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What changed in Lockheed Martin's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Lockheed Martin's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+477 added−583 removedSource: 10-K (2024-01-23) vs 10-K (2023-01-26)

Top changes in Lockheed Martin's 2023 10-K

477 paragraphs added · 583 removed · 376 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

60 edited+12 added−10 removed44 unchanged
Biggest changeGovernment 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.
Biggest changeGovernment 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.
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. We operate in four business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space.
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. Business Segments 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.
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.
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.
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.
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, 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.
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.
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 number of bid protests (competitor protests of U.S. Government procurement awards).
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).
While 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.
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.
If a contract is terminated for default, we generally are entitled to payments 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.
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.
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 defense contractors. In some areas of our business, customer requirements are changing to encourage or facilitate expanded competition.
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.
Through these and other focused efforts, 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, our representation of veterans remains outstanding, at almost four times the current annual national percentage of veterans in the civilian workforce.
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.
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 Raytheon Technologies are some of our primary competitors.
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.
We have focused our diversity and inclusion initiatives on employee recruitment, including investments in minority-serving institutions and outreach, employee training and development, such as efforts focused on expanding the diverse talent pipeline, and employee engagement, including through participation in our employee Business Resource Groups.
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.
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) programs to provide surface combatant ships 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 Table of Contents programs to provide surface combatant ships for the U.S.
See also the discussion of environmental matters in Item 1A - Risk Factors. There is an increasing global regulatory focus on greenhouse gas (GHG) emissions and their potential impacts relating to climate change.
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.
We attract and reward our employees by providing market competitive compensation and benefits, including incentives and recognition plans that extend to nonrepresented employees of all levels in our organization and encourage excellence through our pay-for-performance philosophy.
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.
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. Government Contracts and Regulations Our business is heavily regulated. We contract with numerous U.S.
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.
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, Sniper Advanced Targeting Pod (SNIPER ® ) and Infrared Search and Track (IRST21 ® ) fire control systems programs.
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.
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 4 Table o f C ontents an air operations center for the Ballistic Missile Defense System 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’s power to unilaterally definitize a contract can affect our ability to negotiate mutually 8 Table o f C ontents 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. A portion of our business is classified by 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. 8 Table of Contents Classified Contracts A portion of our business is classified by the U.S.
We use a variety of human capital measures in managing our business, including: workforce demographics; hiring metrics; talent management metrics, including retention rates of top talent; and diversity metrics with respect to representation, attrition, hiring, promotions and leadership.
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.
Army to design, develop and build hypersonic strike weapons. • The Javelin program, which is a one-man 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 Raytheon Technologies.
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.
Workforce Demographics As of December 31, 2022, we had a highly skilled workforce made up of approximately 116,000 employees, including approximately 60,000 engineers, scientists and information technology professionals. As of December 31, 2022, 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.
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.
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.
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.
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.
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.
The F-35 program is our largest program, generating 27% of our total consolidated net sales, as well as 66% of Aeronautics’ net sales in 2022. 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.
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.
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 in multiple areas, including engineering, science, manufacturing, information technology, cybersecurity, business development and strategy and management.
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.
We are currently performing on multiple hypersonic programs and following the successful completion of ongoing testing and evaluation activity, multiple programs are expected to enter early production phases between 2023 and 2026.
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.
This employee development helps to make us more competitive and also assists with leadership succession planning throughout the corporation. Employee Safety and Health Our safety and health program seeks to optimize our operations through targeted safety, health and wellness opportunities designed to ensure safe work conditions, a healthy work environment, promote workforce resiliency and enhance business value.
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.
Government and international customers designed to engage targets both within and outside of the Earth’s atmosphere. • The Multiple Launch Rocket System (MLRS), Joint Air-to-Surface Standoff Missile (JASSM), and Hellfire tactical and strike missile programs.
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.
Government, and undersea combat systems programs largely serving the U.S. Navy. • 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.
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.
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.
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 .
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. 6 Table o f C ontents Talent Acquisition, Retention and Development We strive to hire, develop and retain the top talent in the industry.
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. 6 Table of Contents 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.
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.
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.
A number of our existing collective bargaining agreements expire in any given year. Historically, we have been successful in negotiating renewals to expiring agreements without any material disruption of operating activities, and management considers employee and union relations to be good.
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.
The SEC allows us to disclose important information by referring to it in this manner.
Securities and Exchange Commission (SEC). The SEC allows us to disclose important information by referring to it in this manner.
Our strategy consists of the design and development of platforms and systems that meet 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.
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.
Employee Profile (as of December 31, 2022): Women (a) People of Color (a) Veterans (a) People with Disabilities (a) Overall 23% 30% 21% 11% Executives (b) 25% 16% 21% 11% (a) Based on employees who self-identify. Includes only U.S. employees and expatriates except for women, which also includes local country nationals.
Employee Profile (as of December 31, 2023): Women (a) People of Color (a) Veterans (a) People with Disabilities (a) Overall 23% 32% 21% 12% Executives (b) 25% 17% 21% 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.
We rely on other companies to provide materials, components and products, including advanced microelectronics such as semiconductors, and to perform a portion of the services that are provided to our customers under the terms of most of our contracts.
We rely on other companies to provide materials, components and products and to perform a portion of 5 Table of Contents the services that are provided to our customers under the terms of most of our contracts.
We also have continued a teleworking policy that encourages flexible working arrangements for employees who can meet our customer commitments remotely, which we believe helps recruit and retain talent. In addition, we invest in the development of our employees through training, apprenticeship programs, leadership development plans and offering tuition assistance programs for continuing education or industry certifications.
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.
Sustainment provides logistics and training support for the aircraft delivered to F-35 customers. For additional information on the F-35 program, see “Status of 3 Table o f C ontents the F‑35 Program” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Sustainment provides logistics 3 Table of Contents 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.
