UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 26, 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			52-1893632
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
6801 Rockledge Drive,	Bethesda,	Maryland	20817
(Address of principal executive offices)			(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	Trading Symbol	Name of each exchange on which registered
Common Stock, $1 par value	LMT	New York Stock Exchange

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 253,252,553 shares of our common stock, $1 par value per share, outstanding as of April 14, 2023.

Lockheed Martin Corporation

Form 10-Q

For the Quarterly Period Ended March 26, 2023

Table of Contents

			Page
PART I. FINANCIAL INFORMATION
	ITEM 1.	Financial Statements (Unaudited)
		Consolidated Statements of Earnings for the Quarters Ended March 26, 2023 and March 27, 2022	3
		Consolidated Statements of Comprehensive Income for the Quarters Ended March 26, 2023 and March 27, 2022	4
		Consolidated Balance Sheets as of March 26, 2023 and December 31, 2022	5
		Consolidated Statements of Cash Flows for the Quarters Ended March 26, 2023 and March 27, 2022	6
		Consolidated Statements of Equity for the Quarters Ended March 26, 2023 and March 27, 2022	7
		Notes to Consolidated Financial Statements	8
		Report of Independent Registered Public Accounting Firm	22
	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	37
	ITEM 4.	Controls and Procedures	37
PART II. OTHER INFORMATION
	ITEM 1.	Legal Proceedings	39
	ITEM 1A.	Risk Factors	39
	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
	ITEM 6.	Exhibits	41
SIGNATURE			42

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Lockheed Martin Corporation

Consolidated Statements of Earnings

(unaudited; in millions, except per share data)

	Quarters Ended
	March 26, 2023		March 27, 2022
Net sales
Products	$	12,526	$	12,494
Services	2,600		2,470
Total net sales	15,126		14,964
Cost of sales
Products	(11,151)		(11,107)
Services	(2,284)		(2,167)
Other unallocated, net	355		219
Total cost of sales	(13,080)		(13,055)
Gross profit	2,046		1,909
Other (expense) income, net	(9)		24
Operating profit	2,037		1,933
Interest expense	(202)		(135)
Non-service FAS pension income	110		140
Other non-operating income, net	49		123
Earnings before income taxes	1,994		2,061
Income tax expense	(305)		(328)
Net earnings	$	1,689	$	1,733
Earnings per common share
Basic	$	6.63	$	6.46
Diluted	$	6.61	$	6.44
Cash dividends paid per common share	$	3.00	$	2.80

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

Lockheed Martin Corporation

Consolidated Statements of Comprehensive Income

(unaudited; in millions)

	Quarters Ended
	March 26, 2023		March 27, 2022
Net earnings	$	1,689	$	1,733
Other comprehensive income, net of tax
Postretirement benefit plans
Amortization of actuarial losses and prior service credits, net of tax of $10 million in 2023 and $13 million in 2022	(37)		48
Other, net, net of tax of $4 million in 2023 and $1 million in 2022	(26)		(21)
Other comprehensive (loss) income, net of tax	(63)		27
Comprehensive income	$	1,626	$	1,760

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

Lockheed Martin Corporation

Consolidated Balance Sheets

(in millions, except par value)

	March 26, 2023		December 31, 2022
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	2,440	$	2,547
Receivables, net	2,583		2,505
Contract assets	13,189		12,318
Inventories	3,471		3,088
Other current assets	461		533
Total current assets	22,144		20,991
Property, plant and equipment, net	7,938		7,975
Goodwill	10,776		10,780
Intangible assets, net	2,397		2,459
Deferred income taxes	4,175		3,744
Other noncurrent assets	7,192		6,931
Total assets	$	54,622	$	52,880
Liabilities and equity
Current liabilities
Accounts payable	$	3,271	$	2,117
Salaries, benefits and payroll taxes	2,634		3,075
Contract liabilities	8,336		8,488
Current maturities of long-term debt	115		118
Other current liabilities	2,626		2,089
Total current liabilities	16,982		15,887
Long-term debt, net	15,485		15,429
Accrued pension liabilities	5,422		5,472
Other noncurrent liabilities	7,087		6,826
Total liabilities	44,976		43,614
Stockholders’ equity
Common stock, $1 par value per share	254		254
Additional paid-in capital	—		92
Retained earnings	17,478		16,943
Accumulated other comprehensive loss	(8,086)		(8,023)
Total stockholders’ equity	9,646		9,266
Total liabilities and equity	$	54,622	$	52,880

