,404
(146)
(1)
(2)
(149)
$
$
(133) $ (1,490) $ (2,019)
—
36
(24)
(39)
(2,043)
(1,493)
25
(8)
(116)
274
(8)
(1)
274
283
(29)
(22)
11
7
265
256
268
149 $ (1,225) $ (1,787)
Assumptions Used to Determine Benefit Obligations and FAS (Expense) Income
We measure the fair value of each plan’s assets and benefit obligation on December 31, consistent with our fiscal year end.
Benefit obligations as of the end of each year reflect assumptions in effect as of those dates. Expense is based on assumptions in
effect at the end of the preceding year or from the most recent interim remeasurement. The assumptions used to determine the
benefit obligations at December 31 of each year and FAS expense for each subsequent year were as follows:
Qualified Defined Benefit
Pension Plans
Retiree Medical and
Life Insurance Plans
2023
2022
2023
Weighted average discount rate (a)
Expected long-term rate of return on assets (a)
Health care trend rate assumed for next year
Ultimate health care trend rate
Year ultimate health care trend rate is reached
(a) A pension discount rate of 4.75% was used for the applicable plans following the transaction and remeasurement recognized in the
2021
5.000 % 5.250 % 2.750 %
6.50 %
6.50 % 6.50 %
7.50 %
8.00 % 7.25 %
4.50 %
4.50 % 4.50 %
2021
5.000 % 5.250 % 2.875 %
6.50 %
6.50 % 6.50 %
2034
2022
2038
2034
second quarter of 2022.
The long-term rate of return assumption represents the expected long-term rate of earnings on the funds invested, or to be
invested, to provide for the benefits included in the benefit obligations. That 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 actual investment return for our qualified defined
benefit plans during 2023 was approximately 7.00%.
85
Plan Assets
Our wholly-owned subsidiary, Lockheed Martin Investment Management Company (LMIMCo), has the fiduciary
responsibility for making investment decisions related to the assets of our postretirement benefit plans. LMIMCo’s investment
objectives for the assets of these plans are (1) to minimize the net present value of expected funding contributions; (2) to ensure
there is a high probability that each plan meets or exceeds our actuarial long-term rate of return assumptions; and (3) to
diversify assets to minimize the risk of large losses. The nature and duration of benefit obligations, along with assumptions
concerning asset class returns and return correlations, are considered when determining an appropriate asset allocation to
achieve the investment objectives. Investment policies and strategies governing the assets of the plans are designed to achieve
investment objectives within prudent risk parameters. Risk management practices include the use of external investment
managers; the maintenance of a portfolio diversified by asset class, investment approach and security holdings; and the
maintenance of sufficient liquidity to meet benefit obligations as they come due.
LMIMCo’s investment policies require that asset allocations of postretirement benefit plans be maintained within the
following approximate ranges:
Asset Class
Cash and cash equivalents
Global Equity
Fixed income
Alternative investments:
Private equity funds
Real estate funds
Hedge funds
Commodities
Asset Allocation
Ranges
0-20%
15-65%
10-60%
5-25%
5-15%
0-20%
0-10%
86
The following table presents the fair value of the assets of our qualified defined benefit pension plans and retiree medical
and life insurance plans by asset category and their level within the fair value hierarchy (see “Note 1 – Organization and
Significant Accounting Policies - Investments” for definition of these levels), which we are required to disclose even though
these assets are not separately recorded on our consolidated balance sheet. Certain investments are measured at their Net Asset
Value (NAV) per share because such investments do not have readily determinable fair values and, therefore, are not required
to be categorized in the fair value hierarchy. Assets measured at NAV have been included in the table below to permit
reconciliation of the fair value hierarchy to amounts presented in the funded status table above.
December 31, 2023
December 31, 2022
Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2 Level 3
$ 1,789 $ 1,789 $ — $ —
$ 1,952 $ 1,952 $ — $ —
2,715
1,853
163
—
—
—
2,802
1,875
423
4,510
2,376
1,120
(1,284)
1,949
8
—
260
4,495
2,376
1,120
(1,284)
725
79
22
—
15
—
—
1,161
$ 15,560 $ 6,583 $ 7,700 $ 1,277
63
(in millions)
Investments measured at fair value
Cash and cash equivalents (a)
Equity (a):
U.S. equity securities
International equity securities
Commingled equity funds
Fixed income (a):
Corporate debt securities
U.S. Government securities
U.S. Government-sponsored
enterprise securities
Interest rate swaps, net
Other fixed income investments (b)
Total
Investments measured at NAV
Commingled equity funds
Other fixed income investments
Private equity funds
Real estate funds
Hedge funds
Total investments measured at NAV
Loan, net (c)
(Payables) Receivables, net
Total
—
826
4,951
3,267
847
9,891
(497)
(439)
$ 24,515
3,162
2,298
459
4,491
2,219
3,060
2,245
183
6
17
276
—
—
4,272
2,219
96
36
—
219
—
572
(1,165)
1,980
—
—
1,219
$ 15,968 $ 7,521 $ 6,877 $ 1,570
572
(1,165)
680
—
—
81
—
730
4,703
3,383
689
9,505
(497)
(92)
$ 24,884
(a) Cash and cash equivalents, equity securities and fixed income securities include derivative assets and liabilities with fair values that were
not material as of December 31, 2023 and 2022. LMIMCo’s investment policies restrict the use of derivatives to either establish long or
short exposures for purposes consistent with applicable investment mandate guidelines or to hedge risks to the extent of a plan’s current
exposure to such risks. Most derivative transactions are settled on a daily basis.
Level 3 investments include $1.1 billion at both December 31, 2023 and at December 31, 2022 related to buy-in contracts.
The Lockheed Martin Corporation Master Retirement Trust (MRT) obtained a loan from a third-party financial institution, collateralized
by private equity investments, to invest in fixed income securities.
(b)
(c)
Changes in the fair value of plan assets categorized as Level 3 during 2023 and 2022 were not significant.
Cash equivalents are mostly comprised of short-term money-market instruments and are valued at cost, which
approximates fair value.
U.S. equity securities and international equity securities categorized as Level 1 are traded on active national and
international exchanges and are valued at their closing prices on the last trading day of the year. For U.S. equity securities and
international equity securities not traded on an active exchange, or if the closing price is not available, the trustee obtains
indicative quotes from a pricing vendor, broker or investment manager. These securities are categorized as Level 2 if the
custodian obtains corroborated quotes from a pricing vendor or categorized as Level 3 if the custodian obtains uncorroborated
quotes from a broker or investment manager.
87
Commingled equity funds categorized as Level 1 are traded on active national and international exchanges and are valued
at their closing prices on the last trading day of the year. For commingled equity funds not traded on an active exchange, or if
the closing price is not available, the trustee obtains indicative quotes from a pricing vendor, broker or investment manager.
These securities are categorized as Level 2 if the custodian obtains corroborated quotes from a pricing vendor.
Fixed income investments categorized as Level 1 are publicly exchange-traded. Fixed income investments, including
interest rate swaps, categorized as Level 2 are valued by the trustee using pricing models that use verifiable observable market
data (e.g., interest rates and yield curves observable at commonly quoted intervals and credit spreads), bids provided by brokers
or dealers or quoted prices of securities with similar characteristics. Fixed income investments are categorized as Level 3 when
valuations using observable inputs are unavailable. The trustee typically obtains pricing based on indicative quotes or bid
evaluations from vendors, brokers or the investment manager. In addition, certain other fixed income investments categorized
as Level 3 are valued using a discounted cash flow approach. Significant inputs include projected annuity payments and the
discount rate applied to those payments.
Certain commingled equity and fixed income funds, consisting of underlying equity and fixed income securities,
respectively, are valued using the NAV practical expedient. The NAV valuations are based on the underlying investments and
typically redeemable within 90 days. The NAV is the total value of the fund divided by the number of the fund’s shares
outstanding.
Private equity funds consist of partnerships and similar vehicles. The NAV is based on valuation models of the underlying
securities, which includes unobservable inputs that cannot be corroborated using verifiable observable market data. These funds
typically have terms between eight and 12 years.