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 some international business. For more information concerning our international business, see Item 1A - Risk Factors.
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 7 Table of Contents some international business.
We have multiple programs of record from each business segment that are entering growth stages, including the F-35 sustainment activity (Aeronautics), increased PAC-3 production rates (Missiles and Fire Control), CH-53K heavy lift helicopter (Rotary and Mission Systems), and the modernization and enhancements to the Trident II D5 Fleet Ballistic Missile (Space).
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).
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). 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).
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). 9 Table of Contents Throughout this Form 10-K, we incorporate by reference information from parts of other documents filed with the U.S.
Our internal controls addressing the financial reporting of classified contracts are consistent with our internal controls for our non-classified contracts. 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.
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.
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.
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.
Space is also responsible for various classified systems and services in support of vital national security systems. Space’s major programs include: • The Space Based Infrared System (SBIRS) and Next Generation Overhead Persistent Infrared (Next Gen OPIR) system programs, which provide the U.S.
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.
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.
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.
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.
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.
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 forces more agile, adaptive and unpredictable. 21st Century Security is an overarching vision that will guide our investment and strategy and 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.
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.
Additionally, 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. 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.
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.
Government agencies and entities, principally all branches of the U.S. military and NASA. We also contract with similar government authorities in other countries, and they regulate international sales that are not foreign military sales (FMS) contracted through the U.S. Government.
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.
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.
In addition to the aircraft programs above, Aeronautics is involved in advanced development programs incorporating innovative design and rapid prototype applications.
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. JASSM is an air-to-ground missile launched from fixed-wing aircraft, which is produced for the U.S. Air Force and international customers.
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.
During 2022, we hired more than 14,000 employees, despite the continuing challenges presented by the COVID-19 pandemic. An integral part of our people strategy is early career hiring through college and intern pipelines, particularly in technical fields.
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.
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.
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.
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.
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.
Our human capital management strategy, which we refer to as our people strategy, is tightly aligned with our business needs and technology strategy.
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.
Our Business Resource Groups are voluntary, employee-led groups that are open to all employees while focusing on workplace issues specific to racial/ethnic, gender, sexual orientation/gender identity, disability or veteran status. 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.
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.
During 2022, 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, and continuing to increase our agility to meet the quickly changing needs of the business, all while maintaining a respectful, challenging, supportive and inclusive working environment.
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.
During 2022, the COVID-19 pandemic, supply chain challenges, and increased demand caused global semiconductor chip shortages, extended lead times and pricing escalations and these are expected to continue in 2023. These supplier disruptions have resulted in delays and increased costs and have adversely affected our program performance and operating results.
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.
Removed
Space Force with enhanced worldwide missile warning capabilities. • The Trident II D5 Fleet Ballistic Missile (FBM), a program with the U.S.
Added
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.
Removed
As previously announced, on June 30, 2021, the UK Ministry of Defence terminated the contract to operate the UK’s nuclear deterrent program and assumed control of the entity that manages the program (referred to as the renationalization of the Atomic Weapons Establishment (AWE program)).
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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.
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Accordingly, the AWE program, including the entity that manages the program, was no longer included in our financial results as of that date. 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.
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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.
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Non-U.S. governments also may have certain rights in patents and other intellectual property developed in performance of our contracts for them.
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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.
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Historically, we have been successful in obtaining the raw materials and other supplies needed in our manufacturing processes. For example, aluminum and titanium are important raw materials used in certain of our Aeronautics and Space programs. Long-term agreements have helped enable a continued supply of these materials.
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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.
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In addition, carbon fiber is an important ingredient in composite materials used in our Aeronautics programs, 5 Table o f C ontents such as the F-35 aircraft.
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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.
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During 2022, these metrics continued to be negatively impacted by the absence from work and delays in the return to work related to COVID-19.
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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.
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We continue to take steps to protect our employees from COVID-19 while sustaining production and related services, including by establishing minimum staffing and social distancing and mask wearing policies consistent with current governmental guidance, cleaning common areas more frequently, implementing a flexible teleworking policy for employees who can work from home, encouraging employee vaccinations while monitoring potential vaccine mandates, and instituting other measures designed to mitigate and prevent the spread of COVID-19.
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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.
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International competitions are also subject to different laws or contracting practices of international governments, which affects how we structure our bid 7 Table o f C ontents for the procurement.
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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.
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The words “believe,” “estimate,” “anticipate,” “project,” “intend,” “expect,” “plan,” “outlook,” “scheduled,” “forecast” and similar 9 Table o f C ontents expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks and uncertainties.
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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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeGovernment operates under a continuing resolution, new contract and program starts are restricted and funding for our programs may be unavailable, reduced or delayed. Shifting funding priorities or federal budget compromises, also could result in reductions in overall defense spending on an absolute or inflation-adjusted basis, which could adversely impact our business.
Biggest changeA 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.
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.
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.
We also could be adversely affected by actions by 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.
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.
Government has the ability 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.
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 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.
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.
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.
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).
These arrangements may involve subcontracts, teaming arrangements, joint ventures or supply agreements with other companies upon which we rely (contracting parties) and, in many cases, our contracting parties in turn rely on lower-tier subcontractors.
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.
In contrast, DCS transactions represent sales directly to international customers and are subject to U.S. and foreign laws and regulations, including 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.
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.
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. The U.S.
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.
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 or contracts, as a condition to obtaining orders for our products and services.
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.
In recent years, we have taken actions intended to mitigate the risk related to our defined benefit pension plans through 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.
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.
If appropriations are delayed or a government shutdown were to occur and were to continue for an extended period of time, we could be at risk of program cancellations and other disruptions and nonpayment. When the U.S.
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.
For significant acquisitions we may use a one-year measurement period to analyze and assess a number of 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.
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.