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5

Lockheed Martin Corporation

Consolidated Statements of Cash Flows

(unaudited; in millions)

	Quarters Ended
	March 26, 2023		March 27, 2022
Operating activities
Net earnings	$	1,689	$	1,733
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization	325		329
Stock-based compensation	57		54
Deferred income taxes	(117)		(31)
Changes in assets and liabilities
Receivables, net	(78)		(564)
Contract assets	(871)		(1,551)
Inventories	(383)		(163)
Accounts payable	1,217		1,829
Contract liabilities	(152)		(205)
Income taxes	414		317
Qualified defined benefit pension plans	(94)		(116)
Other, net	(443)		(222)
Net cash provided by operating activities	1,564		1,410
Investing activities
Capital expenditures	(294)		(268)
Other, net	35		17
Net cash used for investing activities	(259)		(251)
Financing activities
Repurchases of common stock	(500)		(2,000)
Dividends paid	(784)		(767)
Other, net	(128)		(113)
Net cash used for financing activities	(1,412)		(2,880)
Net change in cash and cash equivalents	(107)		(1,721)
Cash and cash equivalents at beginning of period	2,547		3,604
Cash and cash equivalents at end of period	$	2,440	$	1,883

The accompanying notes are an integral part of these unaudited consolidated financial statements.

6

Lockheed Martin Corporation

Consolidated Statements of Equity

(unaudited; in millions)

	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity
Balance at December 31, 2022	$	254	$	92	$	16,943	$	(8,023)	$	9,266
Net earnings	—		—		1,689		—		1,689
Other comprehensive income, net of tax	—		—		—		(63)		(63)
Dividends declared	—		—		(768)		—		(768)
Repurchases of common stock	(1)		(113)		(386)		—		(500)
Stock-based awards, ESOP activity and other	1		21		—		—		22
Balance at March 26, 2023	$	254	$	—	$	17,478	$	(8,086)	$	9,646
Balance at December 31, 2021	$	271	$	94	$	21,600	$	(11,006)	$	10,959
Net earnings	—		—		1,733		—		1,733
Other comprehensive income, net of tax	—		—		—		27		27
Dividends declared	—		—		(749)		—		(749)
Repurchases of common stock	(6)		(126)		(1,868)		—		(2,000)
Stock-based awards, ESOP activity and other	—		32		—		—		32
Balance at March 27, 2022	$	265	$	—	$	20,716	$	(10,979)	$	10,002

The accompanying notes are an integral part of these unaudited consolidated financial statements.

7

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited)

NOTE 1 - BASIS OF PRESENTATION

We prepared these consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information, the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission (SEC) Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.

In the opinion of management, these consolidated financial statements reflect all adjustments that are of a normal recurring nature necessary for a fair presentation of our results of operations, financial condition, and cash flows for the interim periods presented. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base these estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially from these estimates. Significant estimates inherent in the preparation of our consolidated financial statements include, but are not limited to, accounting for sales and cost recognition; postretirement benefit plans; environmental liabilities and assets for the portion of environmental costs that are probable of future recovery; evaluation of goodwill, intangible assets, investments and other assets for impairment; income taxes including deferred tax assets; fair value measurements; and contingencies. The consolidated financial statements include the accounts of subsidiaries we control and variable interest entities if we are the primary beneficiary. We eliminate intercompany balances and transactions in consolidation.

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-Q, including amounts for 2022. 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.

Additionally, during the third quarter of 2022, we changed the presentation of deferred income taxes related to uncertain tax positions in the operating cash flow section of the consolidated statements of cash flows. First quarter of 2022 amounts have been conformed to current period presentation and this change does not impact previously reported net cash from operating activities.

We close our books and records on the last Sunday of the interim calendar quarter, which was on March 26, for the first quarter of 2023 and March 27, for the first quarter of 2022, to align our financial closing with our business processes. The consolidated financial statements and tables of financial information included herein are labeled based on that convention. This practice only affects interim periods as our fiscal year ends on December 31.

The results of operations for the interim periods presented are not necessarily indicative of results to be expected for the full year or future periods. Unless otherwise noted, we present all per share amounts cited in these consolidated financial statements on a “per diluted share” basis. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022 (2022 Form 10-K).