Real estate funds consist of partnerships and similar vehicles, for which the NAV is based on valuation models and
periodic appraisals. These funds typically have terms between eight and 10 years.
Hedge funds generally consist of separate accounts and commingled funds, for which the NAV is generally based on the
valuation of the underlying investments. Redemptions in hedge funds generally range from a minimum of one month to several
months.
Contributions and Expected Benefit Payments
The required funding of our qualified defined benefit pension plans is determined in accordance with ERISA, as amended,
and in a manner consistent with CAS and Internal Revenue Code rules. We made no contributions to our qualified defined
benefit pension plans in 2023 and do not plan to make contributions to our qualified defined benefit pension plans in 2024.
The following table presents estimated future benefit payments as of December 31, 2023 (in millions):
Qualified defined benefit pension plans
Retiree medical and life insurance plans
$
2024
1,790 $
130
2025
1,860 $
130
2026
1,920 $
120
2027
1,970 $
120
2028
2,000 $
110
2029– 2033
10,020
500
We maintain various trusts to fund the obligations of our qualified defined benefit pension plans and retiree medical and
life insurance plans. We expect the estimated future benefit payments will be paid using assets in the trusts established for the
plans.
Nonqualified Defined Benefit Pension Plans and Other Postemployment Plans
We sponsor nonqualified defined benefit pension plans to provide benefits in excess of qualified plan limits imposed by
federal tax law. The gross benefit obligation for these plans was $1.0 billion as of both December 31, 2023 and 2022, most of
which was recorded in the other noncurrent liabilities account on our consolidated balance sheet. We have set aside certain
assets totaling $615 million and $595 million as of December 31, 2023 and 2022 in a separate trust that we expect to use to pay
the benefit obligations under our nonqualified defined benefit pension plans, most of which were recorded in the other
noncurrent assets account on our consolidated balance sheet. We record the gross assets on our consolidated balance sheet,
rather than netting such assets with the benefit obligation for our nonqualified defined benefit pension plans, because the assets
held are diversified and legally the assets may be used to settle other obligations or claims (although that is not our intent).
Actuarial losses and unrecognized prior service credits related to our nonqualified defined benefit pension plans that were
recorded in accumulated other comprehensive loss, pretax, totaled $347 million and $331 million at December 31, 2023 and
2022. We recognized pretax pension expense of $64 million in 2023, $81 million in 2022 and $56 million in 2021 related to our
nonqualified defined benefit pension plans. The assumptions used to determine the benefit obligations and FAS expense for our
88
nonqualified defined benefit pension plans are similar to the assumptions for our qualified defined benefit pension plans
described above.
We also sponsor other postemployment and foreign benefit plans, which are accounted for similar to defined benefit
pension plans. The benefit obligations, assets, expense, and amounts recorded in accumulated other comprehensive loss for
other postemployment and foreign benefit plans were not material to our results of operations, financial position or cash flows.
Defined Contribution Retirement Savings Plans
We maintain a number of defined contribution retirement savings plans, most with 401(k) features, that cover substantially
all of our employees. Under the provisions of these plans, employees can make contributions on a before-tax and after-tax basis
to investment funds to save for retirement. For most plans, we make employer contributions to the employee accounts that
comprise of a company non-elective contribution and a matching contribution. Company matching contributions are
automatically invested in an Employee Stock Ownership Plan (ESOP) fund, which primarily invests in shares of our common
stock. Plan participants can transfer from the ESOP fund into any investment option provided by the respective plan. Our
contributions to defined contribution retirement savings plans were $1.2 billion in 2023 and $1.1 billion in both 2022 and 2021.
Our defined contribution retirement savings plans held 26.6 million and 27.4 million shares of our common stock at
December 31, 2023 and 2022.
Note 12 – Stockholders’ Equity
At December 31, 2023 and 2022, our authorized capital was composed of 1.5 billion shares of common stock and
50 million shares of series preferred stock. Of the 242 million and 255 million shares of common stock issued and outstanding
as of December 31, 2023 and December 31, 2022, 240 million and 254 million shares were considered outstanding for
consolidated balance sheet presentation purposes; the remaining shares were held in a separate trust. No shares of preferred
stock were issued and outstanding at December 31, 2023 or 2022.
Repurchases of Common Stock
During 2023, we repurchased 13.4 million shares of our common stock for $6.0 billion pursuant to accelerated share
repurchase (ASR) agreements and open market purchases. We also retired an additional 1.5 million shares received for no
additional consideration in the first quarter of 2023 upon final settlement of an ASR agreement executed in the fourth quarter of
2022. During 2022, we repurchased 18.3 million shares of our common stock for $7.9 billion, including 13.9 million shares of
our common stock repurchased pursuant to ASR agreements and the remainder in open market purchases.
The total remaining authorization for future common share repurchases under our share repurchase program was
$10.0 billion as of December 31, 2023, including a $6.0 billion increase to the program authorized by our Board of Directors in
October 2023. As we repurchase our common shares, we reduce common stock for the $1 of par value of the shares
repurchased, with the excess purchase price over par value recorded as a reduction of additional paid-in capital. If additional
paid-in capital is reduced to zero, we record the remainder of the excess purchase price over par value as a reduction of retained
earnings.
Dividends
We paid dividends totaling $3.1 billion ($12.15 per share) in 2023, $3.0 billion ($11.40 per share) in 2022 and $2.9 billion
($10.60 per share) in 2021. We paid quarterly dividends of $3.00 per share during each of the first three quarters of 2023 and
$3.15 per share during the fourth quarter of 2023; $2.80 per share during each of the first three quarters of 2022 and $3.00 per
share during the fourth quarter of 2022; and $2.60 per share during each of the first three quarters of 2021 and $2.80 per share
during the fourth quarter of 2021.
89
Accumulated Other Comprehensive Loss
Changes in the balance of AOCL, net of taxes, consisted of the following (in millions):
Balance at December 31, 2020
Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCL
Pension settlement charge (b)
Recognition of net actuarial losses
Amortization of net prior service credits
Other
Total reclassified from AOCL
Total other comprehensive income (loss)
Balance at December 31, 2021
Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCL
Pension settlement charge (b)
Recognition of net actuarial losses
Amortization of net prior service credits
Other
Total reclassified from AOCL
Total other comprehensive income (loss)
Balance at December 31, 2022
Other comprehensive (loss) income before reclassifications
Amounts reclassified from AOCL
Recognition of net actuarial losses
Amortization of net prior service credits
Other
Total reclassified from AOCL
Total other comprehensive (loss) income
Postretirement
Benefit Plans (a)
$
(16,155) $
3,404
Other, net
34 $
(85)
1,310
733
(256)
—
1,787
5,191
(10,964)
1,873
1,156
337
(268)
—
1,225
3,098
(7,866)
(689)
116
(265)
—
(149)
(838)
(8,704) $
—
—
—
9
9
(76)
(42)
(159)
—
—
—
44
44
(115)
(157)
23
—
—
35
35
58
(99) $
AOCL
(16,121)
3,319
1,310
733
(256)
9
1,796
5,115
(11,006)
1,714
1,156
337
(268)
44
1,269
2,983
(8,023)
(666)
116
(265)
35
(114)
(780)
(8,803)
Balance at December 31, 2023
$
(a) AOCL related to postretirement benefit plans is shown net of tax benefits of $2.3 billion at December 31, 2023, $2.1 billion at
December 31, 2022 and $3.0 billion at December 31, 2021. These tax benefits include amounts recognized on our income tax returns as
current deductions and deferred income taxes, which will be recognized on our tax returns in future years. See “Note 9 – Income Taxes”
and “Note 11 – Postretirement Benefit Plans” for more information on our income taxes and postretirement benefit plans.
(b) During 2022 and 2021, we recognized a noncash, non-operating pension settlement charge of $1.5 billion ($1.2 billion, or $4.33 per
share, after-tax) and $1.7 billion ($1.3 billion, $4.72 per share, after-tax) related to the accelerated recognition of actuarial losses
included in AOCL for certain defined benefit pension plans that purchased a group annuity contract from an insurance company (see
“Note 11 – Postretirement Benefit Plans”).