GAAP, we estimate loss contingencies and establish reserves based on our assessment of contingencies where liability is deemed probable and reasonably estimable in light of the facts and circumstances known to us at a particular point in time.
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.
We also may incur unanticipated 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.
We also may incur unanticipated 18 Table of Contents 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.
ITEM 1A. Risk Factors An investment in our common stock or debt securities involves risks and uncertainties. We seek to identify, manage and mitigate risks to our business, but risk and uncertainty cannot be eliminated or necessarily predicted.
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.
We occasionally have disputes with our contracting parties, including disputes regarding the 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 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.
In addition, our ability to grow in key areas such as hypersonics programs, classified programs and next-generation franchise programs also 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. Our contracts with the U.S.
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.
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 a number of legal proceedings. We cannot predict the outcome of litigation and other contingencies with certainty.
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.
Government or international partner and 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.
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.
Environmental costs and regulation, 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.
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.
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.
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.
We have $10.8 billion of goodwill assets recorded on our consolidated balance sheet as of December 31, 2022 from previous acquisitions, which represents approximately 20% 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.
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.
Existing coverage is renewed annually and may be canceled pursuant to the terms of the policies while we remain exposed to the risk and it is not possible to obtain insurance to protect against all operational risks, natural hazards and liabilities.
Existing coverage is renewed annually and may be canceled pursuant to the terms of the policies while we remain 20 Table of Contents exposed to the risk and it is not possible to obtain insurance to protect against all operational risks, natural hazards and liabilities.
We and others with which we do business must comply with 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.
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.
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 complex and often experimental nature of development programs.
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 future occurrence of non-compliant components in the F-35 or other 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.
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.
These offset agreements or contracts 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 to prefer local suppliers or subcontractors.
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.
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.
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.
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. 20 Table o f C ontents 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.
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. 19 Table of Contents 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.
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 15 Table o f C ontents 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.
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.
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.
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 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 prohibit the sourcing of certain rare earth minerals from specified countries.
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.
The F-35 program, which consists of multiple development, production and sustainment contracts, is our largest program and represented 27% of our total consolidated net sales in 2022. A decision by the U.S.
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 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.
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.
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 contracts. 17 Table o f C ontents Our business and financial performance depends on us identifying, attracting and retaining a highly skilled workforce.
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.
Sales of military products and any associated industrial cooperation agreements also 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.
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.
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, the imposition of sanctions, or Congressional action to block sales of our products. For example, 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.
While the most significant impact of this provision is to cash tax liability for 2022, the tax year in which the provision took effect, the impact will decline annually over the five-year amortization period to an immaterial amount in year six.
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.
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 the contract value or recover its procurement costs and could assess other special penalties, exposing us to liability and adversely affecting our ability to compete for future contracts and orders.
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 11 Table of Contents contracts and orders.
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, including the impact of a strong U.S. dollar on the affordability of our products, 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.
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.
Changes in government procurement laws that mandate or take into account climate change considerations, such as the contractor’s GHG emissions, 22 Table o f C ontents 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.
Changes in government 21 Table of Contents 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.
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 19 Table o f C ontents operations.
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.
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, and this could adversely affect our future performance and financial results.
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.
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 a discussion of the risk of non-compliant parts and the supply chain.
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.
In addition, advanced microelectronics, including semiconductors, underpin many of our current and future critical technologies and platforms, and global shortages of these products due to COVID-19, increased demand or other supply chain challenges, as were experienced in 2022, could result in increased procurement lead times and increased costs and potential shortages, which could impact our performance.
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.
Complying with U.S. 14 Table o f C ontents 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.
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.
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. Also, a portion of our contracts are classified by the U.S.
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.
This digital transformation effort requires substantial investment and if we are unable to successfully implement the strategy, our results of operations and future competitiveness may be adversely affected.
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.
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 21 Table o f C ontents acts of war.
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.
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 such costs, notwithstanding efforts by some U.S. Government representatives to limit this responsibility. Although the 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.
Risks Related to our Reliance on Government Contracts 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.
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.
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. Similarly, the U.S. Government could indirectly terminate a program or contract by not appropriating funding.
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).
Current program challenges include our and our suppliers’ performance (including COVID-19 performance-related challenges), 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 and sustainment, inflation-related cost pressures and the ability to continue to improve affordability.
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.
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.
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.
If we are unable to protect sensitive information, including complying with evolving information security and data protection/privacy regulations, our customers or governmental authorities could question the adequacy of our threat mitigation and detection processes and procedures.
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.
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. We are subject to extensive procurement laws and regulations, including those that enable the U.S.
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.
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 terms.
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.
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 (MD&A). Geopolitical issues and considerations could have a significant effect on our business.
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.
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.
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.
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.
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.
We also have contracts for the transition from development to production (e.g., low rate initial production (LRIP) contracts), where the challenge of starting and stabilizing a manufacturing production and test line while the final design is being validated and managing change in requirements or capabilities create performance and financial risks to our business. Many of our U.S.
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.
Government and other nations have implemented broad economic sanctions and export controls targeting Russia, which combined with the conflict have the potential to indirectly disrupt our supply chain and access to certain resources. The conflict also has increased the threat of malicious cyber activity from nation states and other actors.
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.
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.
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.
We must rely on this supply chain for detecting and reporting cyber incidents, which could affect our ability to report or respond to cybersecurity incidents effectively or in a timely manner.
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.
We seek to manage raw materials supply risk through long-term contracts, identifying domestic or other U.S. allied alternative sources of materials that could be subject to embargo, efforts to increase visibility into our multi-tiered supply chain, and maintaining an acceptable level of our key materials in inventories.
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.
Additionally, there can be no assurance that our development projects will be successful or meet the needs of our customers. 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.
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.
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. The carrying value and fair value of our Sikorsky reporting unit are closely aligned.