8

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

NOTE 2 - EARNINGS PER COMMON SHARE

The weighted average number of shares outstanding used to compute earnings per common share were as follows (in millions):

	Quarters Ended
	March 26, 2023	March 27, 2022
Weighted average common shares outstanding for basic computations	254.7	268.3
Weighted average dilutive effect of equity awards	1.0	0.9
Weighted average common shares outstanding for diluted computations	255.7	269.2

We compute basic and diluted earnings per common share by dividing net earnings by the respective weighted average number of common shares outstanding for the periods presented. Our calculation of diluted earnings per common share also includes the dilutive effects for the assumed vesting of outstanding restricted stock units (RSUs) and performance stock units (PSUs) based on the treasury stock method. There were no significant anti-dilutive equity awards during the quarters ended March 26, 2023 and March 27, 2022. Basic and diluted weighted average common shares outstanding decreased in 2023 compared to 2022 due to share repurchases. See “Note 9 - Stockholders’ Equity” for more information.

NOTE 3 - INFORMATION ON BUSINESS SEGMENTS

Overview

We operate in four business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space. We organize our business segments based on the nature of products and services offered.

Selected Financial Data by Business Segment

Net sales and operating profit of our business segments exclude intersegment sales, cost of sales, and profit as these activities are eliminated in consolidation and thus are not included in management’s evaluation of performance of each segment. Business segment operating profit includes our share of earnings or losses from equity method investees as the operating activities of the equity method investees are closely aligned with the operations of our business segments.

Summary Operating Results

As discussed in “Note 1 - Basis of Presentation”, 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.

9

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

This change has been applied to the amounts below, including the amounts for 2022. Sales and operating profit for each of our business segments were as follows (in millions):

	Quarters Ended
	March 26, 2023		March 27, 2022
Net sales
Aeronautics	$	6,269	$	6,401
Missiles and Fire Control	2,388		2,452
Rotary and Mission Systems	3,510		3,552
Space	2,959		2,559
Total net sales	$	15,126	$	14,964
Operating profit
Aeronautics	$	675	$	679
Missiles and Fire Control	377		385
Rotary and Mission Systems	350		406
Space	280		248
Total business segment operating profit	1,682		1,718
Unallocated items
FAS/CAS pension operating adjustment	415		426
Intangible asset amortization expense	(62)		(62)
Other, net	2		(149)
Total unallocated items	355		215
Total consolidated operating profit	$	2,037	$	1,933
Intersegment sales
Aeronautics	$	53	$	60
Missiles and Fire Control	146		156
Rotary and Mission Systems	489		455
Space	86		83
Total intersegment sales	$	774	$	754

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 net assets and liabilities for deferred compensation plans, retiree benefits, significant severance charges, significant asset impairments, gains or losses from divestitures, intangible asset amortization expense, and other miscellaneous corporate activities. Excluded items are included in the reconciling item “Unallocated items” between operating profit from our business segments and our consolidated operating profit. See “Note 10 - Other” for a discussion related to certain factors that may impact the comparability of net sales and operating profit of our business segments.

FAS/CAS Pension Operating Adjustment

Our business segments’ results of operations include pension expense only as calculated under 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 and total CAS pension cost. As a result, to the extent that CAS pension cost exceeds the service cost component of FAS pension income, we have a favorable FAS/CAS pension operating adjustment.

10

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

Disaggregation of Net Sales

Net sales by products and services, contract type, customer, and geographic region were as follows (in millions):

	Quarter Ended March 26, 2023
	Aeronautics		MFC		RMS		Space		Total
Net sales
Products	$	5,156	$	2,089	$	2,792	$	2,489	$	12,526
Services	1,113		299		718		470		2,600
Total net sales	$	6,269	$	2,388	$	3,510	$	2,959	$	15,126
Net sales by contract type
Fixed-price	$	4,312	$	1,618	$	2,208	$	764	$	8,902
Cost-reimbursable	1,957		770		1,302		2,195		6,224
Total net sales	$	6,269	$	2,388	$	3,510	$	2,959	$	15,126
Net sales by customer
U.S. Government	$	4,117	$	1,581	$	2,423	$	2,908	$	11,029
International (a)	2,114		805		1,020		45		3,984
U.S. commercial and other	38		2		67		6		113
Total net sales	$	6,269	$	2,388	$	3,510	$	2,959	$	15,126
Net sales by geographic region
United States	$	4,155	$	1,583	$	2,490	$	2,914	$	11,142
Europe	1,130		211		225		23		1,589
Asia Pacific	675		102		438		22		1,237
Middle East	225		455		186		—		866
Other	84		37		171		—		292
Total net sales	$	6,269	$	2,388	$	3,510	$	2,959	$	15,126