90
Note 13 – Stock-Based Compensation
Stock-Based Compensation Plans
Under plans approved by our stockholders, we are authorized to grant key employees stock-based incentive awards,
including options to purchase common stock, stock appreciation rights, RSUs, PSUs or other stock units.
At December 31, 2023, inclusive of the shares reserved for outstanding RSUs and PSUs, we had approximately 8.4 million
shares reserved for issuance under the plans. At December 31, 2023, we had no outstanding options to purchase common stock
and have not issued stock options to employees since 2012. At December 31, 2023, approximately 6.1 million of the shares
reserved for issuance remained available for grant under our stock-based compensation plans. We issue new shares when
restrictions on RSUs and PSUs have been satisfied. The minimum vesting period under our equity compensation plan for
employees generally is one year, although most RSUs granted annually to executives and other key employees vest over three
years. Award agreements may provide for vesting periods between one and three years and in certain circumstances less than
one year, pro-rated vesting periods or vesting following termination of employment in the case of death, disability, divestiture,
retirement, change of control or layoff. The maximum term of any award is 10 years.
During 2023, 2022 and 2021, we recorded noncash stock-based compensation expense totaling $265 million, $238 million
and $227 million, which is included as a component of other unallocated, net on our consolidated statements of earnings. The
net impact to earnings for the respective years was $209 million, $188 million and $179 million.
As of December 31, 2023, we had $223 million of unrecognized compensation cost related to nonvested awards, which is
expected to be recognized over a weighted average period of 1.8 years. We received zero cash from the exercise of stock
options during 2023, $8 million and $28 million during 2022 and 2021. In addition, our income tax liabilities for 2023, 2022
and 2021 were reduced by $78 million, $124 million and $67 million due to recognized tax benefits on stock-based
compensation arrangements.
Restricted Stock Units
The following table summarizes activity related to nonvested RSUs:
Nonvested at December 31, 2022
Granted
Vested
Forfeited
Nonvested at December 31, 2023
Number
of RSUs
(In thousands)
877
563
(472)
(46)
922
Weighted Average
Grant-Date Fair
Value Per Share
371.17
477.05
418.36
421.28
409.17
$
$
In 2023, we granted certain employees approximately 0.6 million RSUs with a weighted average grant-date fair value of
$477.05 per RSU. The grant-date fair value of these RSUs is equal to the closing market price of our common stock on the
grant date less a discount to reflect the delay in payment of dividend-equivalent cash payments that are made only upon vesting,
which occurs at least one year from the grant date and most often occurs three years from the grant date.
Performance Stock Units
In 2023, we granted certain employees PSUs with an aggregate target award of approximately 0.1 million shares of our
common stock. The PSUs generally vest three years from the grant date based on continuous service, with the number of shares
earned (0% to 200% of the target award) depending upon the extent to which we achieve certain financial and market
performance targets measured over the period from January 1, 2023 through December 31, 2025. About half of the PSUs were
valued at a weighted average grant-date fair value of $477.45 per PSU in a manner similar to RSUs mentioned above as the
financial targets are based on our operating results. The remaining PSUs were valued at a weighted-average grant-date fair
value of $509.11 per PSU using a Monte Carlo model as the performance target is related to our total shareholder return relative
to our peer group. We recognize the grant-date fair value of these awards, less estimated forfeitures, as compensation expense
ratably over the vesting period.
91
Note 14 – Legal Proceedings, Commitments and Contingencies
Legal Proceedings
We are a party to litigation and other proceedings that arise in the ordinary course of our business, including matters arising
under provisions relating to the protection of the environment, and are subject to contingencies related to certain businesses we
previously owned. These types of matters could result in fines, penalties, cost reimbursements or contributions, compensatory
or treble damages or non-monetary sanctions or relief. We believe the probability is remote that the outcome of each of these
matters, including the legal proceedings described below, will have a material adverse effect on the company as a whole,
notwithstanding that the unfavorable resolution of any matter may have a material effect on our net earnings and cash flows in
any particular interim reporting period. Among the factors that we consider in this assessment are the nature of existing legal
proceedings and claims, the asserted or possible damages or loss contingency (if estimable), the progress of the case, existing
law and precedent, the opinions or views of legal counsel and other advisers, our experience in similar cases and the experience
of other companies, the facts available to us at the time of assessment and how we intend to respond to the proceeding or claim.
Our assessment of these factors may change over time as individual proceedings or claims progress.
Although we cannot predict the outcome of legal or other proceedings with certainty, where there is at least a reasonable
possibility that a loss may have been incurred, GAAP requires us to disclose an estimate of the reasonably possible loss or
range of loss or make a statement that such an estimate cannot be made. We follow a thorough process in which we seek to
estimate the reasonably possible loss or range of loss, and only if we are unable to make such an estimate do we conclude and
disclose that an estimate cannot be made. Accordingly, unless otherwise indicated below in our discussion of legal proceedings,
a reasonably possible loss or range of loss associated with any individual legal proceeding cannot be estimated.
United States of America, ex rel. Patzer; Cimma v. Sikorsky Aircraft Corp., et al.
As a result of our acquisition of Sikorsky Aircraft Corporation (Sikorsky), we assumed the defense of and any potential
liability for two civil False Claims Act lawsuits pending in the U.S. District Court for the Eastern District of Wisconsin. In
October 2014, the U.S. Government filed a complaint in intervention in the first suit, which was brought by qui tam relator
Mary Patzer, a former Derco Aerospace (Derco) employee. In May 2017, the U.S. Government filed a complaint in intervention
in a second suit, which was brought by qui tam relator Peter Cimma, a former Sikorsky Support Services, Inc. (SSSI) employee.
In November 2017, the Court consolidated the cases into a single action for discovery and trial.
The U.S. Government alleges that Sikorsky and two of its wholly-owned subsidiaries, Derco and SSSI, violated the civil
False Claims Act and the Truth in Negotiations Act in connection with a contract the U.S. Navy awarded to SSSI in June 2006
to support the Navy’s T-34 and T-44 fixed-wing turboprop training aircraft. SSSI subcontracted with Derco, primarily to
procure and manage spare parts for the training aircraft. The U.S. Government contends that SSSI overbilled the Navy on the
contract as the result of Derco’s use of prohibited cost-plus-percentage-of-cost (CPPC) pricing to add profit and overhead costs
as a percentage of the price of the spare parts that Derco procured and then sold to SSSI. The U.S. Government also alleges that
Derco’s claims to SSSI, SSSI’s claims to the Navy, and SSSI’s yearly Certificates of Final Indirect Costs from 2006 through
2012 were false and that SSSI submitted inaccurate cost or pricing data in violation of the Truth in Negotiations Act for a sole-
sourced, follow-on “bridge” contract. The U.S. Government’s complaints assert common law claims for breach of contract and
unjust enrichment. On November 29, 2021, the District Court granted the U.S. Government’s motion for partial summary
judgment, finding that the Derco-SSSI agreement was a CPPC contract. On October 17, 2023, the District Court ruled on the
parties’ cross motions for summary judgment, granting some motions and denying others. Trial on the U.S. Government’s
remaining claims is scheduled for May 6, 2024.
We believe that we have legal and factual defenses to the U.S. Government’s remaining claims. The U.S. Government
seeks damages of approximately $52 million, subject to trebling, plus statutory penalties. Although we continue to evaluate our
liability and exposure, we do not currently believe that it is probable that we will incur a material loss. If, contrary to our
expectations, the U.S. Government prevails on the remaining issues in this matter and proves damages at or near $52 million
and is successful in having such damages trebled, the outcome could have an adverse effect on our results of operations in the
period in which a liability is recognized and on our cash flows for the period in which any damages are paid.