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.
Our environmental remediation related liabilities also could increase significantly because of acquisitions, the regulation of new substances, stricter remediation standards for existing regulated substances, changes in the interpretation or enforcement of existing laws and regulations, or the discovery of previously unknown or more extensive contamination or new contaminants.
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.
Furthermore, certain of our existing industrial development 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 that we fail to meet our 16 Table o f C ontents industrial cooperation agreements, expose us to compliance risks of the joint venture and impair our ability to recover our investment.
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, 16 Table of Contents exposing us to compliance risks of the joint venture, and impairing our ability to recover our investment.
To the extent we incur costs in excess of funds obligated on a contract or in advance of a contract 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. 10 Table o f C ontents The F-35 program comprises a material portion of our revenue and reductions or delays in funding for this program and risks related to the development, production, sustainment, performance, schedule, cost and requirements of the program could adversely affect our performance.
To the extent we incur costs in excess of funds obligated on a contract or in advance of a contract 10 Table of Contents 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.
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. This 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.
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.
Furthermore, changes in the political or economic environment, may adversely affect the financial stability and viability of our contracting parties or lower-tier subcontractors or their ability to meet their performance obligations.
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.
Government has imposed certain sanctions on Türkish entities and persons, which has affected our ability to perform under contracts supporting the Türkish Utility Helicopter Program (TUHP), our work with Türkish industry and our opportunity for sales in Türkiye generally. See Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information on TUHP. In addition, 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.
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.
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.
Additionally, 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.
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.
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 or adapt to existing or new procurement laws and regulations, which are regularly evolving.
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.
Failure to perform to customer expectations and contract requirements may result in reduced fees or losses and may adversely affect our financial performance. Contract types primarily include fixed-price and cost-reimbursable contracts. Under each type of contract, if we are unable to control costs, our operating results could be adversely affected.
Failure to perform to customer expectations and contract requirements may result in reduced fees or losses and may adversely affect our financial performance. 12 Table of Contents Contract types primarily include fixed-price and cost-reimbursable contracts.
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.
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. 17 Table of Contents Cyber-attacks and other security threats and disruptions could have a material adverse affect on our business.
For example, accounting for sales using the percentage-of-completion 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.
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.

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Item 2. Properties

Properties — owned and leased real estate

4 edited+1 added−0 removed0 unchanged
Biggest changeLaurel, 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. 23 Table o f C ontents The following is a summary of our square feet of floor space owned, leased, or utilized by business segment at December 31, 2022 (in millions): Owned Leased Government- Owned Total Aeronautics 5.5 3.0 14.7 23.2 Missiles and Fire Control 7.8 2.6 2.2 12.6 Rotary and Mission Systems 11.2 4.7 0.2 16.1 Space 9.3 2.9 0.9 13.1 Corporate activities 2.4 0.9 — 3.3 Total 36.2 14.1 18.0 68.3 We believe our facilities are in good condition and adequate for their current use.
Biggest changeThe following is a summary of our square feet of floor space owned, leased, or utilized by business segment at December 31, 2023 (in millions): Owned Leased Government- Owned Total Aeronautics 5.5 3.0 14.8 23.3 Missiles and Fire Control 7.8 2.6 2.0 12.4 Rotary and Mission Systems 10.8 4.7 0.2 15.7 Space 9.3 3.0 0.1 12.4 Corporate activities 2.4 0.9 — 3.3 Total 35.8 14.2 17.1 67.1 We believe our facilities are in good condition and adequate for their current use.
At December 31, 2022, 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.
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.
We may improve, replace or reduce facilities as considered appropriate to meet the needs of our operations.
We may add, improve, replace, or reduce facilities as considered appropriate to meet the needs of our operations.
ITEM 2. Properties At December 31, 2022, we owned or leased building space (including offices, manufacturing plants, warehouses, service centers, laboratories and other facilities) at 339 locations primarily in the U.S. Additionally, we manage or occupy 10 government-owned facilities under lease and other arrangements.
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.
Added
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.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

12 edited+1 added−1 removed4 unchanged
Biggest changeJohn (age 56), 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.
Biggest changePrior to that, she served as Vice President, Strategy and Investor Relations at Hubbell Incorporated from March 2015 to June 2019. 25 Table of Contents Frank A. St. John (age 57), Chief Operating Officer Mr. St. John has served as Chief Operating Officer since June 2020.
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 54), Chief Financial Officer Mr. Malave has served as Chief Financial Officer since January 31, 2022. Prior to joining Lockheed Martin in 2022, Mr.
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.
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 57), 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.
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.
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 47), Vice President and Controller 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.
Hill (age 58), Executive Vice President – Rotary and Mission Systems Ms. Hill has served as Executive Vice President of Rotary and Mission Systems (RMS) since June 2020. She previously served as Senior Vice President, Enterprise Business Transformation from June 2019 to June 2020.
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.
Lavan has served as Senior Vice President, General Counsel and Corporate Secretary since September 2010. Robert M. Lightfoot, Jr. (age 59), Executive Vice President – Space Mr. Lightfoot has served as Executive Vice President of Space since January 2022. He previously served as Vice President, Operations of the Space business segment from June 2021 to December 2021.
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.
ITEM 4. Mine Safety Disclosures Not applicable. ITEM 4(a). Information about our Executive Officers Our executive officers as of January 26, 2023 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.
ITEM 4. Mine Safety Disclosures Not applicable. 24 Table of Contents 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.
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 58), Executive Vice President – Aeronautics Mr. Ulmer has served as Executive Vice President, Aeronautics since February 2021.
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.
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. 24 Table o f C ontents Maryanne R. Lavan (age 63), Senior Vice President, General Counsel and Corporate Secretary Ms.
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.