	Quarter Ended March 27, 2022
	Aeronautics		MFC		RMS		Space		Total
Net sales
Products	$	5,417	$	2,173	$	2,788	$	2,116	$	12,494
Services	984		279		764		443		2,470
Total net sales	$	6,401	$	2,452	$	3,552	$	2,559	$	14,964
Net sales by contract type
Fixed-price	$	4,686	$	1,713	$	2,218	$	637	$	9,254
Cost-reimbursable	1,715		739		1,334		1,922		5,710
Total net sales	$	6,401	$	2,452	$	3,552	$	2,559	$	14,964
Net sales by customer
U.S. Government	$	4,213	$	1,595	$	2,511	$	2,516	$	10,835
International (a)	2,150		852		971		34		4,007
U.S. commercial and other	38		5		70		9		122
Total net sales	$	6,401	$	2,452	$	3,552	$	2,559	$	14,964
Net sales by geographic region
United States	$	4,251	$	1,600	$	2,581	$	2,525	$	10,957
Europe	1,023		256		187		24		1,490
Asia Pacific	721		106		432		7		1,266
Middle East	262		465		176		3		906
Other	144		25		176		—		345
Total net sales	$	6,401	$	2,452	$	3,552	$	2,559	$	14,964

(a)International sales include foreign military sales (FMS) contracted through the U.S. Government and direct commercial sales to international governments and other international customers.

11

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

Our Aeronautics business segment includes our largest program, the F-35 Lightning II, an international multi-role, multi-variant, stealth fighter aircraft. Net sales for the F-35 program represented approximately 26% of our total consolidated net sales for the quarter ended March 26, 2023 and 29% of our total consolidated net sales for the quarter ended March 27, 2022.

Assets

Total assets for each of our business segments were as follows (in millions):

	March 26, 2023		December 31, 2022
Assets
Aeronautics	$	13,247	$	12,055
Missiles and Fire Control	5,630		5,788
Rotary and Mission Systems	17,923		17,988
Space	6,471		6,351
Total business segment assets	43,271		42,182
Corporate assets (a)	11,351		10,698
Total assets	$	54,622	$	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 - CONTRACT ASSETS AND LIABILITIES

Contract assets include unbilled amounts typically resulting from sales under contracts when the percentage-of-completion cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. Contract liabilities include advance payments and billings in excess of revenue recognized. Contract assets and contract liabilities were as follows (in millions):

	March 26, 2023		December 31, 2022
Contract assets	$	13,189	$	12,318
Contract liabilities	8,336		8,488

Contract assets increased $871 million during the quarter ended March 26, 2023, due to the recognition of revenue related to the satisfaction or partial satisfaction of performance obligations during the quarter ended March 26, 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 the quarters ended March 26, 2023 and March 27, 2022.

Contract liabilities decreased $152 million during the quarter ended March 26, 2023, primarily due to revenue recognized in excess of payments received on these performance obligations. During the quarter ended March 26, 2023, we recognized $2.2 billion of our contract liabilities at December 31, 2022 as revenue. During the quarter ended March 27, 2022, we recognized $2.1 billion of our contract liabilities at December 31, 2021 as revenue.

12

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

NOTE 5 - INVENTORIES

Inventories consisted of the following (in millions):

	March 26, 2023		December 31, 2022
Materials, spares and supplies	$	601	$	599
Work-in-process	2,681		2,297
Finished goods	189		192
Total inventories	$	3,471	$	3,088

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). Pre-contract costs that are initially capitalized in inventory are generally recognized as cost of sales consistent with the transfer of products and services to the customer upon the receipt of the anticipated contract. All other pre-contract costs, including start-up costs, are expensed as incurred. As of March 26, 2023 and December 31, 2022, $980 million and $791 million of pre-contract costs were included in inventories. The increase in pre-contract costs as of March 26, 2023 is primarily driven by our Aeronautics business segment (primarily F-35 program and classified contracts).