Lockheed Martin v. Metropolitan Transportation Authority
On April 24, 2009, we filed a declaratory judgment action against the New York Metropolitan Transportation Authority
and its Capital Construction Company (collectively, the MTA) asking the U.S. District Court for the Southern District of New
York to find that the MTA is in material breach of our agreement based on the MTA’s failure to provide access to sites where
work must be performed and the customer-furnished equipment necessary to complete the contract. The MTA filed an answer
and counterclaim alleging that we breached the contract and subsequently terminated the contract for alleged default. The
primary damages sought by the MTA are the costs to complete the contract and potential re-procurement costs. While we are
92
unable to estimate the cost of another contractor to complete the contract and the costs of re-procurement, we note that our
contract with the MTA had a total value of $323 million, of which $241 million was paid to us, and that the MTA is seeking
damages of approximately $190 million. We dispute the MTA’s allegations and are defending against them. Additionally,
following an investigation, our sureties on a performance bond related to this matter, who were represented by independent
counsel, concluded that the MTA’s termination of the contract was improper. Finally, our declaratory judgment action was later
amended to include claims for monetary damages against the MTA of approximately $95 million. This matter was taken under
submission by the District Court in December 2014, after a five-week bench trial and the filing of post-trial pleadings by the
parties. We continue to await a decision from the District Court. Although this matter relates to our former Information Systems
& Global Solutions (IS&GS) business, we retained responsibility for the litigation when we divested IS&GS in 2016.
Environmental Matters
We are involved in proceedings and potential proceedings relating to soil, sediment, surface water, and groundwater
contamination, disposal of hazardous substances, and other environmental matters at several of our current or former facilities,
facilities for which we may have contractual responsibility, and at third-party sites where we have been designated as a
potentially responsible party (PRP). A substantial portion of environmental costs will be included in our net sales and cost of
sales in future periods pursuant to U.S. Government regulations. At the time a liability is recorded for future environmental
costs, we record assets for estimated future recovery considered probable through the pricing of products and services to
agencies of the U.S. Government, regardless of the contract form (e.g., cost-reimbursable, fixed-price). We continually evaluate
the recoverability of our assets for the portion of environmental costs that are probable of future recovery by assessing, among
other factors, U.S. Government regulations, our U.S. Government business base and contract mix, and our history of receiving
reimbursement of such costs. We include the portions of those environmental costs expected to be allocated to our non-U.S.
government contracts, or determined not to be recoverable under U.S. Government contracts, in our cost of sales at the time the
liability is established or adjusted.
At December 31, 2023 and 2022, the aggregate amount of liabilities recorded relative to environmental matters was
$680 million and $696 million, most of which are recorded in other noncurrent liabilities on our consolidated balance sheets.
We have recorded assets for the portion of environmental costs that are probable of future recovery totaling $613 million and
$618 million at December 31, 2023 and 2022, most of which are recorded in other noncurrent assets on our consolidated
balance sheets. See “Note 1 – Organization and Significant Accounting Policies” for more information.
Environmental remediation activities usually span many years, which makes estimating liabilities a matter of judgment
because of uncertainties with respect to assessing the extent of the contamination as well as such factors as changing
remediation technologies and changing regulatory environmental standards. We are monitoring or investigating a number of
former and present operating facilities for potential future remediation. We perform quarterly reviews of the status of our
environmental remediation sites and the related liabilities and receivables. Additionally, in our quarterly reviews, we consider
these and other factors in estimating the timing and amount of any future costs that may be required for remediation activities,
and we record a liability when it is probable that a loss has occurred or will occur for a particular site and the loss can be
reasonably estimated. The amount of liability recorded is based on our estimate of the costs to be incurred for remediation for
that site. We do not discount the recorded liabilities, as the amount and timing of future cash payments are not fixed or cannot
be reliably determined. We cannot reasonably determine the extent of our financial exposure in all cases as, although a loss may
be probable or reasonably possible, in some cases it is not possible at this time to estimate the reasonably possible loss or range
of loss. We project costs and recovery of costs over approximately 20 years.
We also pursue claims for recovery of costs incurred or for contribution to site remediation costs against other PRPs,
including the U.S. Government, and are conducting remediation activities under various consent decrees, orders, and
agreements relating to soil, groundwater, sediment, or surface water contamination at certain sites of former or current
operations. Under agreements related to certain sites in California, New York, United States Virgin Islands and Washington, the
U.S. Government and/or a private party reimburses us an amount equal to a percentage, specific to each site, of expenditures for
certain remediation activities in their capacity as PRPs under the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA).
In addition to the proceedings and potential proceedings discussed above, potential new regulations of perchlorate and
hexavalent chromium at the federal and state level could adversely affect us. In particular, the U.S. Environmental Protection
Agency (EPA) is considering whether to regulate hexavalent chromium at the federal level, and as a result of a court decision,
must regulate perchlorate at the federal level. The California State Water Resources Control Board (SWRCB) continues to
reevaluate its existing drinking water standard of 6 parts per billion (ppb) for perchlorate. The California SWRCB has also
proposed to regulate hexavalent chromium at 10 ppb, which we currently do not expect would materially increase our cleanup
costs in California. If substantially lower standards are adopted for perchlorate or for hexavalent chromium, we expect a
material increase in our estimates for environmental liabilities and the related assets for the portion of the increased costs that
93
are probable of future recovery in the pricing of our products and services for the U.S. Government. The amount that would be
allocable to our non-U.S. government contracts or that is determined not to be recoverable under U.S. Government contracts
would be expensed, which may have a material effect on our earnings in any particular interim reporting period.
We also are evaluating the potential impact of existing and contemplated legal requirements addressing a class of
chemicals known generally as per- and polyfluoroalkyl substances (PFAS). PFAS have been used ubiquitously, such as in fire-
fighting foams, manufacturing processes, and stain- and stick-resistant products (e.g., Teflon, stain-resistant fabrics). Because
we have used products and processes over the years containing some of those compounds, they likely exist as contaminants at
many of our environmental remediation sites. Governmental authorities have announced plans, and in some instances have
begun, to regulate certain of these compounds at extremely low concentrations in drinking water, which could lead to increased
cleanup costs at many of our environmental remediation sites.
Letters of Credit, Surety Bonds and Third-Party Guarantees
We have entered into standby letters of credit and surety bonds issued on our behalf by financial institutions, and we have
directly issued guarantees to third parties primarily relating to advances received from customers and the guarantee of future
performance on certain contracts. Letters of credit and surety bonds generally are available for draw down in the event we do
not perform. We had total outstanding letters of credit and surety bonds aggregating $2.9 billion at both December 31, 2023 and
December 31, 2022. Third-party guarantees do not include guarantees issued on behalf of subsidiaries and other consolidated
entities.
Additionally, we may guarantee the contractual performance of third parties such as joint venture partners. At
December 31, 2023 and 2022, third-party guarantees totaled $1.0 billion and $904 million, of which approximately 75% and
71% related to guarantees of contractual performance of joint ventures to which we currently are or previously were a
party. These amounts represent our estimate of the maximum amounts we would expect to incur upon the contractual non-
performance of the joint venture, joint venture partners or divested businesses. Generally, we also have cross-indemnities in
place that may enable us to recover amounts that may be paid on behalf of a joint venture partner. Third-party guarantees do not
include guarantees issued on behalf of subsidiaries and other consolidated entities.
In determining our exposures, we evaluate the reputation, performance on contractual obligations, technical capabilities
and credit quality of our current and former joint venture partners and the transferee under novation agreements all of which
include a guarantee as required by the FAR. At December 31, 2023 and 2022, there were no material amounts recorded in our
financial statements related to third-party guarantees or novation agreements.
Other Contingencies
As a U.S. Government contractor, we are subject to various audits and investigations by the U.S. Government to determine
whether our operations are being conducted in accordance with applicable regulatory requirements. U.S. Government
investigations of us, whether relating to government contracts or conducted for other reasons, could result in administrative,
civil, or criminal liabilities, including repayments, fines or penalties being imposed upon us, suspension, proposed debarment,
debarment from eligibility for future U.S. Government contracting, or suspension of export privileges. Suspension or debarment
could have a material adverse effect on us because of our dependence on contracts with the U.S. Government. U.S. Government
investigations often take years to complete and many result in no adverse action against us. We also provide products and
services to customers outside of the U.S., which are subject to U.S. and foreign laws and regulations and foreign procurement
policies and practices. Our compliance with local regulations or applicable U.S. Government regulations also may be audited or
investigated.