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. 25 Table o f C ontents PART II
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 Table of Contents PART II
Prior to that, he served as Executive Vice President of the Missiles and Fire Control (MFC) business segment 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 62), Chairman, President and Chief Executive Officer Mr.
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.
Paul has served as Vice President and Controller since June 2022. Previously, he served as Vice President Accounting from March 2015 to June 2022. Evan T. Scott (age 45), Vice President and Treasurer Mr. Scott has served as Vice President and Treasurer since June 2022. Previously, 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.
Removed
Scott served as Vice President and Assistant Treasurer from August 2021 to June 2022. Prior to that, Mr. Scott was Vice President, Finance and Business Operations of the Space business segment from March 2019 to August 2021; and Vice President and Controller of the Missiles and Fire Control business segment from March 2015 to March 2019. Frank A. St.
Added
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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

10 edited+0 added−3 removed3 unchanged
Biggest changePeriod (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 26, 2022 – October 30, 2022 (c) 7,225,959 $ 408.50 7,224,954 $ 10,023 October 31, 2022 – November 27, 2022 961 $ 474.20 — $ 10,023 November 28, 2022 – December 31, 2022 4,249 $ 482.93 — $ 10,023 Total (c)(d) 7,231,169 $ 410.10 7,224,954 (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.
Biggest changePeriod (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 1,265,110 $ 446.24 1,264,627 $ 12,459 October 30, 2023 – November 26, 2023 2,775,003 $ 447.82 2,774,470 $ 11,217 November 27, 2023 – December 31, 2023 2,675,777 $ 446.97 2,669,558 $ 10,023 Total (c) 6,715,890 $ 447.18 6,708,655 (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.
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, Raytheon Technologies Corporation, Textron Inc. and Transdigm Group Inc. The stockholder return performance indicated on the graph is not a guarantee of future performance.
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.
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, 2022.
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.
Stockholder Return Performance Graph The following graph compares the total return on a cumulative basis through December 31, 2022, assuming reinvestment of dividends, of $100 invested in Lockheed Martin common stock as of market close on December 29, 2017 to the Standard and Poor’s (S&P) 500 Index and the S&P Aerospace & Defense Index.
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.
On October 17, 2022, the Board of Directors authorized an increase to the program by $14.0 billion. The total remaining authorization for future common share repurchases under our share repurchase program was $10.0 billion as of December 31, 2022.
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.
As a result, our fiscal months often differ from the calendar months. For example, November 28, 2022 was the first day of our December 2022 fiscal month.
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.
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities At January 20, 2023, we had 23,358 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.
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.
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. 26 Table o f C ontents Purchases of Equity Securities There were no sales of unregistered equity securities during the quarter ended December 31, 2022.
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 Table of Contents Purchases of Equity Securities There were no sales of unregistered equity securities during the quarter ended December 31, 2023.
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. 27 Table o f C ontents
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.
Average Price Paid Per Share in the table above does not include ASR shares. (d) During the fourth quarter of 2022, the total number of shares purchased included 6,215 shares that were transferred to us by employees in satisfaction of tax withholding obligations associated with the vesting of restricted stock units.
(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.
Removed
(c) During the fourth quarter of 2022, we entered into an accelerated share repurchase (ASR) agreement to repurchase $4.0 billion of our common stock. Under the terms of the ASR agreement, we paid $4.0 billion and received an initial delivery of 6,995,147 shares of our common stock.
Removed
We expect to receive additional shares upon final settlement, which is expected in March or April 2023.
Removed
The total number of shares of common stock to be received under the ASR agreement will be based on an average volume-weighted average price (VWAP) of our common stock during the term of the ASR agreement, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR agreement.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

163 edited+61 added−140 removed113 unchanged
Biggest changeThe decrease was primarily attributable to approximately $70 million for Sikorsky helicopter programs due to lower production volume and net favorable profit adjustments (Black Hawk) that were partially offset by higher net favorable profit adjustments (CRH); about $50 million for various C6ISR programs due to lower net favorable profit adjustments; and approximately $15 million for i ntegrated warfare systems and sensors ( IWSS) programs due to lower net favorable profit adjustments (TPQ-53 and Aegis) that were partially offset by $30 million of unfavorable profit adjustments on a ground-based radar program in 2021 that did not recur in 2022.
Biggest changeHigher 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.
Favorable items may include the positive resolution of contractual matters, cost recoveries on severance and restructuring, insurance recoveries and gains on sales of assets.
Favorable items may include the positive resolution of contractual matters, cost recoveries on severance and restructuring, insurance recoveries and gains on sales of assets.
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.
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.
Acquired intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment testing or more frequently if events or change in circumstance indicate that it is more likely than not that the asset is impaired.
Additionally, acquired intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment testing or more frequently if events or change in circumstance indicate that it is more likely than not that the asset is impaired.
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, sea and air-based mission and combat systems, command and control mission solutions, cyber solutions, and simulation and training solutions.
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.
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 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.
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.
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, 2022.
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.
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 2022 and those planned for 2023 are for equipment, facilities infrastructure and information technology.
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.
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, 2022.
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.
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, 2022 and 2021.
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.
See Item 1A - Risk Factors for a discussion of risks related to international sales. In 2022, 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.
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.
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 2022, international customers accounted for 31% of MFC’s net sales.
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.
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 2022, we performed our annual goodwill impairment test for each of our reporting units.
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.
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 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
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.
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 working capital, long term business plans and recent operating performance.
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 Table of Contents working capital, long term business plans and recent operating performance.
The amounts above in the table represent the portion of expected capital expenditures to be incurred in 2023 and beyond that have been obligated under contracts as of December 31, 2022 and not necessarily total capital expenditures for future periods.
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.
If the 5.25% discount rate at December 31, 2022 that was used to compute the expected 2023 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 2023 would change approximately $5 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.