NOTE 6 - POSTRETIREMENT BENEFIT PLANS

FAS income

The pretax FAS income related to our qualified defined benefit pension plans and retiree medical and life insurance plans consisted of the following (in millions):

	Quarters Ended
	March 26, 2023		March 27, 2022
Qualified defined benefit pension plans
Operating:
Service cost	$	(16)	$	(24)
Non-operating:
Interest cost	(365)		(302)
Expected return on plan assets	430		502
Recognized net actuarial losses	(42)		(150)
Amortization of prior service credits	87		90
Non-service FAS pension income	110		140
Total FAS pension income	$	94	$	116
Retiree medical and life insurance plans
Operating:
Service cost	$	(1)	$	(2)
Non-operating:
Interest cost	(17)		(12)
Expected return on plan assets	26		34
Recognized net actuarial gains	8		11
Amortization of prior service costs	(3)		(7)
Non-service FAS retiree medical and life income	14		26
Total FAS retiree medical and life income	$	13	$	24

13

Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

We record the service cost component of FAS income for our qualified defined benefit pension plans and retiree medical and life insurance plans in the cost of sales accounts; the non-service components of our FAS income for our qualified defined benefit pension plans in the non-service FAS pension income account; and the non-service components of our FAS income for our retiree medical and life insurance plans as part of the other non-operating income, net account on our consolidated statements of earnings.

The recognized net actuarial losses or gains and amortization of prior service credits or costs in the table above, along with similar costs related to our other postretirement benefit plans ($3 million for the quarter ended March 26, 2023 and $5 million for the quarter ended March 27, 2022) were reclassified from accumulated other comprehensive loss (AOCL) and recorded as a component of FAS income for the periods presented. These costs totaled $(47) million ($(37) million, net of tax) during the quarter ended March 26, 2023, and $61 million ($48 million, net of tax) during the quarter ended March 27, 2022.

Funding requirements

The required funding of our qualified defined benefit pension plans is determined in accordance with the Employee Retirement Income Security Act of 1974 (ERISA), as amended, along with consideration of CAS and Internal Revenue Code rules. We made no contributions to our qualified defined benefit pension plans during the quarters ended March 26, 2023 and March 27, 2022.

NOTE 7 - LEGAL PROCEEDINGS AND CONTINGENCIES

Legal Proceedings

We are a party to litigation and other proceedings that arise in the ordinary course of our business, including matters arising under provisions relating to the protection of the environment, and are subject to contingencies related to certain businesses we previously owned. These types of matters could result in fines, penalties, cost reimbursements or contributions, compensatory or treble damages or non-monetary sanctions or relief. We believe the probability is remote that the outcome of each of these matters, including the legal proceedings described below, will have a material adverse effect on the company as a whole, notwithstanding that the unfavorable resolution of any matter may have a material effect on our net earnings and cash flows in 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,

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Notes to Consolidated Financial Statements (unaudited) (continued)

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.

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 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 March 26, 2023 and December 31, 2022, the aggregate amount of liabilities recorded relative to environmental matters was $690 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 $612 million and $618 million at March 26, 2023 and December 31, 2022, most of which are recorded in other noncurrent assets on our consolidated balance sheets.

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Notes to Consolidated Financial Statements (unaudited) (continued)

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 the California State Water Resources Control Board continues to reevaluate its existing drinking water standard of 6 ppb for perchlorate.

If substantially lower standards are adopted for perchlorate in California or for hexavalent chromium at the federal level, we expect a material increase in our estimates for environmental liabilities and the related assets for the portion of the increased costs that 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 $2.8 billion and $2.9 billion at March 26, 2023 and December 31, 2022.

Additionally, we may guarantee the contractual performance of third parties such as joint venture partners. At March 26, 2023 and December 31, 2022, third-party guarantees totaled $908 million and $904 million, of which approximately 72% 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.

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Notes to Consolidated Financial Statements (unaudited) (continued)

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 March 26, 2023 and December 31, 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.

NOTE 8 - FAIR VALUE MEASUREMENTS

Assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following (in millions):

	March 26, 2023								December 31, 2022
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets
Mutual funds	$	893	$	893	$	—	$	—	$	897	$	897	$	—	$	—
U.S. Government securities	115		—		115		—		118		—		118		—
Other securities	665		322		282		61		660		333		264		63
Derivatives	11		—		11		—		18		—		18		—
Liabilities
Derivatives	164		—		164		—		196		—		196		—