In the normal course of business, we provide warranties to our customers associated with certain product sales. We record
estimated warranty costs in the period in which the related products are delivered. The warranty liability is generally based on
the number of months of warranty coverage remaining for the products delivered and the average historical monthly warranty
payments. Warranty obligations incurred in connection with long-term production contracts are accounted for within the
contract estimates at completion.
94
Note 15 – Fair Value Measurements
Assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following (in millions):
December 31, 2023
Level 2
Level 1
Total
Level 3
Total
December 31, 2022
Level 2
Level 1
Level 3
Assets
Mutual funds
U.S. Government securities
Other securities
Derivatives
Liabilities
Derivatives
119
679
32
200
$ 1,025 $ 1,025 $
—
333
—
— $
119
301
32
— $
—
45
—
897 $
118
660
18
897 $
—
333
—
— $
118
264
18
—
200
—
196
—
196
—
—
63
—
—
Substantially all assets measured at fair value, other than derivatives, represent assets held in a trust to fund certain of our
non-qualified deferred compensation plan and are recorded in other noncurrent assets on our consolidated balance sheets. As of
December 31, 2023 and 2022, the fair value of our assets held in the trust totaled $1.8 billion and $1.6 billion. Net gains on
these securities were $240 million and $205 million in 2023 and 2021 and net losses of $323 million in 2022. Gains and losses
on these investments are included in other unallocated, net within cost of sales on our consolidated statements of earnings in
order to align the classification of changes in the market value of investments held for the plan with changes in the value of the
corresponding plan liabilities.
The fair values of mutual funds and certain other securities are determined by reference to the quoted market price per
unit in active markets multiplied by the number of units held without consideration of transaction costs. The fair values of U.S.
Government and certain other securities are determined using pricing models that use observable inputs (e.g., interest rates and
yield curves observable at commonly quoted intervals), bids provided by brokers or dealers or quoted prices of securities with
similar characteristics. The fair values of derivative instruments, which consist of foreign currency forward contracts, including
embedded derivatives, and interest rate swap contracts, are primarily determined based on the present value of future cash flows
using model-derived valuations that use observable inputs such as interest rates, credit spreads and foreign currency exchange
rates.
We use derivative instruments principally to reduce our exposure to market risks from changes in foreign currency
exchange rates and interest rates. We do not enter into or hold derivative instruments for speculative trading purposes. We
transact business globally and are subject to risks associated with changing foreign currency exchange rates. We enter into
foreign currency hedges such as forward and option contracts that change in value as foreign currency exchange rates change.
Our most significant foreign currency exposures relate to the British pound sterling, the euro, the Canadian dollar, the
Australian dollar, the Norwegian kroner and the Polish zloty. These contracts hedge forecasted foreign currency transactions in
order to minimize fluctuations in our earnings and cash flows associated with changes in foreign currency exchange rates. We
designate foreign currency hedges as cash flow hedges. We also are exposed to the impact of interest rate changes primarily
through our borrowing activities. For fixed rate borrowings, we may use variable interest rate swaps, effectively converting
fixed rate borrowings to variable rate borrowings in order to hedge changes in the fair value of the debt. These swaps are
designated as fair value hedges. For variable rate borrowings, we may use fixed interest rate swaps, effectively converting
variable rate borrowings to fixed rate borrowings in order to minimize the impact of interest rate changes on earnings. These
swaps are designated as cash flow hedges. We also may enter into derivative instruments that are not designated as hedges and
do not qualify for hedge accounting, which are intended to minimize certain economic exposures.
The aggregate notional amount of our outstanding interest rate swaps was $1.3 billion at both December 31, 2023 and
2022. The aggregate notional amount of our outstanding foreign currency hedges at December 31, 2023 and 2022 was
$6.5 billion and $7.3 billion. The fair values of our outstanding interest rate swaps and foreign currency hedges at December 31,
2023 and 2022 were not significant. Derivative instruments did not have a material impact on net earnings and comprehensive
income during the years ended December 31, 2023 and 2022. The impact of derivative instruments on our consolidated
statements of cash flows is included in net cash provided by operating activities. Substantially all of our derivatives are
designated for hedge accounting. See “Note 1 – Organization and Significant Accounting Policies - Derivative financial
instruments.”
We also make investments in early-stage companies that we believe are advancing or developing new technologies
applicable to our business. Investments that have quoted market prices in active markets (Level 1) are recorded at fair value and
reflected in other securities while certain investments are categorized as Level 3 when valuations using observable inputs are
unavailable. See “Note 1 – Organization and Significant Accounting Policies - Investments.”
95
In addition to the financial instruments listed in the table above, we hold other financial instruments, including cash and
cash equivalents, receivables, accounts payable and debt. The carrying amounts for cash and cash equivalents, receivables and
accounts payable approximated their fair values. The estimated fair value of our outstanding debt was $18.5 billion and
$16.0 billion at December 31, 2023 and 2022. The outstanding principal amount of debt, including short-term and long-term
debt, was $18.7 billion and $16.8 billion at December 31, 2023 and 2022, excluding $1.3 billion of unamortized discounts and
issuance costs at both December 31, 2023 and 2022. The estimated fair values of our outstanding debt were determined based
on the present value of future cash flows using model-derived valuations that use observable inputs such as interest rates and
credit spreads (Level 2).
Note 16 – 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 severance 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.
During 2021, we recognized severance charges totaling $36 million ($28 million, or $0.10 per share, after-tax) related to
workforce reductions and facility exit costs within our RMS business segment. These actions were taken to consolidate certain
operations in order to improve the efficiency of RMS’ manufacturing operations and the affordability of its products and
services. Employees terminated as part of these actions will receive lump-sum severance payments upon separation primarily
based on years of service.
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.
96
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We performed an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2023. The
evaluation was performed with the participation of senior management of each business segment and key corporate functions,
under the supervision of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Based on this evaluation, the
CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2023.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our
internal control system is designed to provide reasonable assurance to our management and Board of Directors regarding the
reliability of financial reporting and the preparation of consolidated financial statements for external purposes.
Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of
December 31, 2023. This assessment was based on the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control-Integrated Framework (2013 framework). Based on this assessment, management
concluded that our internal control over financial reporting was effective as of December 31, 2023.
Our independent registered public accounting firm has issued a report on the effectiveness of our internal control over
financial reporting, which is below.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required
by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2023 that
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
97
Report of Independent Registered Public Accounting Firm
Regarding Internal Control Over Financial Reporting
Board of Directors and Stockholders
Lockheed Martin Corporation
Opinion on Internal Control over Financial Reporting
We have audited Lockheed Martin Corporation’s internal control over financial reporting as of December 31, 2023, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Lockheed Martin Corporation (the Corporation)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Corporation as of December 31, 2023 and 2022, the related
consolidated statements of earnings, comprehensive income, equity and cash flows for each of the three years in the period
ended December 31, 2023, and the related notes and our report dated January 23, 2024 expressed an unqualified opinion
thereon.
Basis for Opinion
The Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Corporation’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Tysons, Virginia
January 23, 2024
98
ITEM 9B.
Other Information
None of our directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or adopted or
terminated a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the quarter ended
December 31, 2023.
ITEM 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
ITEM 10.
Directors, Executive Officers and Corporate Governance
PART III
The information concerning directors required by Item 401 of Regulation S-K is included under the section titled “Director
Nominees” in our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal
year to which this report relates (the 2024 Proxy Statement), and that information is incorporated by reference in this Annual
Report on Form 10-K (Form 10-K). Information concerning executive officers required by Item 401 of Regulation S-K is
located under Part I, Item 4(a) of this Form 10-K. The information required by Items 407(d)(4) and (d)(5) of Regulation S-K is
included in the sections titled “Corporate Governance” and “Audit Committee Report” in the 2024 Proxy Statement, and that
information is incorporated by reference in this Form 10-K.