To the extent we have entered into purchase or other obligations at December 31, 2022 that also satisfy offset agreements, those amounts are included in the contractual commitments table above.
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.
We accomplish this in part by our independent research and development activities and through acquisition, divestiture and internal realignment activities. 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 accomplish this in part by our independent research and development activities and through acquisition, divestiture and internal realignment activities. 29 Table of Contents 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.
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 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.
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 Table of Contents 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.
Severance and other charges During the fourth quarter of 2022, we recorded charges totaling $100 million ($79 million, or $0.31 per share, after-tax) that relate to actions at our RMS business segment, which include severance costs for reduction of positions and asset impairment charges.
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.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 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, 2021 filed with the SEC on January 25, 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.
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 $53.7 billion related to contractual commitments entered into as a result of contracts we have with our U.S. Government customers. The U.S.
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.
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 38% of the sales we recorded in 2022, as we are authorized to bill as the costs are incurred.
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 change of plus or minus 25 basis points in the 5.25% discount rate assumption at December 31, 2022, 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 2022 by approximately $800 million, which would result in an after-tax increase or decrease in stockholders’ equity at the end of the year of approximately $600 million.
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.
We recovered $1.8 billion in 2022 and $2.1 billion in 2021 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 $4.3 billion and $7.0 billion at December 31, 2022 and 2021.
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.
Unfavorable items may include the adverse resolution of contractual matters; COVID-19 impacts or supply chain disruptions; restructuring charges (except for significant severance actions, which are excluded from segment operating results); reserves for disputes; certain asset impairments; and losses on sales of certain assets.
Unfavorable items may include the adverse resolution of contractual matters; supply chain disruptions; restructuring charges (except for significant severance actions, which are excluded from segment operating results); reserves for disputes; certain asset impairments; and losses on sales of certain assets.
Unfavorable items may include the adverse resolution of contractual matters; COVID-19 impacts or supply chain disruptions; restructuring charges (except for significant severance actions, which are excluded from segment operating results); reserves for disputes; certain asset impairments; and losses on sales of certain assets.
Unfavorable items may include the adverse resolution of contractual matters; supply chain disruptions; restructuring charges (except for significant severance actions, which are excluded from segment operating results); reserves for disputes; certain asset impairments; and losses on sales of certain assets.
Our federal and foreign income tax payments, net of refunds, were $1.6 billion in 2022, compared to $1.4 billion in 2021. 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 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.
The qualified defined benefit pension plans for salaried employees are fully frozen effective January 1, 2020 and our salaried employees participate in an enhanced defined contribution retirement savings plan.
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.
Every 100 basis points increase (decrease) in return during 2022 between our actual rate of return of approximately (18)% and our expected long-term rate of return increased (decreased) 2023 expected FAS pension income by approximately $10 million. Funding Considerations We made no contributions in 2022 and 2021 to our qualified defined benefit pension plans.
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.
If the 6.50% expected long-term rate of return on plan assets assumption at December 31, 2022 that was used to compute the expected 2023 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 2023 would be higher or lower by approximately $65 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 Table of Contents pension income projected for 2024 would be higher or lower by approximately $60 million.
Offset programs usually extend over several years and may provide for penalties, estimated at approximately $1.8 billion at December 31, 2022, 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.
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.
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 2022, 73% of our $66.0 billion in net sales were from the U.S.
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.
In 2022, international customers accounted for 28% 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.
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.
See “ Note 10 – Debt ” included in our Notes to Consolidated Financial Statements for more information on our long-term debt and revolving credit facilities. 47 Table o f C ontents We actively seek to finance our business in a manner that preserves financial flexibility while minimizing borrowing costs to the extent practicable.
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.
Funded backlog was approximately $95.5 billion at December 31, 2022, as compared to $88.5 billion at December 31, 2021. 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 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.
Space’s major programs include the Trident II D5 Fleet Ballistic Missile (FBM), Orion Multi-Purpose Crew Vehicle (Orion), Space Based Infrared System (SBIRS) and Next Generation Overhead Persistent Infrared (Next Gen OPIR) system, Global Positioning System (GPS) III, hypersonics programs and Next Generation Interceptor (NGI).
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).
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 or decides to withhold payments on our billings.
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.
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, of which the first four were awarded in 2022. Commercial aircraft are sold to international customers to support search and rescue missions as well as VIP and offshore oil and gas transportation.
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 Table of Contents Commercial aircraft are sold to international customers to support search and rescue missions as well as VIP and offshore oil and gas transportation.
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 $150.0 billion and $135.4 billion at December 31, 2022 and 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.
We utilized a single weighted average discount rate of 5.25% when calculating our benefit obligations related to our retiree medical and life insurance plans at December 31, 2022, compared to 2.75% at December 31, 2021.
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.
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 49 Table o f C ontents ventures that we do not control and may involve products and services that are dissimilar to our business activities.
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 Table of Contents ventures that we do not control and may involve products and services that are dissimilar to our business activities.
We paid quarterly dividends of $2.80 per share during each of the first three quarters of 2022 and $3.00 per share during the fourth quarter of 2022. We paid quarterly dividends of $2.60 per share during each of the first three quarters of 2021 and $2.80 per share during the fourth quarter of 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.
At December 31, 2022, the notional value of remaining obligations under our outstanding offset agreements totaled approximately $16.1 billion, which primarily relate to our Aeronautics, MFC and RMS business segments, most of which extend through 2044.
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.
The following table reconciles net cash provided by operating activities to free cash flow (in millions): 2022 2021 2020 Cash from operations $ 7,802 $ 9,221 $ 8,183 Capital expenditures (1,670) (1,522) (1,766) Free cash flow $ 6,132 $ 7,699 $ 6,417 Investing Activities Cash flows related to investing activities primarily include capital expenditures and payments for acquisitions and divestitures of businesses and investments.
The following table reconciles net cash provided by operating activities to free cash flow (in millions): 2023 2022 2021 Cash from operations $ 7,920 $ 7,802 $ 9,221 Capital expenditures (1,691) (1,670) (1,522) Free cash flow $ 6,229 $ 6,132 $ 7,699 Investing Activities Cash flows related to investing activities primarily include capital expenditures and payments for acquisitions and divestitures of businesses and 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 46 Table o f C ontents repayment of maturing debt and pension contributions.
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.
We are currently performing on multiple hypersonic programs and following the successful completion of ongoing testing and evaluation activity, multiple programs are expected to enter early production phases between 2023 and 2026.
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.
Our outstanding debt, net of unamortized discounts and issuance costs, was $15.5 billion as of December 31, 2022 and is in the form of publicly-issued notes that bear interest at fixed rates. As of December 31, 2022, we were in compliance with all covenants contained in our debt and credit agreements.
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.
In addition, 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 45 Table o f C ontents opportunities when they arise.
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.
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 $1.3 billion in 2022, compared to $1.8 billion in 2021.
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.
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 2022, we performed our annual impairment test, and the results of that test indicated no impairment existed.
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.
The increase in the discount rate from December 31, 2021 to December 31, 2022 resulted in a decrease in the projected benefit obligations of our qualified defined benefit pension plans of approximately $10.2 billion at December 31, 2022. We utilized an expected long-term rate of return on plan assets of 6.50% at both December 31, 2022 and December 31, 2021.
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.
Profit booking rates may increase during the performance of the contract if we successfully retire risks related to the technical, 40 Table o f C ontents 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.
Profit booking rates may increase during the performance of the contract if we successfully retire risks related to the technical, 38 Table of Contents 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.
During 2022, we paid $7.9 billion to repurchase 18.3 million shares of our common stock. See “Note 12 – Stockholders’ Equity” included in our Notes to Consolidated Financial Statements for additional information. During 2021, we paid $4.1 billion to repurchase 11.7 million shares of our common stock.
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 any particular quarter, such uncertainties may be resolved, allowing us to estimate and recognize the initial liability to 55 Table o f C ontents remediate a particular former operating site. The amount of the liability could be material.
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.
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. 57 Table o f C ontents
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.
See “Note 11 – Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements for additional information. Other Non-operating (Expense) Income, Net Other non-operating (expense) income, net primarily includes gains or losses related to changes in the fair value of mark-to-market investments.
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.
Backlog At December 31, 2022, our backlog was $150.0 billion compared with $135.4 billion at December 31, 2021. Backlog is converted into sales in future periods as work is performed or deliveries are made.
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.
At December 31, 2022, third-party guarantees totaled $904 million, of which approximately 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.
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.
We anticipate annual deliveries of 156 aircraft in 2025 and for the foreseeable future. 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.
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.
In 2022, approximately 74% of our sales to international customers were FMS and about 26% were DCS. Additionally, in 2022, 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 2022.
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.
Accordingly, such amounts are included in the discussion of our business segment results of operations. 34 Table o f C ontents Net Sales We generate sales from the delivery of products and services to our customers.
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.
As a result, to the extent that CAS pension cost exceeds the service cost component of FAS pension (expense) income, we have a favorable FAS/CAS pension operating adjustment. 39 Table o f C ontents The total FAS/CAS pension adjustments, including the service and non-service cost components of FAS pension (expense) income for our qualified defined benefit pension plans, were as follows (in millions): 2022 2021 2020 Total FAS (expense) income and CAS cost FAS pension (expense) income $ (1,058) $ (1,398) $ 118 Less: CAS pension cost 1,796 2,066 1,977 Total FAS/CAS pension adjustment $ 738 $ 668 $ 2,095 Service and non-service cost reconciliation FAS pension service cost $ (87) $ (106) $ (101) Less: CAS pension cost 1,796 2,066 1,977 Total FAS/CAS pension operating adjustment 1,709 1,960 1,876 Non-service FAS pension (expense) income (971) (1,292) 219 Total FAS/CAS pension adjustment $ 738 $ 668 $ 2,095 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.
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 Table of Contents 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) $ 378 $ (1,058) $ (1,398) Less: CAS pension cost 1,725 1,796 2,066 Total FAS/CAS pension adjustment $ 2,103 $ 738 $ 668 Service and non-service cost reconciliation FAS pension service cost $ (65) $ (87) $ (106) Less: CAS pension cost 1,725 1,796 2,066 Total FAS/CAS pension operating adjustment 1,660 1,709 1,960 Non-service FAS pension income (expense) 443 (971) (1,292) Total FAS/CAS pension adjustment $ 2,103 $ 738 $ 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.
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.
Future transactions could result in a noncash settlement charge to earnings, which could be material to a reporting period. 47 Table of Contents 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.
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.
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.
Our stockholders’ equity has been reduced cumulatively by $7.9 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.
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.
RMS’ major programs include Aegis Combat System, Littoral Combat Ship (LCS), Multi-Mission Surface Combatant (MMSC), Black Hawk and Seahawk helicopters, CH-53K King Stallion heavy lift helicopter, Combat Rescue Helicopter (CRH), VH-92A helicopter, and the C2BMC program. On December 5, 2022, the U.S.
RMS’ major programs include Aegis Combat System, Littoral Combat Ship (LCS), Multi-Mission Surface Combatant (MMSC), Black Hawk and Seahawk helicopters, 40 Table of Contents CH-53K King Stallion heavy lift helicopter, Combat Rescue Helicopter (CRH), VH-92A helicopter, and the C2BMC program.
CAS govern the extent to 54 Table o f C ontents 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.
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.