We have had a written code of ethics in place since our formation in 1995. Setting the Standard, our Code of Ethics and
Business Conduct, applies to all our employees, including our principal executive officer, principal financial officer, and
principal accounting officer and controller, and to members of our Board of Directors. A copy of our Code of Ethics and
Business Conduct is available on our investor relations website: www.lockheedmartin.com/investor. Printed copies of our Code
of Ethics and Business Conduct may be obtained, without charge, by contacting Investor Relations, Lockheed Martin
Corporation, 6801 Rockledge Drive, Bethesda, Maryland 20817. We are required to disclose any change to, or waiver from, our
Code of Ethics and Business Conduct for our Chief Executive Officer and senior financial officers. We use our website to
disseminate this disclosure as permitted by applicable SEC rules.
ITEM 11.
Executive Compensation
The information required by Item 402 of Regulation S-K is included in the sections titled “Executive Compensation” and
“Director Compensation” in the 2024 Proxy Statement and that information is incorporated by reference in this Form 10-K. The
information required by Item 407(e)(5) of Regulation S-K is included under the caption “Compensation Committee Report” in
the 2024 Proxy Statement, and that information is incorporated by reference in this Form 10-K.
99
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 related to the security ownership of management and certain beneficial owners is
included in the section titled “Other Information” in the 2024 Proxy Statement, and that information is incorporated by
reference in this Annual Report on Form 10-K.
Equity Compensation Plan Information
The following table provides information about our equity compensation plans that authorize the issuance of shares of
Lockheed Martin common stock to employees and directors. The information is provided as of December 31, 2023.
Plan category
Equity compensation plans approved by
security holders (1)
Equity compensation plans not approved by
security holders (2)
Total
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
2,333,795
483,204
2,816,999
$
$
—
—
—
6,066,491
2,503,225
8,569,716
(1) Column (a) includes, as of December 31, 2023: 1,596,538 shares that have been granted as restricted stock units (RSUs) and 653,580
shares that could be earned pursuant to grants of performance stock units (PSUs) (assuming the maximum number of PSUs are earned
and payable at the end of the three-year performance period) under the Lockheed Martin Corporation 2020 Incentive Performance Award
Plan (2020 IPA Plan) or predecessor plans and 83,677 stock units payable in stock or cash under the Lockheed Martin Corporation
Amended and Restated Directors Equity Plan (Directors Plan) or predecessor plans for non-employee directors. Column (c) includes, as
of December 31, 2023, 5,701,281 shares available for future issuance under the 2020 IPA Plan as options, stock appreciation rights,
restricted stock awards, RSUs or PSUs and 365,210 shares available for future issuance under the Directors Plan as stock options and
stock units. Vested stock units are payable to directors upon their termination of service from our Board, except that directors who have
satisfied the stock ownership guidelines may elect to have payment of awards made after January 1, 2018 (together with any dividend
equivalents thereon) made on the first business day of April following the one-year anniversary of the grant.
(2)
The shares represent annual incentive bonuses and Long-Term Incentive Performance (LTIP) payments earned and voluntarily deferred
by employees. The deferred amounts are payable under the Deferred Management Incentive Compensation Plan (DMICP). Deferred
amounts are credited as phantom stock units at the closing price of our stock on the date the deferral is effective. Amounts equal to our
dividend are credited as stock units at the time we pay a dividend. Following termination of employment, a number of shares of stock
equal to the number of stock units credited to the employee’s DMICP account are distributed to the employee. There is no discount or
value transfer on the stock distributed. Distributions may be made from newly issued shares or shares purchased on the open market.
Historically, all distributions have come from shares held in a separate trust and, therefore, do not further dilute our common shares
outstanding. Because the DMICP shares are outstanding, they should be included in the denominator (and not the numerator) of a
dilution calculation.
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by Item 404 and 407(a) of Regulation S-K is included in the section titled “Corporate
Governance” in the 2024 Proxy Statement, and that information is incorporated by reference in this Form 10-K.
ITEM 14.
Principal Accounting Fees and Services
The information required by this Item 14 is included in the section titled “Audit Matters” in the 2024 Proxy Statement, and
that information is incorporated by reference in this Form 10-K.
100
ITEM 15.
Exhibits and Financial Statement Schedules
List of financial statements filed as part of this Form 10-K
PART IV
The following financial statements of Lockheed Martin Corporation and consolidated subsidiaries are included in Item 8 of
this Annual Report on Form 10-K (Form 10-K) at the page numbers referenced below:
Consolidated Statements of Earnings – Years ended December 31, 2023, 2022 and 2021 .................................................
Consolidated Statements of Comprehensive Income – Years ended December 31, 2023, 2022 and 2021..........................
Consolidated Balance Sheets – At December 31, 2023 and 2022 ........................................................................................
Consolidated Statements of Cash Flows – Years ended December 31, 2023, 2022 and 2021.............................................
Consolidated Statements of Equity – Years ended December 31, 2023, 2022 and 2021 .....................................................
Notes to Consolidated Financial Statements.........................................................................................................................
Page
56
57
58
59
60
61
The report of Lockheed Martin Corporation’s independent registered public accounting firm (PCAOB ID:42) with respect
to the above-referenced financial statements and their report on internal control over financial reporting are included in Item 8
and Item 9A of this Form 10-K at the page numbers referenced below. Their consent appears as Exhibit 23 of this Form 10-K.
Page
53
98
Report of Independent Registered Public Accounting Firm on the Audited Consolidated Financial Statements ...............
Report of Independent Registered Public Accounting Firm Regarding Internal Control Over Financial Reporting ..........
List of financial statement schedules filed as part of this Form 10-K
All schedules have been omitted because they are not applicable, not required or the information has been otherwise
supplied in the consolidated financial statements or notes to consolidated financial statements.
Exhibits
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
Charter of Lockheed Martin Corporation, as amended by Articles of Amendment dated April 23, 2009
(incorporated by reference to Exhibit 3.1 to Lockheed Martin Corporation’s Annual Report on Form 10-K for the
year ended December 31, 2010).
Bylaws of Lockheed Martin Corporation, as amended and restated effective February 22, 2023 (incorporated by
reference to Exhibit 3.1 to Lockheed Martin Corporation’s Current Report on Form 8-K filed with the SEC on
February 23, 2023).
Description of Lockheed Martin Corporation Common Stock (incorporated by reference to Exhibit 4.1 to
Lockheed Martin Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021).
Indenture, dated May 15, 1996, among Lockheed Martin Corporation, Lockheed Martin Tactical Systems, Inc.
and First Trust of Illinois, National Association as Trustee (incorporated by reference to Exhibit 4.1 to Lockheed
Martin Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017).
Indenture, dated as of August 30, 2006, between Lockheed Martin Corporation and The Bank of New York
(incorporated by reference to Exhibit 99.1 to Lockheed Martin Corporation’s Current Report on Form 8-K filed
with the SEC on August 31, 2006).
Indenture, dated as of March 11, 2008, between Lockheed Martin Corporation and The Bank of New York
(incorporated by reference to Exhibit 4.1 to Lockheed Martin Corporation’s Current Report on Form 8-K filed
with the SEC on March 12, 2008).
Indenture, dated as of May 25, 2010, between Lockheed Martin Corporation and U.S. Bank National Association
(incorporated by reference to Exhibit 99.1 to Lockheed Martin Corporation’s Current Report on Form 8-K filed
with the SEC on May 25, 2010).
Indenture, dated as of September 6, 2011, between Lockheed Martin Corporation and U.S. Bank National
Association (incorporated by reference to Exhibit 4.1 to Lockheed Martin Corporation’s Registration Statement
on Form S-3 filed with the SEC on April 24, 2020).
Supplemental Indenture, dated as of April 21, 2022, between Lockheed Martin Corporation and U.S. Bank Trust
Company, National Association, to the Indenture dated September 6, 2011 (incorporated by reference to Exhibit
4.1 to Lockheed Martin Corporation’s Current Report on Form 8-K filed with the SEC on April 21, 2022).
101
4.8
4.9
4.10
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
Indenture, dated as of December 14, 2012, between Lockheed Martin Corporation and U.S. Bank National
Association (incorporated by reference to Exhibit 99.1 to Lockheed Martin Corporation’s Current Report on
Form 8-K filed with the SEC on December 17, 2012).