Our consolidated net sales were as follows (in millions): 2022 2021 2020 Products $ 55,466 $ 56,435 $ 54,928 % of total net sales 84.1 % 84.2 % 84.0 % Services 10,518 10,609 10,470 % of total net sales 15.9 % 15.8 % 16.0 % Total net sales $ 65,984 $ 67,044 $ 65,398 Substantially all of our contracts are accounted for using the percentage-of-completion cost-to-cost method.
Our consolidated net sales were as follows (in millions): 2023 2022 2021 Products $ 56,265 $ 55,466 $ 56,435 % of total net sales 83.3 % 84.1 % 84.2 % Services 11,306 10,518 10,609 % of total net sales 16.7 % 15.9 % 15.8 % Total net sales $ 67,571 $ 65,984 $ 67,044 Substantially all of our contracts are accounted for using the percentage-of-completion cost-to-cost method.
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. 37 Table o f C ontents Business Segment Results of Operations We operate in four business segments: Aeronautics, MFC, RMS and Space.
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.
Our strategy consists of the design and development of platforms and systems that meet 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.
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 rates for both 2022 and 2021 benefited from tax deductions for foreign derived intangible income, dividends paid to the company's defined contribution plans with an employee stock ownership plan feature, and employee equity awards. Changes in U.S.
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.
Current program challenges include our and our suppliers’ performance (including COVID-19 performance-related challenges), software development, 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.
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.
Net favorable profit booking rate adjustments were $65 million lower in 2022 compared to 2021. Backlog Backlog increased in 2022 compared to 2021 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.
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.
MFC’s major programs include PAC‑3, THAAD, Multiple Launch Rocket System (MLRS), Hellfire, Joint Air-to-Surface Standoff Missile (JASSM), Apache fire control system, Sniper Advanced Targeting Pod (SNIPER ® ), Infrared Search and Track (IRST21 ® ) and Special Operations Forces Global Logistics Support Services (SOF GLSS).
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.
Other Unallocated, Net Other unallocated, net primarily includes the FAS/CAS pension operating adjustment (which represents the difference between 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 investments and liabilities for deferred compensation plans and other corporate costs.
Government and other customers in future periods, which will be included in our operating results. 34 Table of Contents 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.
In September 2021, we repaid $500 million of long-term notes with a fixed interest rate of 3.35% according to their scheduled maturities. Capital Structure, Resources and Other At December 31, 2022, we held cash and cash equivalents of $2.5 billion that were generally available to fund ordinary business operations without significant legal, regulatory, or other restrictions.
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.
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 $95.5 billion at December 31, 2022, as compared to $88.5 billion at December 31, 2021. For backlog related to each of our business segments, see below.
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.
The following table provides a summary of our cash flow information followed by a discussion of the key elements (in millions): 2022 2021 2020 Cash and cash equivalents at beginning of year $ 3,604 $ 3,160 $ 1,514 Operating activities Net earnings 5,732 6,315 6,833 Noncash adjustments 2,455 3,109 1,726 Changes in working capital (733) 9 101 Other, net 348 (212) (477) Net cash provided by operating activities 7,802 9,221 8,183 Net cash used for investing activities (1,789) (1,161) (2,010) Net cash used for financing activities (7,070) (7,616) (4,527) Net change in cash and cash equivalents (1,057) 444 1,646 Cash and cash equivalents at end of year $ 2,547 $ 3,604 $ 3,160 Operating Activities Net cash provided by operating activities decreased $1.4 billion in 2022 compared to 2021.
The following table provides a summary of our cash flow information followed by a discussion of the key elements (in millions): 2023 2022 2021 Cash and cash equivalents at beginning of year $ 2,547 $ 3,604 $ 3,160 Operating activities Net earnings 6,920 5,732 6,315 Noncash adjustments 1,289 2,455 3,109 Changes in working capital 317 (733) 9 Other, net (606) 348 (212) Net cash provided by operating activities 7,920 7,802 9,221 Net cash used for investing activities (1,694) (1,789) (1,161) Net cash used for financing activities (7,331) (7,070) (7,616) Net change in cash and cash equivalents (1,105) (1,057) 444 Cash and cash equivalents at end of year $ 1,442 $ 2,547 $ 3,604 Operating Activities Net cash provided by operating activities increased $118 million in 2023 compared to 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+0 added−4 removed13 unchanged
Biggest changeChanges 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 at December 31, 2022 and 2021 was $1.3 billion and $500 million. The increase in 2022 was designated on the additional debt we issued during the fourth quarter.
Biggest changeChanges 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.
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, 2022. We use derivative instruments principally to reduce our exposure to market risks from changes in foreign currency exchange rates and interest rates.
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.
As of December 31, 2022, investments in the trust totaled $1.6 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.
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.
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 $16.0 billion at December 31, 2022 and the outstanding principal amount was $16.8 billion, excluding unamortized discounts and issuance costs of $1.3 billion.
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.
At December 31, 2022 and 2021, 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).
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).
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, 2022. 58 Table o f C ontents We are exposed to equity market risk through certain marketable securities.
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 Table of Contents
Removed
The aggregate notional amount of our outstanding foreign currency hedges at December 31, 2022 and 2021 was $7.3 billion and $4.0 billion. The increase in 2022 is due to the timing of foreign denominated international contract awards.
Removed
The fair value of these marketable securities was $24 million as of December 31, 2022. A 10% decrease in the market price of our marketable equity securities as of December 31, 2022 would not have a material impact on the carrying amounts of these securities or our consolidated financial statements.
Removed
Many of the same factors that could result in an adverse movement of equity market prices affect our non-marketable equity investments, although we cannot always quantify the impacts directly.
Removed
Financial markets are volatile, which could negatively affect the valuations and prospects of the companies we invest in, their ability to raise additional capital, and the likelihood of our ability to realize value in our investments through liquidity events such as initial public offerings, mergers, and private sales. 59 Table o f C ontents

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