Indenture dated as of September 7, 2017, between Lockheed Martin Corporation and U.S. Bank National
Association, as trustee (incorporated by reference to Exhibit 99.1 of Lockheed Martin's Current Report on Form
8-K filed with the SEC on September 7, 2012).
Indenture, dated as of April 18, 2023, between Lockheed Martin Corporation and U.S. Bank Trust Company,
National Association, as trustee (incorporated by reference to Exhibit 4.1 to Lockheed Martin Corporation’s
Registration Statement on Form S-3 filed with the SEC on April 18, 2023).
See also Exhibits 3.1 and 3.2.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of instruments defining the rights of certain holders of
long-term debt are not filed. The Corporation will furnish copies thereof to the SEC upon request.
Revolving Credit Agreement dated as of August 24, 2022, among Lockheed Martin Corporation, the lenders
listed therein, and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to
Lockheed Martin Corporation’s Current Report on Form 8-K filed with the SEC on August 24, 2022).
Extension Agreement dated as of August 24, 2023, by and among Lockheed Martin Corporation, the lenders
listed therein, and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to
Lockheed Martin Corporation’s Current Report on Form 8-K filed with the SEC on August 24, 2023).
Non-Employee Director Compensation Summary (incorporated by reference to Exhibit 10.3 to Lockheed Martin
Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 25, 2022).
Lockheed Martin Corporation Directors Deferred Compensation Plan, as amended (incorporated by reference to
Exhibit 10.2 to Lockheed Martin Corporation’s Quarterly Report on Form 10-Q for the quarter ended
September 24, 2023).
Lockheed Martin Corporation Directors Equity Plan, as amended (incorporated by reference to Exhibit 10.1 to
Lockheed Martin Corporation’s Current Report on Form 8-K filed with the SEC on November 2, 2006).
Lockheed Martin Corporation Amended and Restated Directors Equity Plan (incorporated by reference to Exhibit
10.1 to Lockheed Martin Corporation’s Current Report on Form 8-K filed with the SEC on April 26, 2018).
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.34 to Lockheed Martin
Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009).
Lockheed Martin Corporation Supplemental Savings Plan, as amended and restated effective January 1, 2015
(incorporated by reference to Exhibit 10.4 to Lockheed Martin Corporation’s Quarterly Report on Form 10-Q for
the quarter ended March 29, 2015).
Amendment to Lockheed Martin Corporation Supplemental Savings Plan and Lockheed Martin Corporation
Nonqualified Capital Accumulation Program, dated December 18, 2019 (incorporated by reference to Exhibit
10.31 to Lockheed Martin Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019).
Lockheed Martin Corporation Nonqualified Capital Accumulation Plan, as amended and restated generally
effective as of December 18, 2015 (incorporated by reference to Exhibit 10.22 to Lockheed Martin Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2015).
Lockheed Martin Corporation Deferred Management Incentive Compensation Plan, as amended and restated
effective January 1, 2020 (incorporated by reference to Exhibit 10.8 to Lockheed Martin Corporation’s Annual
Report on Form 10-K for the year ended December 31, 2019).
Amendment No.1 to Lockheed Martin Corporation Deferred Management Incentive Compensation Plan, as
amended and restated effective January 1, 2020 (incorporated by reference to Exhibit 10.12 to Lockheed Martin
Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020).
Amendment No. 2 to Lockheed Martin Corporation Deferred Management Incentive Compensation Plan, as
amended and restated effective January 1, 2020 (incorporated by reference to Exhibit 10.8 to Lockheed Martin
Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 27, 2022).
Amendment No. 3 to Lockheed Martin Corporation Deferred Management Incentive Compensation Plan, as
amended and restated generally effective January 1, 2020 (incorporated by reference to Exhibit 10.13 to
Lockheed Martin Corporation's Annual Report on Form 10-K for the year ended December 31, 2022).
Lockheed Martin Corporation Amended and Restated 2021 Management Incentive Compensation Plan
(incorporated by reference to Exhibit 10.5 to Lockheed Martin Corporation’s Quarterly Report on Form 10-Q for
the quarter ended March 26, 2023).
102
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
Lockheed Martin Corporation 2020 Incentive Performance Award Plan (incorporated by reference to Exhibit 10.1
to Lockheed Martin Corporation’s Current Report on Form 8-K filed with the SEC on April 23, 2020).
Form of 2021 Annual Restricted Stock Unit Award Agreement under the Lockheed Martin Corporation 2020
Incentive Performance Award Plan (incorporated by reference to Exhibit 10.1 to Lockheed Martin Corporation’s
Quarterly Report on Form 10-Q for the quarter ended March 28, 2021).
Form of Performance Stock Unit Award Agreement (2021 - 2023 Performance Period) under the Lockheed
Martin Corporation 2020 Incentive Performance Award Plan (incorporated by reference to Exhibit 10.2 to
Lockheed Martin Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 28, 2021).
Form of Long Term Incentive Performance Award Agreement (2021 - 2023 Performance Period) under the
Lockheed Martin Corporation 2020 Incentive Performance Award Plan (incorporated by reference to Exhibit 10.3
to Lockheed Martin Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 28, 2021).
Form of 2022 Annual Restricted Stock Unit Award Agreement under the Lockheed Martin Corporation 2020
Incentive Performance Award Plan (incorporated by reference to Exhibit 10.1 to Lockheed Martin Corporation’s
Quarterly Report on Form 10-Q for the quarter ended March 27, 2022).
Form of Performance Stock Unit Award Agreement (2022 - 2024 Performance Period) under the Lockheed
Martin Corporation 2020 Incentive Performance Award Plan (incorporated by reference to Exhibit 10.2 to
Lockheed Martin Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 27, 2022).
Form of Long Term Incentive Performance Award Agreement (2022 - 2024 Performance Period) under the
Lockheed Martin Corporation 2020 Incentive Performance Award Plan (incorporated by reference to Exhibit 10.3
to Lockheed Martin Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 27, 2022).
Form of 2023 Annual Restricted Stock Unit Award Agreement under the Lockheed Martin Corporation 2020
Incentive Performance Award Plan (incorporated by reference to Exhibit 10.1 to Lockheed Martin Corporation’s
Quarterly Report on Form 10-Q for the quarter ended March 26, 2023).
Form of Performance Stock Unit Award Agreement (2023 - 2025 Performance Period) under the Lockheed
Martin Corporation 2020 Incentive Performance Award Plan (incorporated by reference to Exhibit 10.2 to
Lockheed Martin Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 26, 2023).
Form of Long Term Incentive Performance Award Agreement (2023 - 2025 Performance Period) under the
Lockheed Martin Corporation 2020 Incentive Performance Award Plan (incorporated by reference to Exhibit 10.3
to Lockheed Martin Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 26, 2023).
Amendment to Outstanding Long-Term Incentive Performance and Performance Stock Unit Award Agreements
(effective June 24, 2021) (incorporated by reference to Exhibit 10.1 to Lockheed Martin Corporation’s Quarterly
Report on Form 10-Q for the quarter ended June 27, 2021).
Amendment to Outstanding Long-Term Incentive Performance and Performance Stock Unit Award Agreements
(effective February 22, 2023) (incorporated by reference to Exhibit 10.4 to Lockheed Martin Corporation’s
Quarterly Report on Form 10-Q for the quarter ended March 26, 2023).
Lockheed Martin Corporation Consolidated Supplemental Retirement Benefit Plan, as amended and restated
effective October 5, 2018 (incorporated by reference to Exhibit 10.26 to Lockheed Martin Corporation’s Annual
Report on Form 10-K for the year ended December 31, 2018).
Amendment to Lockheed Martin Corporation Consolidated Supplemental Retirement Benefit Plan, as amended
and restated effective October 5, 2018 (incorporated by reference to Exhibit 10.9 to Lockheed Martin
Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 27, 2022).
Lockheed Martin Corporation Executive Severance Plan, as amended and restated effective December 1, 2016
(incorporated by reference to Exhibit 10.26 to Lockheed Martin Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2016).
Amendment No. 1 to Lockheed Martin Corporation Executive Severance Plan, as amended and restated effective
December 1, 2016 (incorporated by reference to Exhibit 10.1 to Lockheed Martin Corporation’s Quarterly Report
on Form 10-Q for the quarter ended June 24, 2018).
Amendment No. 2 to Lockheed Martin Corporation Executive Severance Plan, as amended and restated effective
December 1, 2016 (incorporated by reference to Exhibit 10.6 to Lockheed Martin Corporation’s Quarterly Report
on Form 10-Q for the quarter ended June 28, 2020).
Amendment No. 3 to Lockheed Martin Corporation Executive Severance Plan, as amended and restated effective
December 1, 2016 (incorporated by reference to Exhibit 10.1 to Lockheed Martin Corporation’s Quarterly Report
on Form 10-Q for the quarter ended September 27, 2020).
103
10.34
10.35
21
23
24
31.1
31.2
32
97
Amendment No. 4 to Lockheed Martin Corporation Executive Severance Plan, as amended and restated effective
December 1, 2016 (incorporated by reference to Exhibit 10.1 to Lockheed Martin Corporation’s Quarterly Report
on Form 10-Q for the quarter ended September 25, 2022).
Amendment No. 5 to Lockheed Martin Corporation Executive Severance Plan, as amended and restated effective
December 1, 2016 (incorporated by reference to Exhibit 10.40 to Lockheed Martin Corporation’s Annual Report
Form 10-K for the year ended December 31, 2022).
Subsidiaries of Lockheed Martin Corporation.
Consent of Independent Registered Public Accounting Firm.
Powers of Attorney.
Certification of James D. Taiclet pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Jesus Malave pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of James D. Taiclet and Jesus Malave pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Recovery of Incentive-Based Compensation from Executive Officers in Event of Accounting Restatement.
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document
contained in Exhibit 101
*
Exhibits 10.3 through 10.35 constitute management contracts or compensatory plans or arrangements.
ITEM 16.
Form 10-K Summary
None.
104
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: January 23, 2024
Lockheed Martin Corporation
(Registrant)
By:
/s/ H. Edward Paul III
H. Edward Paul III
Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures
Titles
/s/ James D. Taiclet
James D. Taiclet
/s/ Jesus Malave
Jesus Malave
/s/ H. Edward Paul III
H. Edward Paul III
*
Daniel F. Akerson
*
David B. Burritt
*
Bruce A. Carlson
*
John M. Donovan
*
Joseph F. Dunford, Jr.
*
James O. Ellis, Jr.
*
Thomas J. Falk
*
Ilene S. Gordon
*
Vicki A. Hollub
*
Jeh C. Johnson
*
Debra L. Reed-Klages
*
Patricia E. Yarrington
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Date
January 23, 2024
Chief Financial Officer (Principal Financial
Officer)
January 23, 2024
Vice President and Controller (Principal
Accounting Officer)
January 23, 2024
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
January 23, 2024
January 23, 2024
January 23, 2024
January 23, 2024
January 23, 2024
January 23, 2024
January 23, 2024
January 23, 2024
January 23, 2024
January 23, 2024
January 23, 2024
January 23, 2024
*By Maryanne R. Lavan pursuant to a Power of Attorney executed by the Directors listed above, which has been filed
with this Annual Report on Form 10-K.
Date: January 23, 2024
By:
/s/ Maryanne R. Lavan
Maryanne R. Lavan
Attorney-in-fact
105
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CERTIFICATION OF JAMES D. TAICLET PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, James D. Taiclet, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Lockheed Martin Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations, and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize, and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: January 23, 2024
/s/ James D. Taiclet
James D. Taiclet
Chief Executive Officer
CERTIFICATION OF JESUS MALAVE PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Jesus Malave, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Lockheed Martin Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations, and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize, and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: January 23, 2024
/s/ Jesus Malave
Jesus Malave
Chief Financial Officer
Exhibit 32
CERTIFICATION OF JAMES D. TAICLET AND JESUS MALAVE PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Lockheed Martin Corporation (the “Corporation”) on Form 10-K for the
period ended December 31, 2023, as filed with the U.S. Securities and Exchange Commission on the date hereof
(the “Report”), I, James D. Taiclet, Chief Executive Officer of the Corporation, and I, Jesus Malave, Chief Financial
Officer of the Corporation, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Corporation.
/s/ James D. Taiclet
James D. Taiclet
Chief Executive Officer
/s/ Jesus Malave
Jesus Malave
Chief Financial Officer
Date: January 23, 2024
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USE OF NON-GAAP FINANCIAL MEASURES
This annual report contains non-generally accepted accounting principles (non-GAAP) financial measures. While we
believe that these non-GAAP financial measures may be useful in evaluating the financial performance of Lockheed
Martin, this information should be considered supplemental and is not a substitute for financial information prepared in
accordance with GAAP. In addition, our definitions for non-GAAP measures may differ from similarly titled measures used
by other companies or analysts.
Segment operating profit / margin
Segment operating profit represents operating profit from our business segments before unallocated income and expense.
This measure is used by our senior management in evaluating the performance of our business segments and is a
performance goal in our annual incentive plan. The caption “total unallocated items” reconciles segment operating profit to
consolidated operating profit. Segment margin is calculated by dividing segment operating profit by net sales.
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 below, including the amounts for 2022 and 2021.
In millions
Net sales
Consolidated operating profit
Unallocated items
FAS/CAS operating adjustment
Intangible asset amortization expense
Severance and other charges
Other, net
Less: Total unallocated items
Business segment operating profit (Non-GAAP)
Consolidated operating margin
Segment operating margin (Non-GAAP)
Free cash flow
2023
2022
2021
$ 67,571 $ 65,984 $ 67,044
9,123
$
8,507 $
8,348 $
1,660
(247)
(92)
(203)
1,118
7,389 $
12.6 %
10.9 %
1,709
(248)
(100)
(480)
881
7,467 $
12.7 %
11.3 %
1,960
(285)
(36)
(180)
1,459
7,664
13.6 %
11.4 %
$
Free cash flow is cash from operations less capital expenditures. The company's 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). The company uses free cash flow to evaluate its business performance and
overall liquidity and it is a performance goal in the company's annual and long-term incentive plans. The company
believes 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 or other investments. The entire free
cash flow amount 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.
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GENERAL INFORMATION
TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT
Computershare Trust Company, N.A.
Shareholder Services
P.O. Box 43006
Providence, RI 02940
Telephone: 1-877-498-8861
TDD for the hearing impaired: 1-800-952-9245
Internet: www.computershare.com/investor
Overnight correspondence should be mailed to:
Computershare Trust Company, N.A.
150 Royall Street, Suite 101
Canton, MA 02021
ELECTRONIC DELIVERY
Stockholders are encouraged to enroll in electronic delivery to receive all stockholder communications, including proxy
voting materials, electronically, by visiting Shareholder Services at www.lockheedmartin.com/investor
DIRECT STOCK PURCHASE AND DIVIDEND REINVESTMENT PLAN
Lockheed Martin participates in a direct stock purchase and dividend reinvestment plan offered by Computershare Trust
Company, N.A. through which new investors may make an initial investment in Lockheed Martin common stock and
existing stockholders may increase their holdings of Lockheed Martin common stock and/or to reinvest dividends paid on
Lockheed Martin common stock. For more information, contact Computershare Trust Company, N.A. at 1-877-498-8861,
or view plan materials online and enroll electronically at www.computershare.com/investor.
INDEPENDENT AUDITORS
Ernst & Young LLP
1775 Tysons Boulevard
Tysons, VA 22102
Telephone: 703-747-1000
COMMON STOCK
Stock symbol: LMT
Listed: New York Stock Exchange (NYSE)
2023 FORM 10-K
Our 2023 Form 10-K is included in this Annual Report in its entirety with the exception of certain exhibits. All of the exhibits
may be obtained on our Investor Relations homepage at www.lockheedmartin.com/investor or by accessing our filings
with the U.S. Securities and Exchange Commission.
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, MD 20817
www.lockheedmartin.com
This report is printed on paper that is FSC® certified, and is
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© 2024 Lockheed Martin Corporation